A New Wave of HR Technology Consolidation Begins
As I describe in the article “The HR Software Market Reinvents Itself,” we have entered a new world in the $14 billion market for HR software and tools. While many large organizations have made the shift from licensed software to cloud-based HR systems (fueling growth by Oracle, SAP, Workday, ADP, Infor, Cornerstone and others) and smaller companies are now snatching up platforms like Gusto, Namely, Zenefits, and others, a new market has emerged: the market for tools focused on teams, feedback, continuous performance management, and data-driven recruiting.
Two weeks ago ADP announced plans to acquire The Marcus Buckingham Company (TMBC), a vendor of next generation performance management software, and late last year Ultimate Software acquired Kanjoya, a provider of feedback and data analytics tools. And in January Atlassian, a fast-growing software company, announced the acquisition of Trello for $425M. While these deals are all different, they illustrate a trend: a new wave of innovation in team management tools has emerged, forcing larger cloud vendors to make acquisitions to keep up.
In the report HR Technology Disruptions for 2017, I explain how HR software is used for a wide range of needs. At its core, these systems manage the traditional processes of payroll, recruitment, and employee record management. And these functions, including learning administration, benefits administration, and organizational wide reporting, are as critical as ever.
Today, however, as organizations become more agile and team oriented, these tools are moving in a whole new direction. Now we need software that facilitates teamwork and agile goal management (Trello’s market), helps people give each other feedback (Kanjoya’s focus), and helps facilitate continuous performance management and self-improvement (TMBC’s focus). These tools are consumer-like, easy to use, and mobile by design.
Our 2016 Deloitte Human Capital Trends research (and the 2017 report coming soon) clearly shows that the #1 issue facing organizations today is the need to reorganize their companies to be more customer-focused, innovative, and “digital” in nature. This shift demands a whole new set of tools, most of which are being developed by small, innovative, new software companies.
The set of new vendors is staggering in size, and CB Insights estimates that more than $3 billion of venture capital has helped them in the last year. These smaller, fast growing companies include:
- Continuous performance management tools, such as: Reflektiv, TMBC (acquired by ADP), BetterWorks, Impraise, Workboard, TinyPulse, SmallImprovements, Zugata, HighGround
- Feedback and data driven engagement tools, such as: Glint, CultureAmp, CultureIQ, Hyphen, Waggl, Thymometrics, Questback, OfficeVibe
- Learning Experience and smart learning tools, such as: Degreed, EdCast, Pathgather, Axonify, Everwise, Landit, BetterUp, GameEffective
- Social Recognition and rewards tools, such as: OC Tanner, TemboSocial, Globoforce, Achievers, AnyPerk, Payscale, Comparably
- Wellness and fitness tools, such as: VirginPulse, Limeade, Ceridian LifeWorks
- Candidate analysis and sourcing tools, such as: HireVue, PhenomPeople, Lever, Smashfly, Greenhouse, SmartRecruiters, Unitive, Pymetrics, Entelo
- Team productivity tools, such as: Slack, Workplace (Facebook), Google Teams, Microsoft Teams, Trello (acquired by Atlassian), Basecamp, Asana, and Wrike
This cycle of consolidation and subsequent innovation occurs in waves. Less than ten years ago we had a similar wave of acquisitions in talent management: SAP acquired SuccessFactors, Oracle acquired Taleo, IBM acquired Kenexa, Skillsoft acquired SumTotal, and ADP acquired Workscape. Today, while the new market for team-centric tools is still young, the consolidation may happen sooner.
Each of the small companies above is solving a problem never really considered important by large HR vendors in the past. Yes, ERP providers are innovating (Oracle and SAP now offer wellness solutions and SuccessFactors has introduced continuous performance management and new diversity tools). But the big rush of new applications, focused on team-centric, employee-empowering, productivity-focused systems, is almost all being invented by startups. (And I haven’t even mentioned the new market of AI-based tools coming.)
Perhaps even more significantly, they are also building functionality that embeds them into other apps. Many of these tools, for example, have plugins for Outlook, Slack, Salesforce, Workplace by Facebook, and Microsoft Teams, making it possible to set goals, give feedback, share goals, or even assess peers without ever having to login to an HR application at all! (SuccessFactors just announced, for example, that their new Continuous Performance Management product exposes itself as a Chatbot in Slack.)
I used to work in the software industry so I understand why happens. Bigger companies with thousands of customers try to innovate, but the demands of their large, existing customers distract their engineering teams, and they can rarely innovate like they did when they were small. (A few exceptions to this exist, but they are rare.) When they do build innovative products, they are often starved for sales and marketing resources, and by the time they reach the market they are functionally deficient and sometimes well-behind fast growing startups.
In this case, entering 2017, the growth of these new category vendors is accelerating. Almost every major company I talk with tells me they want to build a “Digital HR” strategy, one where they can implement a core cloud-based ERP platform, but also add exceptional employee and team-centric apps on top. So they are buying these new products, and these small companies are growing and jockeying for position.
What’s new about these new vendors is that their products are designed to be mobile first, they assume that a cloud-based ERP system is in place (ie. they build strong integrations so they leverage existing systems), and they are built around “productivity” and “engaged experiences” not just “best practice HR practices.” And many are run by young software engineers, some with gamification and consumer product experience.
One of our largest clients, a company which has been using one of the largest ERP providers for decades, has been working with us for several years to select a next generation tool set for performance management and employee feedback. Rather than use their ERP vendor’s product off the shelf (it simply did not meet their needs), they have been evaluating several of these smaller vendors, and are going to make their selection based on “which system people love to use.” This criteria, buying the “most compelling application,” rather than focusing on vendor stability or size, is becoming commonplace in HR.
The challenge companies often have today is not finding a great software vendor to do business with, it’s finding tools that employees will actually use! I’ve talked with reference customers from all the major vendors, and they tell me the same things: yes, the product is good and it does what we want, but honestly our employees just don’t use it that much, so we are looking for new tools that really help employees get their daily work done. This essential shift: away from “systems of engagement” to “systems of productivity,” is the essence of the shift taking place.
We are moving from an era of “systems of engagement” to “systems of productivity.” If the software doesn’t help us get work done, we rarely use it.
I believe 2017 will be a transition year, one when most of these smaller vendors will grow and a few leaders will emerge. Many are now $10-15 Million and larger and some will grow faster, driven by smart marketing, product excellence, and sales execution. Will there be major consolidation in the market? It’s not likely quite yet, there are too many product segments yet to be rationalized – but selected vendors will be acquired and I know the ERP vendors are watching them all carefully.
As a buyer or user of HR technology, my advice is simple: take the time to learn the market well, evaluate any potential tool carefully, talk to references, and move ahead unafraid to experiment. These new “digital HR” tools are incredibly powerful, useful, and engaging to employees – and you will soon find they can add as much value as your core HR platform did only a few years ago.
The world of HR is undergoing a lot of change right now: this shift to Digital HR is profound and real, and one we as HR professionals and vendors should watch carefully as the digital world of work expands in exciting new ways.