You know your company needs to increase efficiency and improve data insights, but you aren’t sure where to begin because, in the world of enterprise software, there are infinite acronyms and even more software options.
Two options that may stand out to you during ERP selection are: enterprise resource planning (ERP) and human capital management (HCM). Upon first glance, these two types of systems might seem fairly similar. Yet, a closer review will reveal key differences that can guide your decision.
Today, we’re here to settle the ERP vs HCM debate. Read on to discover how each system works, the benefits of each and how to choose the best fit for your enterprise strategy.
ERP vs HCM: The Differences
Let’s make one distinction clear: An ERP system is not the same as an HCM system. Ultimately, their intended use sets them apart.
An ERP system is primarily for organizations that need to integrate departments to share data and workflows. It helps teams manage the day-to-day activities that keep their organization afloat, including procurement, accounting, risk management and supply chain management.
On the other hand, an HCM system includes modules designed to automate and simplify human resources functions, such as payroll to time management. These systems streamline the workflows of HR administrators and the employees who use them for self-service.
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In helping the client get its project back on track, one of our primary focus areas was decreasing their customization needs by improving their processes to align with the system's best practices.
The Key Benefits of ERP Systems
Are you considering investing in ERP software? If so, it’s important to understand which organizations can stand to benefit from them the most.
In general, ERP solutions work best in organizations that:
- Are growing quickly and need to automate and scale all their functional areas
- Are using legacy systems and are experiencing pain points in all their functional areas
- Are being forced off their current ERP systems (i.e. SAP’s 2025 deadline)
- Need to focus on the customer experience
- Need to meet strict industry requirements to ensure regulatory compliance
Essentially, an ERP system can increase efficiency across your organization and increase your competitive advantage. As workflows become more streamlined, managers also enjoy improved visibility into every facet of every department.
Keep in mind that an ERP system may still be a good choice for organizations that need HCM functionality. In fact, using the HCM functionality within an ERP system may be more practical than implementing a standalone HCM system and having to integrate it with your existing ERP system or legacy system.
For a list of full ERP systems and niche ERP systems, including HCM systems, check out our Top 10 ERP Software blog post.
The Key Benefits of HCM Systems
Some organizations may benefit more from an HCM system than an ERP system. While ERP vendors may tell you that you need the full enchilada, you may want to ask for the input of an independent ERP consultant.
One of the biggest advantages of HCM systems is the relative affordability. In fact, most HCM implementations carry a lower risk compared to ERP implementations, because they’re smaller investments and affect fewer departments.
In addition, many HCM systems are more robust than the HCM functionality within full ERP systems. This may be helpful if you need to communicate with large, global teams over different time zones and geographies. As a greater number of workforces move entirely to a remote work model, this benefit is becoming even more apparent.
Overall, HCM software has robust functionality for basic functions, like rehiring, reskilling, payroll and performance management. This frees HR and payroll managers from the snares of manual tasks, and employees save time, as well, as they can use employee self-service to instantly access the information they need.
Leveraging the Power of HCM Automation
Most of today’s HCM systems have been in the cloud for years. While many ERP systems are in the cloud, as well, the transition has been more recent, meaning some functionality has not yet moved to the cloud.
That said, many cloud ERP systems lack HCM tools that are robust enough to fully support an HR transformation. Standalone HCM systems, on the other hand, often provide more specialized functionality that can help organizations enable digital transformation and gain competitive advantage.
To learn more about HCM systems, check out our post, What is Human Capital Management Software?
ERP or HCM? The Choice is Yours
As your team considers which solution would be the best fit for your needs, the above distinctions can help guide your decision.
The short answer is that both ERP systems and HCM systems can benefit organizations in different ways. If you need to integrate departments and streamline enterprise-wide workflows, then ERP software may offer the features you need. Conversely, if you’re struggling to keep up with the HR demands of an increasingly remote workforce, you may benefit more from an HCM solution.
Regardless of your choice, it’s essential to develop a comprehensive change management plan to ensure employees embrace the new software solution. We recommend organizations begin the change management process long before selection and implementation.
For guidance and support as you begin ERP selection or ERP implementation, we encourage you to reach out to our team. We have hands-on experience evaluating and implementing HCM systems and ERP systems. Request a free consultation below to speak with our business transformation consultants.