HRIS Software Solutions – Owning vs. Renting

Like many software applications HRIS software solutions can be either owned or rented.  Historically, most HRIS software applications involved a purchase of a license which are based on either the number of users accessing the application, or the number of “active” employees maintained in the application’s database.  The customer pays a one-time license fee and the application is installed on in-house or on-premise servers.  Since the application is “owned” by the customer the software is configurable to their specific needs.  An annual fee is usually charged by the software vendor for on-going maintenance, support and software updates.  The fee is generally charged as a percentage (18-20%) of the initial license fee.

The primary advantage to owning the license is the ability to configure and customize the applications to meet the customer’s specific needs.  If you compare it to home ownership it is like being able to build a “custom” home with the specific type of rooms and amenities the homeowner needs and wants.  The annual maintenance and support fee can be equated to the maintenance a home requires which includes improvements and upgrades over the years.

More recently, with advancements in web browsers and Web 2.0 software, HRIS applications are being offered as Software as a Service (SaaS).  The SaaS application is where many companies and users share the same software applications that has a standard configuration.  The software application and related database reside on servers located in a secure central hosting location.  The applications are accessed by the respective users through browser based software.  Customers pay an initial set-up fee and subscribe to the service on a monthly or annual basis based on the number of employees maintained in the database.  The monthly fee can be compared to “renting” an apartment or home.  Initially, the cost may be less to be able to move into the home but at some point in the future the cost of ownership from renting may exceed the cost of purchasing.  However, renting an application may, in the short-term, be justifiable especially if the customer is smaller and there is uncertainty about the growth of the firm.  Moreover, if the customer’s business is fairly standard and doesn’t require unique processing capabilities, then a SaaS application may meet their needs.

Finally, one additional option for HRIS software solutions is a hybrid whereby the customer purchases and owns the application, but rents the hosting of the application.  This is considered a Licensed/Hosted, or APS, model whereby the software applications are purchased and configured to meet the customer’s specific needs and the software is hosted by the vendor, or a third-party, in a secure facility with back office IT support.  There would be separate fee for hosting as well as the usual annual maintenance and support fees.  For some, this model offers the best of both worlds in that the software is configurable and customizable to the needs of the customer while the back office IT hosting is out-sourced to a third-party.  Since the customer “owns” the software applications, they can choose to bring the hosting “in-house” or “on-premise,” if so desired.

Owning or renting your HRIS software application each has its benefits.  The best choice is the one that allows the customer to meet its needs while maintaining a reasonable cost to benefit ratio.

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