"Systems of Record" are the ERP-type systems we rely on to run our business (financials, manufacturing, CRM, HR).  They have to be "correct" and "integrated" so all data is consistent. And they were traditionally designed for people who have no choice but to use them.

"Systems of Engagement" are systems which are used directly by employees for "sticky uses" - like email, collaboration systems, and new social networking and learning systems.  They "engage" employees.

In the world of HR software, the market has steadily evolved from back-office "system of record" type applications ("mainframe green screen") to "system of engagement" apps which are used by employees, recruiters, candidates, managers, and customers. And one way to make sense out of the HR software market is to try to categorize vendors by these two categories.

One of the problems with HR software in general, as I discussed in an earlier blog this week, is that employees don't use it.

We've talked with hundreds of companies who tell us that the  biggest problem with their LMS, performance management, or talent system is that employees just don't use it much.  And when they do they rarely give it the attention it warrants.

HR managers live and by this problem - if no one uses the system then your purchase was a flop. Data is inconsistent, processes are inconsistent, and the whole promise of integrated talent management becomes sub-optimized.

Today we are in the middle of a transition away from "systems of record" toward "systems of engagement." If you look at SAP's new Employee Central or Oracle's Fusion and compare it to older SAP and Oracle applications, it's like night and day. And these systems, which have come a long way, still have not caught systems like Silkroad and Workday.

The Untapped and Tremendous Demand for Systems of Engagement

Here is an amazing statistic.  TowersWatson just surveyed 628 HR organizations and asked them why they would consider Workday. Amazingly enough, 58% stated they would consider Workday because of it's user interface.  (CIO Magazine, Aug 10, 2012)

Fig 1: Why Companies Want Workday

Why is this so astounding?

Because the migration from a traditional ERP solution to Workday is a massive effort - typically taking several years to complete. And much of the ROI is often focused on system consolidation (our research shows this).  Plus while companies believe they will save money, it's not fully proven that this is true yet (you are shifting from capital cost to expense, but you still have to "rent" the software). And Workday, for all its wonderful capabilities, is a system which is not 100% feature-set compatible with other HR systems.  So... while we are huge Workday fans, the decision to switch is a big one.

And what this data shows is that companies are willing to spend millions of dollars of switching costs primarily to improve the user interface.  That is, to create a "system of engagement" not just a "system of record."

What do Systems of Engagement Look Like?

Take a look how HR systems have evolved over the years. The first, labelled "Green Screen," is an old-fashioned 1980s style mainframe HR system (I grew up on these). IBM dictated what they looked like, believe it or not. This is a "system of record."

The second, labelled "Workday" is a modern cloud-based ERP system, Workday. Workday is particularly compelling because it not only graphical, but it uses a "modal" user interface.  More on that below. This is a "system of record" which is designed to be a "system of engagement."

The third I highlight is Silkroad Point. This is an application that "compels" you to use it. It is definitely designed for engagement, and it builds on the modern UI of Facebook and LinkedIn. This is a "system of engagement."

Fig 2:  How HR Systems Interfaces Have Evolved 

  The Benefits of a System of Engagement

Why is this all so important? Because, quite simply, organizations are moving away from a top-down, HR-centric view of people management toward one of agile management and agile business.  (View my IMPACT 2012 keynote for more details.)

We've talked with hundreds of HR systems buyers over the years (and quite a few Workday customers) and what they tell us is that the real ROI of these systems is not the software, it is the introduction of new, streamlined, data-driven processes to hire, manage, engage, and support people.

Why did Microsoft become so big in the 1980s and 1990s?  Because they freed us all up from going to the "steno pool" to get our letters typed - we could do it ourselves.  (Yes, there really was a steno pool - and they used IBM selectric typewriters.)

The HR software market is moving the same way. Originally conceived as systems to help HR managers administer various people practices (even PeopleSoft did this), now HR software is really designed to help employees and managers manage themselves.

Of course HR and leadership still has to design and structure performance appraisal, compensation, recognition, organization structure, roles, and leadership models under which we all work. And these practices must be designed in unique customized ways which reflect your own business.

But once these practices are designed, what software does is "enable people to work better." And this is what Workday and other new HR software companies are doing. The company's name "Workday" was visionary in many ways - it helps people "work" better.

Leighanne Levensaler, the head of strategy at Workday (and a Bersin & Associates alum), put it well when she told me "we aren't building ERP, in the traditional sense.  We are building a new type of business management platform that completely changes the way companies run their businesses from the inside out.” Sounds ambitious, but this is exactly where enterprise software is headed.

This is really what these new "systems of engagement" are all about.

The Importance of UI Design and How it has Changed

Which leads me to a final point. User Interface design has become a central discipline in the enterprise software market. Apple, Google, LinkedIn, Facebook, Twitter, and all the other fast growing apps are "design centric." Even Microsoft has shifted its engineering effort away from "function and feature" to "user design."

In the old days we had mainframe-based interfaces (SAP was designed to work on mainframes) where IBM dictated the size and color of fonts (hence the words "green screen"). Back then every application looked and worked the same.

When PC or Client/Server systems came along it was revolutionary - but during those years Microsoft set the standards. All applications used Microsoft Windows widgets, so they looked and behaved ths same. Different menus of course, but the general pull-down and menu structure was all similar. These designs made computer systems easy to learn, but not much fun to use. And as more and more features were added the cascading menus just became ridiculous.

Modern "design-centric" HR/ERP systems (like Workday, Silkroad Point, Saba PeopleCloud, Taleo, SuccessFactors, Kronos, and many others) are being designed differently. They assume that the user will operate in "modes" - and this "Modal Design" lets the vendor create different "modes of usage" like a video game. The Facebook UI is essentially designed for the "mode" of viewing updates and sharing pictures and information.

One of my colleagues from Sybase is a senior product executive at Kronos.  Last year he showed me the new UI design for their retail-based time and attendance system. It is a modal video game. Very easy to use, very clear, and lots of fun. Their prior system had accumulated so many menus, tabs, and screens that people couldn't use it. Their user engagement has skyrocketed, making it one of the most successful product launches they ever had.

Earlier this year I spent time with some of the new designers at Taleo (now Oracle) and they are using Flipboard as a design paradigm for their people-browser. PeopleFluent's iPad app looks more like Picasa than a corporate application, and it's among the most compelling mobile talent applications on the market. They're winning deals based on the iPad app alone. So enterprise software companies really have to build different modal design for the web, iPad, and iPhone.

If you are a software vendor, now is the time for you to "throw out" your old tab-based design and start over. Companies will flock to these new "systems of engagement" like never before.

If you're a corporate buyer, this is becoming and exciting new world. You will finally be able to find systems which people really like to use.