The Virtual HR Department

Cloud computing is making entirely new business models possible. It’s also forcing established companies to move aggressively to keep their customers.

Consider the example of Automatic Data Processing, one of the world’s largest providers of software for managing payrolls and human resources. For years, ADP has offered software that could be said to run “in the cloud”: companies upload information about employees to ADP, and ADP manages it. The company processes paychecks for one in six American workers; it also helps companies maintain databases of job candidates, administer benefits, and track how many hours employees work.

Traditionally, each of those services has operated separately, meaning that employee information stored in one system wasn’t accessible in another. Someone in a corporate HR department would have to enter employee information multiple times because, for example, the benefits program didn’t talk to the time-tracking program. That was inefficient, and it left ADP open to a competitive assault from rivals offering combined services, which are now easier to launch thanks to the flexibility of cloud-based systems. A recent survey of 444 HR managers around the world, by Towers Watson, a consulting firm, found that 54 percent are already running or planning to run some HR functions in the cloud. They have plenty of choices, including offerings from traditional software companies like SAP and Oracle and startups such as Workday.

So in the past few years, ADP has hunkered down to write code for a system that links its disparate HR programs so they all essentially run in the same cloud, with a single online interface to control any or all of the applications. This month ADP formally launched the system, called Vantage. For ADP’s largest customers, “this is going to be our marquee product for the last five years and the next five years,” says Mike Capone, ADP’s CIO.

Yet this is only one way ADP plans to more fully exploit cloud computing. Right now it stores and processes its customers’ information in own data centers—a setup known as a private cloud. “It’s so important to what we do,” Capone says. “We want to own it.” But Capone thinks that in the next five to seven years, the economics and reliability of public clouds—those run by massive providers such as Amazon—will improve to the point that even a company like ADP will hand off the management of its IT infrastructure. “If I was starting my own company today, I would never build my own data center,” he says.

Would ADP customers sleep less soundly if their HR outsourcer outsourced its computing? D.J. Vail, corporate controller for Education Affiliates, an ADP customer with more than 4,000 employees, says it wouldn’t bother him. After all, his company already runs its own software in cloud services. “That’s where the future is headed,” he says. And no matter whose computers ADP is using to deliver online HR services, its contract with Education Affiliates requires ADP to submit to audits of the security and reliability of its technology. “As long as we continue to get our assurances,” Vail says, “then that’s enough comfort.”