The HCM technology landscape is changing rapidly to accommodate businesses with fewer and fewer employees. Although an increasing number of providers have been heading in that direction for several years, the industry is approaching the first of several tipping points that will result in tech solutions designed for companies of all sizes.
We base this on conversations we had with a number of vendors and HR professionals at this year’s SHRM conference in New Orleans, plus noting the increase in marketing and sales activity by vendors targeting SMBs. We take these as indications that more companies are leveraging lower technology costs to offer sophisticated solutions to organizations with between 400 and 2,500 full-time workers.
While that’s no surprise, we’re also detecting signs of interest in even smaller companies, down to those with fewer than five employees. For our purposes here, we’ll call these “microbusinesses.” While few vendors are actively targeting them yet, look for that to change in the coming years.
Growing Down Market
Many of the today’s HCM tech vendors are relatively young. Some have products that are so narrowly focused, their acquisition by another player is all-but inevitable. Others are focused on serving the needs of organizations they call “small” but still employ hundreds of people. Even established mid-market vendors are lowering their sites as a way to expand their business. Some are considering scaled-down versions of their core products, while others are creating template approaches that allow them to offer features much like what their enterprise products provide.
Now, several vendors who currently target SMBs say they’re studying ways to work with microbusinesses. Though none that we spoke to offered much detail about their efforts, the enthusiasm of small companies for cloud-based products has convinced them they can serve business owners who by necessity must have their fingers in all aspects of their company’s pie, from hiring to operations to compliance. After all, even a storefront owner with three employees has to worry about labor law.
Vendors offering solutions suites—comprehensive packages rather than products based in a single area of HR such as payroll or benefits management—seem to base their thinking on the idea that SMBs’ needs are broadly similar to those of larger companies. Their conclusion: They can serve smaller companies with products that offer less detailed information and less customization, because those customers will happily make the trade-off between features and lower fees. For example, one vendor told us SMBs are more interested in quick data visualizations than sophisticated dashboards. They have no need—or time—to drill down for more detail. Plus, they’re interested in fewer metrics to begin with.
A number of brand-name vendors—such as SAP SuccessFactors, Ultimate Software and Willis Towers Watson—don’t hide their interest in smaller customers, though some are proceeding more cautiously than others. In April, WTW quietly launched HR Trove, an online store offering turn-key products. Broadening its market was firmly in the company’s mind, Karen Salinaro, HR Trove’s product leader, told HCM Technology Report at the time. She described the site as a “new sales channel.” That said, WTW seems to have taken pains to make sure HR Trove is positioned as a standalone brand, not a component of its parent’s traditional products and services.
Vendors who haven’t announced products are, for the most part, keeping their plans close to the vest. “We have a timeline,” was all one would say. Another indicated they were using their core product as the basis for a template approach because “templates help speed implementation and make the whole thing easier for companies with fewer tech resources.”
Driven by Necessity
From a high level, established vendors have no choice but to move down market, one analyst commented. His reasoning: “There’s a long tail of SMBs. The more they get into that market, the more stability they’ll have as a business.”
That’s true, but it also presents bigger players with a new landscape to map, where partnerships and marketing play a greater role than direct sales and immediate customer service may not be economically feasible.
“When you get into the small-business market, you use a more digital approach in marketing,” said an executive at one brand-name vendor. “But we’re also leveraging our partners.” Describing those partners as a “large, informed ecosystem,” the executive said her company was looking to these third parties to take on the sales and demonstration role, as well as some front-line customer support tasks.
Although some larger vendors shy away from the term, this arrangement sounds much like the managed services offerings of telecommunications companies like ShoreTel or the technical-infrastructure arrangements players like Microsoft have with numerous managed services providers around the world.
After selling customers the desired solutions, some of which are on-premise but more of which are cloud-based, these MSPs handle their regular maintenance and operation, including installing upgrades, catching customer service calls and providing a line of communication to the system vendor when it’s appropriate. MSPs frequently argue that their approach saves money in equipment, workforce and support costs by freeing up their client’s staff to handle work that is either more strategic or directly touches the core business.
While that approach has worked well for many SMBs, It’s often less attractive to microbusinesses who need simple tools, offer basic benefits packages and don’t spend a lot of time thinking about formal performance reviews or engagement. In 2014, 4.6 million—or 79 percent—of the 5.8 million U.S. businesses had fewer than 20 employees, according to the Small Business Administration. Of those, 78 percent had fewer than five.
That’s a big market, but its dynamics are very different from what leading HCM tech vendors are used to. Though they’re B2B customers by definition, microbusinesses are extremely price-sensitive and demanding when it comes to things like installation, ease-of-use and support.
They’re also a customer base that’s drawn to technical solutions that are aggressively priced and packaged around the dynamics that go along with running a truly small company—a lack of functional expertise in HR, for example—and backed by reasonable support.
Consider Intuit’s QuickBooks. In 2016, it had 1.5 million subscribers to its $15-per-month online product, the company says. Although the product faces increasing competition, the web site MerchantMaverick estimated QuickBooks had at least 80 percent of the market for small business accounting software in North America.
It’s easy to imagine how the QuickBooks model—which already provides a basic employee-management feature and connects to add-on services that can handle payroll (including taxes) and expenses—could map to HR. QuickBooks doesn’t turn a business owner into an accountant, but it simplifies many of the tasks that go along with managing an organization’s finances, such as invoicing, cash management, paying subcontractors and the like. It also allows accountant access, so a company’s CPA can compile information on their own when they need it.
Already, some companies are working to serve microbusinesses’ HR needs. Zoho People, for example, offers companies with up to five employees a suite of basic HR functions such as attendance management and time tracking for $9 per month. Performance management and other features can be added for additional fees, and more more robust versions for larger companies step up in cost to about $199 per month.
Another firm, EffortlessHR, begins by offering up to two administrators access to forms, a benefits management module and reporting functions for $39 per month, regardless of company headcount. Additional features are offered through upgraded packages at $120 or $235 a month.
Both Zoho People and EffortlessHR seems more basic in their approach than QuickBooks. While we believe it’s inevitable that the number of HR technology solutions designed around the needs of microbusinesses will grow in the coming years, for now the pickings are slim.
Meanwhile, we’re watching for someone to survey the landscape of narrow single-purpose products, even expensive ones, and look for ways to tap into their APIs and create a single-package solution for the little guys. We doubt that will happen anytime soon, but it seems logical that at some point the vendors now focused on the so-called SMB market are going to look downwind again as they try to expand their customer base.
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