Why You Shouldn’t Sign a 3-Year Contract for an HR System
Are you about to sign a long-term contract for an HR system? Contracts that last for years will often benefit the supplier far more than the customer – the supplier has guaranteed customers and cash flow, yet the customer is locked into a single option whether it suits them in the long run or not, writes
Shandel McAuliffe, Head of Content at Cezanne HR
Five reasons you shouldn’t sign a 3-year contract
1. You don’t get the solution or the price you expected
No matter how thorough you are in researching your new HR system, you often won’t know if the tech is really right for you until you’ve been working with it for a few months, with real data, and real HR processes.
What happens if you get 6 months down the line and realize that the software isn’t what you expected? If you try to address your concerns with your tech provider and can’t resolve them, what recourse do you have if you signed your HR life away for 3 years or more?
Unfortunately, being stuck with what you signed up to isn’t the worst-case scenario. You might also end up having to pay more than originally expected for tech that isn’t right for your particular organization, trying to make a square peg fit into a round hole. At the end of the day, you’re left with a choice of paying exit fees, paying for a system that doesn’t meet your needs, or paying more than originally planned to get the system to work properly for you.
2. You change but the system doesn’t
Three years is a long time in a business’ lifecycle. Your organization might increase or reduce headcount. You might expand globally or choose to close overseas offices to focus on key markets. You may also change the way you operate, with new HR processes to increase efficiencies.
If your leadership team makes the decision to change your organization’s structure or processes, and inflexible HR system might become an unwelcome roadblock – and shine an unfavorable light on HR.
An HR tech provider that doesn’t adjust their charges depending on a headcount and which features you’re using and that locks you in for a number of years, puts you at risk of paying far more than you need to.
3. The rates are no longer competitive
As the economy and the HR software market change, there’s a very real chance that HR systems might become more competitively priced over time. It’s impossible to predict but locking yourself in for three years means you won’t have the option to shop around if prices do come down due to more cost-effective Cloud infrastructures and development platforms.
Inevitably, your business’ HR budget will also change over time. Organizations are constantly looking for cost savings, so locking in a set price for your HR tech for three years will probably be an unpopular decision with procurement and finance teams if the market does become more competitive and better cost options become available. It also doesn’t give you the opportunity to adjust how you want to prioritize your HR spend down the track.
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4. The supplier isn’t keeping their system up to date
When a supplier has customers locked into long contracts, there’s always the risk they will become complacent about keeping their tech up to date. The software market moves quickly so it’s essential that you’re working with a supplier who is staying on top of technological advancements. For example, you will want your HR system to remain compatible with the latest online browsers, and with common programs like Word and Excel.
You may also find that a long-term contract means your supplier is less motivated to listen to and act on your feedback. What commercial incentives do they have to add and adjust features to meet your needs?
In the worst-case scenario, elements of your HR tech solution might stop being supported or developed at all while customers are still under contract. This leaves HR with a rapidly dating system that requires more effort than it warrants. For example, if your processes change in line with current best HR practices, but the system can’t keep up to date with the market, you might end up spending a lot of time on workarounds to achieve your desired outputs. Alternatively, you may end up being ‘encouraged’ to move on to a newer iteration of the product that also doesn’t match your needs.
5. You have other options
Quite simply, why sign a long term contract with an HR tech supplier when you don’t have to? Think twice before you lock yourself in. Contracts that last for years are a legacy from older styles of HR systems. When you work with a modern HR system provider, you have the flexibility to demand much shorter contract times and pricing that goes up and down depending on your headcount.
Learn More: Are HRIS Certifications Worth the Investment for HR Professionals?
