When you're looking to automate business and human resources functions, ERP (Enterprise Resource Planning) software and HR software are popular solutions.
Both can help HR professionals do important jobs such as managing employee data, performance management, talent management, and tracking employee engagement.
So, what are the key differences between an Enterprise Resource Planning system and an HR system? This article will explain the similarities and differences and help HR professionals figure out which one you need implement.
What is an ERP system?
What are the benefits of an ERP system?
What is an HR system?
What are the types of HR systems?
The differences between ERP and HR systems
Does your business need an ERP or HR system?
An Enterprise Resource Planning (ERP) System is a type of software that integrates and manages a range of business activities.
The acronym ERP was originally created by Gartner in the 1990s. ERP systems grew in popularity in the lead up to year 2000 when worries about the Y2K technology problem encouraged companies to update their systems to ERP.
What does an ERP system do?
An ERP system integrates a range of business processes in one software suite, bringing together data from multiple sources into one source that can provide insights and real-time information.
The business functions that software for Enterprise Resource Planning can bring together include:
- Finance and accounting
- Manufacturing, orders, and project management
- Supply chain management and inventory management
- Human resources / HCM
- Customer relationship management (CRM)
- Product lifecycle management
- Risk management
While at first ERP systems were mostly used by large companies, they now are increasingly used by even small business to manage a range of business processes. Modern ERP systems are often cloud-based and AI-driven, using technologies like blockchain, digital assistants and machine learning.
While on-premises ERPs exist, very few organisations are exclusively seeking these. Indeed, Software Path reported this year that nearly 97% of companies surveyed were considering a cloud ERP solution, while only 3% were specifically looking for an on-premises option.
You might be interested in: Why should I choose cloud software over on-premises?
Cloud ERP software makes it effortless to share databases and insights across multiple departments. All the information is synchronised across different parts of the business and updated in real-time, so there's no risk of duplicated or outdated data.
ERP systems streamline the process of creating business reports and gathering insights. Many have dashboards that can be used to view key metrics about business performance. They also are adaptable and scalable to a business' changing needs.
HR systems (also often called HRMS or Human Resource Management Systems) are systems for storing and processing HR information. HR system is a general term that can encompass integrated, automated software solutions as well as non-automated databases and spreadsheets.
The functions of an HRMS may include:
- Managing and storing employee data
- Analytics, producing visual representations of data
- Time and attendance management
- Processing leave requests
- Training needs and courses
- Recruitment, including automating listings, responses, and candidate tracking
Automated vs non-automated
Increasingly, modern HR software is highly automated and feature self-service adoption. This streamlines HR functions as well as ensuring GDPR compliance regarding personal data.
Cloud-based automated HRMS has the benefit of being far more secure than non-automated systems because it can be constantly updated to stay on top of security and compliance. Moreover, permissions can be set for different employees' access to information.
Self-service HR software allows employees to access and update their own employee information. This empowers employees to be able to do a range of functions including but not limited to:
- Submitting time-off requests
- Updating out-of-date personal information so there are never issues with compensation
- Checking their records about performance and appraisals
- Enrolling in training and development courses
Some HR software, such as XCD's HR solution has adapted to an increasingly mobile-first world by creating a mobile app where employees can access the self-service capabilities with even more ease and flexibility.
With the Covid-19 pandemic causing an increase in hybrid and remote working, meaning that fewer people are in the office, HR software that is easy to access from anywhere in the world is becoming increasingly necessary.
HRIS vs HRMS vs HCM systems
When you read about HR systems online you'll likely encounter a few different acronyms. These are HRIS (Human Resource Information System), HRMS (Human Resource Management System), and HCM (Human Capital Management) systems. These terms are often used interchangeably but each HR system holds different features and functionalities. Here's what these terms mean.
HRIS refers to HR systems which are based around databases and storing employee information. They have capabilities for some HR functions.
HRMS refers to HR systems that can perform more complex functions such as automating HR processes. HRMS is the label we often use to refer to XCD's cloud-based HR software.
Some vendors might instead use the label HCM system to indicate these best-in-class, cloud-based, highly automated HR systems.
However, the way these terms are used differs across vendors and websites, so the easiest way to judge an HR system is to look at its specific features and capabilities.
If you're still unsure about the differences between Human Resource Information Systems, Human Resource Management Systems, and Human Capital Management systems, check out our guide here.
Both ERP and HR systems are systems that integrate many different processes and help businesses function. ERP software has a range of functionalities for business processes, which often includes some core HR functions.
In contrast, an HR system is specifically designed for Human Resources functions such as managing data and assisting with performance management.
Therefore, while ERP solutions have a broader set of capabilities, HR systems which have been built with the needs of Human Resources in mind will often have more advanced features and functionality for HR processes. They are more customisable to meet the specific human resources needs of an organisation's HR department.
If you're still unsure whether your organisation needs to implement an ERP solution or Human Resources software, here are some things to consider:
Increased business functionality
Enterprise Resource Planning manages and reports on the performance of the entire business, from manufacturing to finances to customer relations. ERP software is an all-in-one system, which means it's great for real-time reporting on the performance of the business.
In fact, for companies considering implementing ERP software in the last year, the biggest reason for this was to support the business' growth. In contrast, the biggest reason for implementing an HR solution was to gain greater functionality.
While HR functions do overlap with the capabilities of ERP software, ERP might only have limited HR functionalities for aspects like scheduling and payroll and some employee information.
In contrast, Human Resources professionals can benefit more from the purpose-built HR capabilities of HRIS and HRMS. For example, HR software has more capabilities specifically for functions like employee performance management. These performance management capabilities of HR software can include logging performance information for employee appraisals and automated reminders for managers to set up review meetings with their employees.
Performance management isn't the only area in which HRMS software comes out on top. For example, here are some recruitment, onboarding, and talent management capabilities that some HR software has but ERP usually lacks:
- Automating postings of job advertisements and recruitment
- Automating communications with job applicants
- Keeping track of interviews for applicants
- Comparing candidates using ATS (Applicant Tracking System)
- Streamlining onboarding with customised workflows
- Integrating surveys for new hires and automating reminders to complete them
- Allowing employees to enrol in learning and development opportunities
From recruitment and onboarding to training, evaluations, retention, talent management, and offboarding, HR systems are designed to help with human capital management across the entire employee lifecycle.
So, if you're an HR professional who wants to focus on these things, the tools provided by a HR management software will be invaluable for your work. You might be interested in: How to make performance management perform.
Compared to implementing HR software, implementing ERP software can cause a lot of challenges:
- People don't like change, so implementing a new system for Enterprise Resource Planning company-wide can cause resistance or frustration from employees who need to be re-trained to use it.
- Maintenance costs - even if ERP implementation is relatively cheap at first, the cost of maintaining and upgrading the system might become expensive.
- Hardware requirements and costs (unless you choose a cloud ERP solution.)
- Data transfer issues (according to Technology Evaluation, up to a fifth of ERP implementation issues involve poor data integration.)
Implementing an HR management system is not nearly as disruptive to operations because it has less of an impact on the functioning of other departments. While it still requires data to be transferred and HR teams to train and encourage employees to use it, this does not cause as much disruption to an organisation's overall performance as a complete ERP overhaul.
The cost of a full cloud ERP suite can vary, but they tend to be pretty expensive. One report found that the average budget for ERP per user is now $9,000 or around £6,600, an increase of around $700 from last year.
A specialised HR solution will be much more affordable than ERP, which makes it more cost-effective for small and medium sized businesses.
The sector in which your organisation operates might have a bearing on whether ERP or HR software is more appropriate for your business. For example, it might not make sense for an organisation in the not-for-profit sector to invest in a costly cloud ERP suite, but implementing an HMRS might make a huge difference.