The Many Costs of HR Software Sprawl

As more HR leaders look to emerging technologies as a means of easing growing workloads or better supporting business strategy, many also are falling victim to a related problem: HR “software sprawl” that creates waste, results in unrealized returns from technology investments and undermines the employee experience.

Flawed purchasing decisions and poor governance of existing technologies can often lead to problems such as too many HR software-as-a-service (SaaS) licenses going unused, costly redundancies and data security issues when legacy platforms aren’t decommissioned as new ones come online, and missed opportunities when HR departments can’t take advantage of innovative features in new software releases from technology vendors.

Reining in Technology Appetites

Mark Stelzner, founder and managing principal of IA, an HR advisory firm in Atlanta, says these issues combine to create a form of “technology debt” for HR that threatens to hinder aspirations and acts as a headwind at a time when new technologies such as generative AI promise many game-changing productivity and efficiency benefits.

A 2023 study from Productiv, an SaaS intelligence platform in Palo Alto, Calif., found that 53 percent of SaaS licenses go unused in organizations, creating significant waste and untapped value from software purchases. Stelzner says he recently worked with an organization that examined its software purchasing history and found that over a seven-year period, it never used 50 percent of the software licenses it purchased from existing vendors.

These licenses sit fallow for a number of reasons, Stelzner says. One is that technology vendors increasingly incentivize HR leaders to buy “bundles” of modules and capabilities on technology platforms rather than purchasing them a la carte by individual feature.

“There’s often financial motivation for HR to purchase modules far ahead of their readiness for deployment,” Stelzner says. “As a result, many HR functions end up with more licenses than their organization can absorb in real time.”

In other cases, HR leaders simply become enamored with the “shiny new thing,” or have a fear of missing out on emerging technologies, contributing to the proliferation of applications in companies. The Productiv study found that large organizations now have an average of 371 SaaS applications, an increase of 32 percent from 2021.

“Most organizations also now have anywhere from 15 to 50 different HR technologies,” Stelzner says. “And the release cycles for SaaS updates on those different platforms are not synchronized by any stretch, so HR functions are being constantly bombarded with new capabilities.” Few organizations are therefore structured to capitalize on continuing innovations that HR technology providers make in their software products, Stelzner says.

At the same time as they’re adding new platforms or applications, many HR functions are slow to decommission the old systems that those new technologies are designed to replace. Stelzner worked with a global organization of 65,000 employees whose rationale for investing in new HR technology platforms was based in large part on decommissioning more than 350 existing systems and reducing the number of full-time employees supporting those systems by about 30.

“What we found instead in the aftermath of the investments was that no systems had been decommissioned, and in fact 20 new systems had been purchased,” Stelzner says. “The company also had doubled its staff in support of HR technology systems.”

A Governance Issue

Another factor driving HR software sprawl and this growing technology debt is flawed governance of existing technology systems. Stacia Garr, co-founder and principal analyst of RedThread Research, an HR research and advisory firm in Woodside, Calif., says that while questionable buying decisions contribute to the problem, governance is the bigger issue.

“For example, there are often ‘shadow’ systems both within HR and outside of it, technology that has been bought without any coordination with a central body,” Garr says.

But the answer to that problem isn’t always to require strict, centralized approval of every HR technology purchase, Garr explains. “That would stifle experimentation and innovation,” she says. “Instead, organizations should have a two-track strategy of pilots and experimentation, with some tech on one track, which can be decentralized, and then bigger, managed and centrally aligned tech investments where the use cases have been proven.”

The problem of ungoverned shadow systems increasingly applies to AI, where more employees are using generative AI tools such as OpenAI’s ChatGPT or Google’s Bard without formal approval or oversight from their organizations. A 2023 study by corporate social networking platform Fishbowl found that 70 percent of respondents hadn’t told their bosses they were using ChatGPT at work.

Experts say the shadow use of AI by employees can lead to problems such as introducing bias to recruiting, performance management or succession management processes, since algorithms are used in those cases without oversight or evaluation from a central body.

Some technology vendors are addressing that problem by developing tools that can track AI use in organizations. ActivTrak, for example, recently introduced a tool that automatically detects and classifies the use of AI tools and websites to help organizations better manage use of the technology. The enhanced visibility is designed to uncover trends and patterns of employee AI use, according to a spokesperson for Austin, Texas-based ActivTrak, as well as mitigate security risks by detecting the use of unauthorized AI tools.

Needed: Better Tech-Buying Decisions

The origin of software sprawl and diminished return on technology investments also can be traced further upstream, to the buying process. A recent study of 500 HR leaders by Gartner found that 83 percent regretted a recent HR technology-buying decision. John Kostoulas, a vice president and analyst with Gartner who specializes in HR technologies, called that finding “mind-blowing” and says Gartner’s research has uncovered other concerning practices in HR’s technology-purchasing strategies.

Additional, broader research has produced similar findings. According to a 2023 study by software review firm Capterra, almost 60 percent of U.S. businesses regret at least one of the software purchases they’ve made in the last 12 to 18 months. And a recent joint study from the Boston Consulting Group and the World Federation of People Management Associations found that just 35 percent of HR professionals believe their functions are using relevant digital technologies.

Kostoulas believes many HR buyers need to do a better job of linking their technology-purchasing decisions to high-priority business and talent needs.

“One of the loose ends we see is failure to tie talent or business outcomes to HR technology selection and technology road maps,” he says. “Very often we see organizations wanting to invest in HR technologies simply because their peers are investing, without seeking to solve a specific business problem in their own companies. Our surveys show many HR leaders have a fear of missing out if they don’t invest in emerging technologies like generative AI.”

The lack of a cohesive and disciplined approach to technology purchases leads to piecemeal investments in HR technology, Kostoulas says, contributing to SaaS sprawl, disassociated touchpoints in technology ecosystems and other problems.

“The reality is when you have too much fragmentation in your HR technology portfolio, you end up with disjointed solutions that undermine the employee experience and create little business value,” he says.

Ben Eubanks, chief research officer with Lighthouse Research, an HR advisory and research firm in Huntsville, Ala., says some organizations seek to cure the problem of technology fragmentation by employing vendors who provide an “overlay” solution on top of aging legacy HR systems. These vendors, two examples being Applaud and Skuid, unify and modernize what can be disjointed systems by providing a new front-end interface without disrupting employee systems of record.

“These tools hook into existing HR tech systems and serve as a front end so employers don’t have to leave the providers they’re on,” Eubanks says.

Experts say issues also can arise when HR hasn’t educated itself about the details of vendor contracts or is left out of the loop during technology-buying decisions.

“Sometimes we find HR isn’t aware of the terms associated with things like SaaS contract renewals,” Stelzner says. “Organizations can be placed in an untenable position when they’re not aware of, for example, a requirement that if they don’t give 180-day notice, a SaaS contract will simply auto-renew. Before you know it, HR has duplicative systems and finds itself in these continuous year-over-year agreements with vendors.”

Data Security Issues

Issues such as unused HR software licenses and legacy technologies that operate only in the background not only create waste and missed opportunities for productivity or efficiency improvements—they can also lead to data security problems. The Productiv study found that 77 percent of IT professionals believe SaaS sprawl is creating new security risks.

The likelihood of such risks rises when technology systems aren’t being actively used or managed, Garr says.

“However, it’s important to remember that even if you have the most tightly managed process for technology acquisition and decommissioning, you can still have security risks due to what happens outside of your organization,” Garr says. “Having a zero-trust security approach is the best way to go, so as to limit security concerns, including for products that are not being actively managed.”

Clarifying Roles and Ensuring Accountability

Remedying problems with unused licenses, redundant systems and data security is also a matter of ensuring that roles for governing HR technology systems are clear and people are accountable for fulfilling their responsibilities.

“The organization needs to know who is accountable for what and have clear line of sight on it,” Stelzner says. “Who is controlling for testing, who is accountable for execution and integration, who oversees change management, who is tracking the vendor community and its new product releases? It’s typically a combination of capability and capacity that determines HR technology outcomes.”

Ultimately, experts say many HR leaders also have to become more accountable for the projections and promises they make about how HR technology investments will impact the organization.

“Too often there isn’t a systematic approach to look back and say, ‘Did we actually achieve our ambitions?’ ” Stelzner says. “HR loses credibility by not holding itself accountable and responsible for what it solicits in terms of precious capital from the organization.”

Dave Zielinski is a ­freelance business ­journalist in Minneapolis.