Tomorrow's Bottleneck? The Evolving Role of Systems of Record in HR: How GenAI is Redefining the Data Foundation

For years, systems of record like Workday HR, SAP SuccessFactors Employee Central, or the legacy SAP HCM master data management have been cornerstones of HR operations. They provided the necessary structure for managing employee data, ensuring compliance, and optimizing with a solid data foundation standard processes such as payroll, recruiting, or organizational reporting. These systems have enabled organizations to scale their HR operations with consistency and accuracy, ensuring that critical employee information was well-managed and secure.

However, with the rise of Generative AI (GenAI), the role of traditional HR Core systems is undergoing a significant shift. Discussions are even emerging about abandoning these solutions, as seen in Klarna’s bold move away from Workday. The reality is that GenAI brings a level of intelligence and adaptability that these legacy systems were never designed to handle. Contrary to some beliefs, this does not mean that GenAI-based applications are now replacing HR Core applications. Instead, the introduction of GenAI is augmenting the structured foundations provided by systems of record, offering new levels of flexibility, real-time insights, and personalization. These enhancements are not replacing the system of record’s core functions but are transforming how HR interacts with and leverages these systems.

The Glue: Understanding the Core Role of Systems of Record

At their essence, systems of record like SuccessFactors Employee Central or Workday HR have always been about maintaining consistency and reliability in HR processes. They manage what is known as HR Master Data - employee information like names, addresses, compensation, organizational roles, and reporting structures. These systems are designed to ensure that this data remains accurate and, at the same time, compliant with internal policies and external regulations like GDPR.

Real-time access to HR Master Data is essential for enabling workflows both inside and outside HR. These data must be instantly accessible and not delayed by processes like monthly payroll runs or batch updates. Workforce planning, operational adjustments, and critical workflows like identity and access management (IAM) depend on this up-to-date information. For example, when a new employee is hired, or an employee leaves, immediate updates are needed to grant or revoke system access, prevent security risks, and ensure smooth onboarding or offboarding. Delays in updating this data can lead to serious security gaps or workflow breakdowns, impacting productivity and compliance.

In traditional HR processes, the system of record handles all these critical updates, ensuring that changes - whether an employee’s address or a new job role - are reflected accurately across payroll, time management, benefits, and organizational structures. The role of the system of record is to maintain structure, ensuring that no essential information is lost and that all departments have access to the latest, most accurate workforce data. This foundational role remains essential, even as GenAI begins to transform how data is used and managed.

The New Normal: What is Changing with GenAI?

GenAI is not replacing the current HR core solution with a GenAI-based application but is instead adding a layer of intelligence that makes HR processes more dynamic, intuitive, and context-aware. The relationship between GenAI and systems of record is symbiotic: GenAI enhances the experience by providing real-time insights and automating decision-making, while the system of record ensures that these insights are grounded in accurate, compliant data.

Take, for example, the process of updating an address. In a traditional system of record, this task is relatively straightforward. The employee logs in, updates their information, and the system ensures that all related processes are adjusted accordingly. However, with GenAI, this process becomes much more powerful. The AI can detect if the new address is in a different tax jurisdiction and automatically recommend any necessary updates to the employee’s payroll-relevant data or benefits. It could also provide proactive notifications to the employee, reminding them to update any other information that might be impacted, such as emergency contacts or commuting benefits. It is not even required to enter the data; the employee can simply take a picture of the registration certificate.

The change of address is still rooted in the Master Data managed by the system of record. Still, GenAI adds a layer of responsiveness, making the process more intuitive and ensuring that all potential impacts are addressed in real time. This not only reduces errors but also makes the experience much smoother for both the employee and HR.

Another example is internal mobility. Traditionally, when an employee moves to a new role within the company, the system of record updates their title, their reporting structure, and their compensation details. This ensures that organizational charts are accurate and that the employee’s new manager is reflected correctly in all HR systems. However, this process is largely static.

With GenAI, internal mobility becomes a much more dynamic process. As the employee takes on their new role, GenAI can automatically generate personalized learning and development resources tailored to the specific demands of the position. It can recommend key stakeholders for the employee to connect with based on their new responsibilities, and it can even suggest mentors who have held similar roles in the past. GenAI might also flag key performance metrics that will be important in this new role and provide real-time feedback to both the employee and their manager as they transition into their new responsibilities.

In this scenario, the core structure remains intact - the system of record still governs the data related to the employee’s role, reporting line, and compensation. However, GenAI enhances the process by providing real-time, personalized recommendations that help employees succeed in their new roles. This is not about replacing the current HR core solution with a GenAI-based application but rather making the current system smarter and more adaptive.

Adapt or Get Out of the Way: What Happens If Systems of Record Don’t Adapt?

It is important to acknowledge that if the HR Core systems do not follow this new AI-enabled approach, they risk becoming bottlenecks rather than enablers. If HR systems of record remain static while other parts of the organization adopt AI-enabled workflows, these systems will become detached from the core processes. Instead of adding value, they will introduce friction and inefficiency into the organization.

Historically, we’ve seen a similar challenge with the introduction of E-HR Self Services. When Employee Self Services (ESS) and Manager Self Services (MSS) became popular, established platforms like SAP HCM were not originally designed to support this type of user-centric interaction. As a result, these services were often added "on the side" as supplementary features, typically with an additional fee. However, they were frequently built on separate technical stacks, creating integration challenges with the core system. This architectural disconnect made it difficult to align Self Services with the broader IT operating model, leading to inefficiencies and additional efforts to synchronize data, processes, and operations between the old and new components.

In the current era of GenAI, we are witnessing a similar dynamic with platforms like SAP SuccessFactors and Workday. While these platforms are rolling out AI-powered features, many of these offerings are commodities - standardized tools that, though functional, fail to provide a strategic edge. If organizations focus solely on deploying these built-in AI capabilities, they risk stagnating in terms of innovation. To stay competitive, it’s far more critical for companies to evaluate whether they have access to a state-of-the-art GenAI platform that can be customized and scaled to address their specific needs.

Essentially, a system of record that fails to evolve with AI will be pushed to the periphery, becoming an impediment to more efficient, streamlined HR processes. Looking ahead, the decision is clear: either adapt these systems of record to work with advanced GenAI technologies or prepare for them to be relegated to the background, limiting the organization’s ability to compete in a rapidly evolving digital landscape inside and outside HR.

Think Big: Thinking Beyond Core HR Processes for Maximum Impact

Furthermore, to truly unlock GenAI's potential in HR, organizations must be willing to think beyond the HR data maintaining processes. Simply automating existing tasks, like updating addresses or switching bank accounts, will deliver some improvements in efficiency, but it is not enough. To achieve significant productivity gains, HR teams must expand their thinking to include processes that have historically been outside the scope of traditional systems of record.

For example, beyond the core Master Data tasks, HR can leverage GenAI to reshape talent acquisition by analyzing external data sources like LinkedIn profiles or industry trends to identify candidates who may not have applied but are a perfect fit for open roles. Or, GenAI can be used to identify patterns of disengagement or burnout by analyzing communication data, offering the organization proactive insights into workforce well-being before problems escalate.

By thinking beyond the core, HR can leverage GenAI to uncover new areas for innovation, driving productivity gains that would otherwise remain untapped. If organizations fail to think this way, they risk limiting the scope of GenAI’s impact and missing out on the true potential of this technology to revolutionize the way HR operates.

Play it again, Sam: A New HR Tech Strategy for a GenAI-Driven World

The future of HR is not about choosing between structure and flexibility - it’s about combining the best of both. Systems of record will continue to play a critical role in managing HR Master Data, ensuring compliance, and maintaining the structural integrity of HR processes. However, as GenAI becomes more integrated into these systems, it will enable organizations to operate with greater agility, intelligence, and personalization.

Processes like changing an address, switching bank accounts, or transitioning to a new role are not about replacing current HR core systems with GenAI-based applications. Instead, GenAI is enhancing them to become more efficient and responsive. Master Data Management remains the backbone of HR operations, while GenAI provides the tools to make these processes more adaptive, intelligent, and valuable inside and outside HR.

As the pace of GenAI technology accelerates and as new use cases emerge, HR must develop a new HRIT strategy that fully embraces these capabilities. The core HR systems will play a central role in this strategy, ensuring that the organization maintains data integrity while unlocking the full potential of AI-driven innovation. Those who can integrate GenAI into their HR operations effectively will not only drive efficiency but also gain a strategic advantage in how they manage, engage, and develop their workforce.

This is not about replacing the current HR core solution with a GenAI-based application but rather about evolving HR into a more dynamic, responsive, and insight-driven function - one that balances the stability of structured data with the power of AI-driven flexibility.

Want to find out more about GenAI and its impact on your HRIT strategy? Then, feel free to reach out to me. What is your experience with HR Core processes and Master Data Management in the context of your GenAI implementations? Let us know in the comments below.

? 2024 - Martin Schmidt, Bridgged

#GenAI #HRTech #HRIT #DigitalTransformation #Innovation #SuccessFactors #Workday #HRSystems #MasterData #FutureOfWork #HRStrategy #HRIT