In our meetings with hundreds of clients, prospects, vendors and consultants from all around the world, we come across many challenges, issues, requirements, frustrations and visions that in aggregate, shape the dynamics of the global payroll industry. In this article, we try to distill down the various ideas and concepts from these conversations into the key trends and projections we see for the payroll industry for 2020.
1. Speed of Internationalization is Accelerating
Successful companies have always grown and expanded. As they succeeded in one country, they started to set sights on the next country. Which would trigger the need to set up offices and support employees in the new country. But in the past, companies often spent their first 5-10 years honing their business model in their domestic market before venturing abroad. At that point, they had reached a significant scale and size with fairly mature processes and structures. And they expanded in a fairly gradual manner, maybe opening up offices in 2-3 countries per year.
Nowadays, in our hyper-connected world where communication technology and the internet, in particular, are bridging borders and oceans and creating the so-called “global village”, consumer trends spread like wildfire. A hip new app or a cool new gadget grabs the attention of consumers around the world through the inter-connectivity of social media networks. As a result, successful companies that have launched a highly sought-after product or service are expanding much sooner and faster than ever before. We recently worked with a US-based “unicorn” that was opening up 7-8 new countries every quarter and adding hundreds within just a few months. Needless to say, this kind of international hyper growth creates tremendous stress on the back-office functions that need to support the employees and make sure that the company’s “plumbing” is in place and works: office space is available, HR processes to hire employees have been put in place, and once hired all employees get properly paid. Setting up a fast-scaling payroll model and maintain control over the rapidly expanding global payroll operations is a major challenge for HR/Payroll/Finance professionals and typically requires the help from an experienced international partner who can set up a highly scalable, cookie-cutter model to get new countries up and running in a swift and orderly manner.
2. HCM Transformation Triggers Payroll Change
So for some companies, their fast international expansion itself is the trigger that is creating change and the need for adaptation for payroll. In many other cases, the change is being triggered by a bigger HCM transformation in the organization. Especially in midsize and large multinational companies, HCM transformation and modernization is a very common theme. In our conversations, 8 out of 10 companies with whom we meet are either starting, in the middle of or just completed an HCM transformation. As old local HR systems get replaced with new global solutions, this has a natural “knock-on” effect on Payroll. The expectation in many executive teams – starting with the CHRO and also the CFO – is that everything will get easier with the rollout of one consistent global HR platform. But will it really? As you replace local HR systems with global platforms (e.g. Workday, SAP Successfactors, Oracle, etc.), you need to redefine and rebuild the data transfer between HR and Payroll systems which is often not easy when you deal with a global HR platform that – unlike the local HR system it replaces – is not tailored towards accommodating the specific local needs that exist in each country. This complexity is often significantly underestimated within the client organization, and while many global vendors tout their Workday (and other HCM platform) integrations, we still see a lot of manual data wrangling and intervention behind the scenes.
3. Technology as a Big Enabler
In light of these challenges, it is not surprising that many organizations have high expectations for technology to save the day. And these expectations are certainly not unwarranted. Payroll has been managed in a highly manual manner for much too long. Which is all the more astonishing given that Payroll at its core is a highly repetitive discipline that follows the same underlying steps and applies the same fundamental mechanics every month and every pay cycle. Even today, we find many payroll vendors and their clients still working in very manual, offline ways: Sending emails and file attachments, re-entering data from system to system, updating status offline in spreadsheets, creating siloed pools of data, with no access to real-time insights and data. We call it the “email and spreadsheet jungle”. It is as if online cloud-based platforms, integration tools, RPA, etc. had not been invented yet. So Payroll definitely has a lot of catching up to do, and technology can play a big role in advancing the Payroll industry over the coming years. And it is encouraging to see that customers putting more emphasis and are expecting more from their vendors when it comes to technology.
4. The Robots Are Not Coming (Yet)
So does that mean that Artificial Intelligence (AI) and Machine Learning (ML) will be taking over the payroll world and robots will be replacing all the payroll administrators? Well, while modern, intelligent software has a big role to play to help the payroll world evolve from the “dark ages” of technology, the robots are not taking over just yet. Yes, advances in smart automation are emerging that will help to remove many of the highly repetitive and time-consuming tasks – for example, validating payroll data for accuracy or transposing payroll outputs into consolidated reports. However, in many organizations, it is important to put the foundations in place in a first step. And that means establishing common processes, tools and controls. As long as each country is working in completely different ways and has no common standards and processes, it will be hard for any organization to apply automation in a meaningful and scalable way. So our recommendation to clients consistently is: First get your fundamental processes in order by standardizing and digitizing them across the organization. That needs to be your number one priority. Once you have that common process foundation, now you can start to look for ways to automate your processes. I remember one of the senior partners very vividly making that point to me as a young consultant working at The Boston Consulting Group: “If you try to automate without standardizing your processes first, it is like taking a race car on a dirt road where the bumps and curves haven’t been straighten out. It will just guarantee that you will fly off the road faster.” So will RPA, AI and ML change the world of payroll? Certainly. But at the moment, many organizations need to learn how to walk before running. And standardizing and digitizing their fundamental process to put order and controls around their payroll operations is the first important step.
5. Data is King
Overall, data and analytics is becoming increasingly a competitive asset in any industry. As the management guru Peter Drucker said: “If you can’t measure it, you can’t improve it”. The most successful businesses in the world spend an inordinate amount of effort collecting data and analyzing it in all sorts ways – aided by artificial intelligence to make sense of it – with the goal of making a better business decision, by recognizing trends and behaviours and adjusting their strategies and propositions accordingly. In Payroll – an inherently data-driven function – the wealth of data on which we as payroll people are sitting was for a long time ignored. As long as the payroll was completed accurately and on-time, that was all that mattered. Nowadays, that is changing. By being able to consolidate and correlate payroll data (e.g. employee turnover patterns, absenteeism, overtime patterns, sick leave, expense claims, etc.) better and in more meaningful ways, Payroll can generate important insights for the business leaders. Plus, by digitizing operational processes in Payroll (see above), the function is also able to systematically measure and benchmark its own performance (in terms of productivity, timeliness and quality) and pinpoint areas for improvement. In order to improve the Payroll function overall, we need to start by measuring and tracking things.
We believe it is a great time to be working in Payroll. To quote Bob Dylan “times are a-changing”. Many companies are starting ambitious new projects. Providers are creating more powerful solutions. New business models are emerging creating more transparency and choice. It will be exciting to see what the next year brings to all of us in the Payroll world. One thing is for sure: It will not be boring!