The HR Software Market Reinvents Itself
The $14+ billion marketplace for HR software and platforms is reinventing itself. Fueled by mobile apps, analytics, video, and a focus on team-centric management, we are seeing a disruptive change in the HR software industry. This is a shift investors, buyers, and HR professionals should watch out for.
The story is simple and has repeated itself before. Just as a cottage industry of online recruitment, learning, and performance management vendors disrupted incumbents in the early 2000s (prompting pushing SAP to pay $3.4 Billion for SuccessFactors, Oracle to pay $1.9 Billion for Taleo, and IBM to pay more than $1.1 Billion for Kenexa), a new set of disruptors are doing it again.
The History: From Talent Management Tools to Integrated Talent Management
Let’s look at some history. In the early 2000’s, when organizations were installing licensed HR systems, a cadre of innovative software companies (names like Authoria, Docent, Saba, Softscape, SuccessFactors, and others) built enterprise-class tools to automate talent practices. These systems fell into the categories of applicant tracking systems (ATS), performance management systems (PM) and learning management systems (LMS). Note the use of the word “management” – these tools were focused on automating and managing an enterprise-wide talent processes.
In those days companies typically had installed “core HR” systems (e.g. PeopleSoft, SAP, others) and they often ran payroll in house. Their HR systems were highly customized, complex, difficult to use, and expensive to maintain. Most were built around client/server architectures and often came from mainframe heritage.
In the late 1990s as the “war for talent” increased, companies started to buy up these new talent management systems came to market companies snatched them up, focused on automating the processes of recruiting, performance appraisal, and online learning. The talent management market grew quickly, reaching over $2 billion by 2007, and we saw growth rates of double digits year after year.
This was an exciting, innovative period for buyers and investors. Vendors like Authoria, CornerstoneOnDemand, GeoLearning, Learn.com, Softscape, SumTotal, SuccessFactors, and Taleo were all growing. As the markets of performance, learning, and recruitment emerged, buyers started to realize they wanted all these standalone systems to fit together. This shifted the market from that of “automated talent management to “integrated talent management suites.”
The idea of “integrated talent management” was everywhere. Companies appointed heads of talent management and senior HR and business leaders started reading books on the topic (there are now hundreds of books and courses on corporate talent management). I remember early conversations with HR departments and they said “I thought talent management was for Hollywood.” It went mainstream.
To help people understand all the software tools we (Bersin & Associates) designed “shootouts” of these suites at the HR Technology Conference to help people understand what it might be like for performance management, development planning, and other practices to work together. Vendor vision turned into customer demand, and suddenly every HR vendor needed to build a talent management solution.
As vendors grew, the marketplace consolidated (as it always does). SuccessFactors, the pioneer in performance management, built out its recruiting product and later acquired Plateau (a leading LMS provider). Taleo, the pioneer in recruiting, built its performance management product and later acquired Learn.com. ADP acquired Workscape; Ceridian acquired Dayforce; SumTotal acquired GeoLearning, Pathlore, and Softscape; and Kenexa acquired a series of small providers, later to be acquired by IBM. Every HR software company was either buying another vendor or positioning themselves to be sold.
Through strong sales, marketing, and product leadership a few companies became market leaders: SuccessFactors in performance management; Taleo in recruiting; and CornerstoneOnDemand, Saba and SumTotal in learning.
I credit SuccessFactors as the pioneer of this market at the time. This aggressive company popularized the idea of online performance management and heavily pushed the idea of top-down business-aligned goals. (They called their suite “business execution software”, conjuring up Jack Welch from GE as a spokesperson). Today, of course, this concept is being totally reinvented, but at that time these concepts were everywhere.
The Shift to Cloud and Core HR
As these companies grew and the category of integrated talent management became institutionalized, cloud computing became popular. So these companies (many of which had started with cloud architectures), rapidly pushed the fact that they were easier to implement and manage than traditional HR software. This, of course, meant they started to compete with core HR providers like Oracle/PeopleSoft, SAP, and ADP.
In addition, now that companies were buying an integrated talent suite, they started to ask “why don’t I have an integrated HR suite including core HR and payroll?”
(For those of you not familiar with HR systems, core HRMS and payroll software is dauntingly complex because it has to store all the detailed data about employees, their pay and benefits, compensation history, job history and other essential information. Companies like PeopleSoft, SAP, ADP, and later Workday have invested millions of lines of code in this “system of record” software category.)
Through a bold move by SuccessFactors, this all started to change. SuccessFactors introduced a product called Employee Central – with the vision of building a cloud-based HRMS. This product, which was little more than an employee directory in its early days, was sold as a cloud-based HR system of record, showing buyers that they could now buy all their HR software from one of these smaller talent management companies. This move awakened SAP and Oracle (which now owned PeopleSoft), and later helped pave the way for Workday (which was well along with their product plans) to enter the market. (Cornerstone Link, which was just announced this spring, is a similar move in this direction.)
Over the ensuing 4-5 years the HR software market shifted, and categories of core HR and talent management software collapsed. SAP acquired SuccessFactors and stated its intention to build out an end-to-end cloud-based HRMS, payroll, and talent management suite. Oracle acquired Taleo and SelectMinds, aggressively redesigned PeopleSoft for the cloud, and introduced Oracle HCM. IBM acquired Kenexa (which owned a highly-scalable applicant tracking systems). ADP acquired Workscape; Skillsoft acquired SumTotal (which had previously acquired Softscape, Cybershift, GeoLearning, and MindSolve). And Workday built out its end-to-end solution, expanding its customer base around the world.
Fig 1: Evolution of the HR Software market in the early 2000s
HR in the Cloud: A Transformed Market
While these software companies were combining, the architecture of cloud computing was becoming profound. Initially companies were skeptical and nervous about putting their HR data into the hands of vendors, so they very slowly to the cloud. Over the next few years, as Workday (“built for the cloud”), Oracle, SAP (SuccessFactors), ADP (always was a cloud company), IBM, and others came to market, buyers realized that cloud was the future.
This led to a rapid period of consolidation (from 2011 to today) where buyers decided to replace much of their installed HR systems with one or more of these integrated cloud systems. Since most of the ERP vendors now offered talent management as well as core HR and payroll, nearly every buyer decided to select an ERP vendor for their core. And newer HRMS and payroll vendors like Ultimate Software, Ceridian, Namely, Zenefits, Infor, Sage and others came to market and went after other market segments.
(Chapter four of the 2014 Deloitte Global Human Capital Trends was entitled “Race to the Cloud,” describing how rapidly companies have been replacing standalone HR software with integrated cloud platforms.)
Today: Cloud HR Suites Predominate, but None Are Perfect
While it now looks possible to buy everything from one vendor, none have every talent management feature with the same level of maturity. And the concepts and practices of talent management keep changing, so these bigger software vendors have had their hands full keeping up with all the features customers want.
(Oracle, for example, continues to revamp their LMS strategy; Workday’s recruitment product is still new and they have yet to launch their LMS; SuccessFactors’s original performance management product is challenged by competitors as well.)
Where did the standalone talent management vendors go? Those that were not acquired (Cornerstone, SumTotal, Saba, PeopleFluent, and many others) continue to sell specialized systems, but their market has become smaller: they often sell to smaller companies or focus on coexisting with the ERP providers, hoping they can stay ahead.
Well, all this is starting to change.
Well, all this is starting to change. A new breed of HR software vendors has arrived – a generation of what I would call “people management systems.”
Innovation Arrives Again: Mobile Apps for Teams: Feedback, Video, Goal Alignment, Wellness, and more.
A new cycle of innovation is here.
While all the HR system consolidation and integration has been taking place, businesses have been telling us they have a new set of problems: employee engagement, driving a high performance culture, creating more feedback and development, and creating a more agile, team-centric organization structure.
As I discuss in “The End of Talent Management, while integrated HR systems are a generally good thing (particularly for analytics), companies no longer see “integration” as their biggest business problem. Today our research shows that companies tend to be focused on issues like revamping performance management, building a more agile organization around teams, improving the capabilities of leadership, improving engagement and retention, and creating an employee-centric learning environment. They want to simplify and improve the employee experience, extend their recruitment products onto the social internet, and make HR software much more focused on employee needs.
And there are a number of emerging important HR applications as well: a need to teach the organization how to build and manage teams, facilitate wellness and fitness at work, and provide always-on feedback and pulse engagement surveys.
Almost none of these features were even imagined in the “integrated talent management” tools designed in the early part of the last decade.
Added to this is the fact that today we don’t really use the “web” like we used to. Today people interact with technology through a growing generation of mobile apps. These apps, unlike cloud-based browser applications, can take advantage of location, sounds, and a wide range of new sensors (many of which we will be wearing), making the HR applications of only a few years ago seem old-fashioned and uninteresting. We call this new world of apps, driven by gamification and design thinking, “Digital HR.”
One of our clients, for example, developed a new mobile workforce management application that automatically clocks an employee into a retail location when they walk into a store. Another has developed an onboarding app that continues for the employees’ first 9 months on the job, providing video learning, people to meet, activities to complete, and fun games to participate in throughout their development process.
To be blunt, one could argue that much of the focus on “integrated talent management” over the last 15 years was focused on making HR tools easier for HR people to use, not more useful to employees. Today we want HR technology that delivers a great employee experience and makes our work-life more productive and interesting. We want our HR tools to feel more like Facebook, Twitter, and YouTube and less like training and performance administration.
One of the Digital HR apps we have at Deloitte is called “spaces,” which lets a consultant find a desk or office in any city in the world, find our peers who are located in the same location, and communicate with peers – all through a mobile phone.
This shift from “cloud” to “mobile” is disruptive. Just as vendors struggled (and some failed) to move from licensed software to cloud architectures, so will we see a new breed of mobile apps disrupt many incumbents again. An “all-mobile” HR platform is now possible, and this kind of solution will likely be very different. Video will be embedded in real-time, the apps will use gamification (points, authority credits, challenges), analytics will be embedded through recommendations and suggestions, and the application will behave differently based on our location and even heartbeat.
(I do believe wearables will enter the HR domain quickly, and companies like FitBit, VirginPulse and Limeaid are making this happen today.)
One of our clients recently built an “all-mobile” HR platform which includes vacation planning, employee directory, time tracking, expense management, and virtually everything else their core HR system does. This app is so compelling that more than 20,000 employees downloaded it the first week, making it the most successful HR application the company has ever built.
The look of these apps has radically changed as well, forcing incumbent vendors to rethink their systems. In the old world of applications we had menus, drop downs, tables, panels, and dashboards to help us manage people practices. Today we build apps that let us swipe, pinch, scan, and scroll. Most provide an “activity stream” to show us what other people are doing, they embed video everywhere, and they are graphically stunning and visually exciting.
The mobile experience is slowly “eating” the browser experience: more than 40% of job candidates try to apply through their phones, and more than 60% of all online video is now consumed on mobile devices (Kleiner Perkins Internet Trends). The next generation of corporate learning systems, for example, could look more like BuzzFeed and YouTube and less like a course catalog.)
Think also about the potential for sensors. Our phone knows where we are, how many steps we took, and soon even our voice, heartbeat, and how we feel. (Lots of sleep aid apps now listen to your breathing, for example, and coach you on new positions and techniques to help you sleep).
We recently wrote about the potential for sociometric badges in the article “IoT meets the Quantified Employee.” You can use information about employee tone of voice and motion to understand what causes stress at work, creating a “mood meter” to help you rearrange the office, make meetings better, and identify leadership behaviors that improve engagement. Imagine an employee application that coaches you on management and leadership style, helps you stay relaxed and fit at work, and rates meetings based on their usefulness. All these ideas are now possible.
As this shift accelerates, we can expect incumbent HR vendors to adapt. Oracle, SAP, Workday, ADP, Ceridian, Infor, Ultimate Software, Cornerstone, and most other vendors are now very focused on mobile versions of their platforms. But are they really that different? In many cases, no. In most cases (with some exceptions) they are mobile implementations of the web-based systems they spent hundreds of millions of dollars building. So there is lots of room for innovation.
This, of course, has opened the door for disruptive startups. Today there are hundreds of small companies, many led by technologists who have never worked in HR, building new tools to make work better. Many start with a new idea (ie. Team goal management), and then realize that there is a huge domain of HR experience they need to tap into. They are fresh creative thinkers and they are bringing amazing innovation into the marketplace. Many are not founded by established HR product people, so they are not encumbered by old style application thinking.
Consider the world of recruiting, for example. Many of us who have been in this market for years thought the applicant tracking systems (ATS) market was kind of “done.” Well companies like Greenhouse, Lever, SmartRecruiters, and dozens of others are now reinventing the space from scratch – leveraging integrated social tools, video interview technology, and new tools for referral marketing and analytics to reinvent recruitment platforms. Similar vendors are focused on performance and goal management, learning and skills management, social rewards and recognition, and wellness.
So just like the standalone talent management vendors disrupted the ERP vendors in the early 2000s, and they were later combined into larger companies, the exact same thing is happening again – this time led by mobile-first, young new companies that focus on technologies like feedback, video, integrated analytics, and gaming.
What’s Really New About These Apps?
As I’ve had the opportunity to watch this new market grow, I’ve noticed a clear set of new capabilities these apps typically bring to market.
- Feedback is embedded. Every interaction with these apps lets you give feedback, comments, or suggestions to others. So as management tools, they create a tremendous flow of comments, suggestions, insights, and feedback between people. This data is used for coaching, assessment, skills development, and of course performance management. One of these startups, Zugata, specifically uses feedback for competency management and development purposes.
- They rely on feeds, not panels. In the web-based HR applications we had lots of tabbed panels to find things. These apps built on the user design of Facebook, Instagram, and Twitter. They use vertical feeds to offer vast amounts of real time information to users. This helps make using them dynamic and interesting.
- They use video extensively. All the new learning solutions (including Workday’s new LMS, Oracle’s new LMS, and the new capabilities in SuccessFactors and SumTotal) assume that video-based learning is the “primary media.” New tools like Grovo and Axonify go even further, enabling you to build “microlearning” experiences that tell you just what you want to know.
- Gamification is built in. None of these new systems are games, but they use the concepts of gamification everywhere. BetterWorks has visual cues (a beautiful tree) that tell you how far you are in achieving goals, giving you incentive to use the app more often. Reflektive and others use points and various forms of accumulated credits to encourage you to come back. Globoforce, Limeaid, and VirginPulse and other social recognition tools give you badges and other cues to make using them more rewarding and fun.
- Analytics is built-in. These new tools don’t focus so much on analytics dashboards and reporting tools, rather they use data to suggest or recommend activity in a useful way.
- Behavioral economics has appeared. Rather than tell you “you have a compliance program to finish”, they “suggest” what you should do next. Rather than tell you to “travel less” they show how your travel compares with your peers, for example. These are “nudges” rather than “directives.”
- They are simple. These new apps are not cluttered up with dozens of buttons and options. They try to do one or two things well. They are minimalist in their design and require no training to learn to use.
Who Are These Disruptive New Vendors
My experience studying this marketplace and talking with many of these exciting companies is that they fall into a variety of categories. (And let me warn you, these categories are already starting to merge.) The key categories I see are listed below, with a few of the representative vendors (this is by no means a complete list):
|Employee Engagement and Feedback|
|CultureAmp||Survey and engagement platform.|
|Glint||Survey, engagement, and analytics platform.|
|TinyPulse||Pulse survey, engagement, and performance management platform.|
|CultureIQ||Survey and engagement platform.|
|Kanjoya||Text analytics, survey, and engagement platform.|
|Blackbook HR||Survey and engagement platform.|
|Waggl.it||Pulse survey, feedback, and engagement platform.|
|Thymometrics||Survey and engagement platform.|
|NikoNiko||Pulse mood and engagement platform.|
|Bettercompany.co||Anonymous social network for feedback and communication.|
|Hyphen||App-based employee engagement and feedback.|
|OfficeVibe||Pulse survey, feedback, and engagement platform.|
|Roundpegg||Employee culture and team assessment.|
|Qualtrics||Survey and employee engagement.|
|BetterWorks||Goal and performance management platform.|
|SmallImprovements||Agile performance and goal management platform.|
|Reflektive||Feedback and performance management platform.|
|HighGround||Goal, feedback, recognition, engagement platform.|
|StandOut (TMBC)||Strengths-based performance management.|
|Impraise||Performance and goal management.|
|Workboard||Work, goal, and feedback management system.|
|Slack||Team collaboration system.|
|Trello||Team work sharing and project system.|
|15-5||Team project and process system.|
|Asana||Team profect management system.|
|Basecamp||Team project and document management system.|
|HipChat||Team collaboration system.|
|Globoforce||Global employee recognition platform.|
|TemboSocial||Employee social recognition system.|
|OC Tanner||Employee rewards and recognition.|
|Achievers||Employee rewards and recognition.|
|AnyPerk||Employee perks, rewards, engagement surveys.|
|VirginPulse||Wellness and fitness solution and app.|
|Limeaid||Wellness and fitness system and app.|
|Ceridian Lifeworks||Wellness, fitness, employee recognition.|
|Fitbit||Fitness apps and wearables.|
|Learning Platforms and Tools|
|Grovo||Micro learning content and platform.|
|Fuse||Video learning platform.|
|Axonify||Intelligent micro learning platform.|
|Everwise||Coaching and mentoring platform.|
|Degreed||Content integration and collaboration platform.|
|Pathgather||Content curation and collaboration platform.|
|Cornerstone||LMS and Talent Management platform.|
|SAP and Jam||LMS and video learning platform.|
|Oracle||LMS and video learning platform.|
|SumTotal||LMS and Talent Management platform.|
|Wisetail||Video learning platform.|
|Workday||Video optimized enterprise LMS.|
|Saba||Learning and Talent Management platform.|
|BigThink||Expert-led learning marketplace.|
|NovoEd||MOOC platform and content system.|
|Skillsoft||Video and e-learning content provider.|
|Lynda.com||Video based content provider.|
|Lever.co||Next gen recruitment platform.|
|Greenhouse.io||Next gen recruitment platform.|
|SmartRecruiters||Next gen recruitment platform.|
Convergence of Applications Ahead
Just as the integrated talent management market converged into a set of suites, I see the same thing happening again in the team and app-based HR software market. This time the convergence is even more significant. The big categories coming together are:
- Performance management.
- Engagement and feedback.
- Wellness, fitness.
- Always-on learning.
- Social recognition.
Think about the team-centric work environment of today. You are in a meeting, a team-mate makes a great contribution, you give the person thanks (in the form of feedback) and recognition (in the form of points), the person gets coaching advice from you and others, and when the manager has his “check-in” the social recognition, feedback, and coaching he receives is all available as part of the conversation.
Then, as the individual logs back into his employee app, the system is smart enough to connect him to others with similar interests, shows him videos of experts on the topics in his feedback, and he or she can sign up for developmental training, or even look at open job opportunities based on his or her interest. And along the way the employee wants to maintain his or her fitness and performance so they sign up for walking or step challenges, inviting others from his team.
One client even wants to take these new employee apps and open them up to customers, so customers can provide “feedback” and recognition points directly to employees. Think about the power of this type of performance review!
It’s pretty clear to me, working with all these vendors, that the “wellness” marketplace, which focused primarily on programs to reduce insurance costs, is now starting to converge with the marketplace for employee performance and engagement. In today’s always-on environment, our ability to “stay well” and maintain a fit attitude and frame of mind, has a huge impact on our engagement and performance. And the organization must take responsibility for building a work environment which facilitates and supports fitness: from exercise to food to work environment to management.
Who Are The New Winners?
In the last major wave of talent management software, companies like SuccessFactors, Taleo, and Cornerstone emerged from the crowd as highly valued ($Billion or more) vendors, while others were acquired or remained small. In this market reinvention, the same thing is likely to happen: some of these companies will grow, some will be acquired, and others will remain small or disappear.
Buyers, investors, and potential employees want to know – who will most likely succeed?
My experience in the HR software market shows that it typically takes four things to succeed.
- First, the winning companies need a management team that really understands how to position, market and sell their product. The HR marketplace is enormous – virtually every company of every size has an HR department, so it is highly competitive and complex. Winning vendors know how to position themselves well, they hire strong and relevant sales teams, and their executives focus on one segment, industry, or geography. Over my 38 years in the technology industry, I’ve noticed that sales and marketing always seems to win over the “best product.”
- Second, the winning vendors will have product strategies that are relevant and expansive. Every one of these market categories is rapidly changing, so the winning vendors have to develop a highly engaging product that is very easy to use, while simultaneously being ready to expand into new areas as the category changes. The recruiting market is a perfect example: since the original development of the applicant tracking system, features like video interviewing, interview management, sourcing management, candidate marketing, and dozens of new “sub applications” have emerged. The most innovative and fast-moving vendors have stayed up and continue to be relevant to clients year after year.
- Third, the winning vendors will also have a scalable technology architecture and experience building real mobile apps. The new world of HR tools will be app-based and employee-centric, so the winning providers will be able to scan into ERP-scale data management while embedding analytics, video, gamification, and the other disruptive technologies mentioned earlier.
- Fourth, I believe winning HR vendors have patient, and enduring management teams. The HR marketplace is intriguing and attractive to many new entrants, but my experience shows that companies have to really learn the market and patiently build a strong brand. Customer service, company culture, and passion play a major part of success in this marketplace, so I always evaluate vendors based on the level of passion and commitment by the leadership team.
Even with these four characteristics, these fast-growing companies have lots of work ahead. While their marketplace seems hot and exciting today, most HR buyers are conservative and want to buy from well established companies. Vendors have to be aggressive about growth, because every one of the markets I mentioned above is filled with passionate, high-energy vendors. And the big vendors in the market (Oracle, SAP, Workday, ADP, Ceridian, Cornerstone, etc.) are all very experienced and are likely to acquire established vendors as soon as they reach a certain size.
What Should Incumbent Vendors Do?
The interesting part of this market evolution is what the bigger vendors will do. One can always imagine a scenario where Oracle, SAP, Workday and others actually build everything they need to compete in these new markets. While this sounds reasonable, the “innovators dilemma” always seems to take over: bigger providers rarely innovate as fast as a startup. So we can safely assume that as some of these vendors grow, many will be acquired by the bigger players.
Platform as a Service (PAAS) Strategies
If you accept the fact that the HR technology market is reinventing itself, what should the big incumbent ERP-like vendors do? Can they possibly build all the engagement, wellness, performance, collaboration, and analytics apps everyone needs? The strategy that might makes sense for some of the larger HR technology vendors (any HR software company with $200M or more of revenue) is to build an “app marketplace” or “platform as a service” solution. These companies would expose programming interfaces (API’s) to their platforms and work with selected application vendors as partners.
Two companies are now doing this now: ADP now has its app marketplace, which has more than 100 solutions available. Cornerstone has now released Cornerstone Edge, its open platform to enable smaller vendors to build apps and surrounding applications. Both these vendors have thousands of customers, so any application vendor would do well by joining these marketplaces. Oracle, SAP, and Workday have many technology partners as well, but none have gone quite this far yet. I believe if the market goes as expected, such a strategy makes sense. (Look at how effective it has been for Salesforce.com, which now has thousands of business partners built on Salesforce.)
Imagine if you could go to your existing payroll, HRMS, or talent management vendor and find a family of partners selling wellness apps, engagement apps, feedback apps, etc. on their platform. A learning management systems company might want a family of video sharing tools or video authoring tools or contextual learning tools which plug into their platform. This strategy, becoming a “platform” company, is precisely what companies like Facebook, Google, and Twitter have done – and it often ends up making them even bigger and more profitable companies over time. Vendors who can effectively leverage a platform (Cornerstone’s new Platform as a Service strategy, called Edge, is an example), have the potential to scale far beyond the resources of their own R&D.
Disruption is Coming: Stay Aware
I believe we are in the early days of this shift, but it is starting to accelerate rapidly. I regularly meet with HR technology buyers and senior HR leaders and they are hungry for compelling new employee-centric solutions. Companies of all sizes are now shopping for new apps for recruitment, sourcing, assessment, feedback, performance, employee engagement, and wellness. So while the new generation of vendors are mostly new, disruption starts now.
 Bersin by Deloitte, Talent Management Systems 2015