Before Consolidation, More Opportunities for HR to Create Its Own Tool Kit

Toolbox

Just after last October’s HR Technology 2016 conference, Steve Goldberg made the astute observation that “the little guy has arrived.” In a post on Horses for Sources, he noted that it was “just as easy to see meaningful HR Tech innovations in the booths of ‘little guys’ and emerging players as I did in their much larger and more established counterparts.” And, he observed, “no matter how large and well capitalized a solution provider is, it is just impossible to make every functionality area or module in their product portfolio a priority every release cycle, or even every second or third release or enhancement cycle.

HR Technology Tool KitIn January, Deloitte’s Josh Bersin made a similar observation, though he came at it from a different direction: Writing in Forbes, he saw a new wave of consolidation hitting the HCM technology space as bigger players begin to gobble up new companies who are focused “on teams, feedback, continuous performance management, and data-driven recruiting.” During 2016, an estimated $3 billion of venture funding went into companies creating tools to handle everything from performance management to engagement, learning, sourcing and productivity.

There’s no question that cheaper technology, the cloud’s continued incursion into business computing at every level, and vendors, data scientists and HR leaders finally recognizing that analytics and other advanced tools are only useful if HR can actually use them has changed the playing field in HCM technology so that a subject matter expert with a better approach to, say, sourcing, has a real chance of getting their tool built and into the market. And with more emphasis being placed by vendors of all stripes on integration and HR departments gaining a stronger voice in selecting their own tools, these up-and-comers may find that making a sale is easier than it was before if they adhere closely to technical standards and keep their prices reasonable.

Big Companies Want ‘ERP+’

Bersin writes that “almost every major company” he talks with aims for a strategy that involves a cloud-based ERP platform at its core, with additional apps incorporated into them. He also observed that many of these new companies can embed their products into other applications like Outlook, Salesforce and Slack. That means goals can be set and feedback delivered without a separate login, nicely eliminating much of the friction that gets between employees and the HR tools they’re meant to use.

As new companies grow, it’s natural to expect the pace of consolidation will pick up as larger firms buy their way expanding their service offerings. Bersin doesn’t see that happening this year, in part because there needs to be some shaking out among the startups. But another thing to consider is that the availability of these products, some of which offer truly cutting-edge technology for a reasonable, subscription-based price, could increase pressure in HCM technology’s mid-size vendors to offer smaller prospects less expensive and more flexible packages as a path to their own growth.

Goldberg observes that “a large customer and product footprint can also be a double-edged sword. While they logically lead to more robust revenue channels, they also cause a correspondingly larger list of potential enhancements and R+D investments needed to maintain a leadership position across the portfolio, prevent customers from defecting, attack new markets, etc. This allows smaller players, for varying periods of time, to lead the way with innovative solutions that solve fairly specific, often vexing HCM-related business problems.”

That may be a particularly attractive dynamic for companies who employ hundreds, not thousands or tens of thousands. Their HR departments are small, feel more pressure to find solutions quickly, and may be quite content to buy this tool here and that tool there as they’re needed. As some point, packaging these tools cohesively is going to become a challenge for them, and that’s something their leadership should keep in mind.

Image By Per Erik Strandberg