At the outset, Josh talks about the scale of the HR Software market. Many of us might not realize that HR Tech space is a $14+ billion marketplace. But, what comes through clearly in his article is how this industry is reinventing itself. He points out that, this is “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.
Josh covers some interesting trends to keep an eye on with the evolution from talent management tools to “integrated talent management” and now to “people management” which includes new Digital HR tools.
Consolidation is happening at every step in the evolutionary phase of HR tech since the early 2000’s. The incumbents are too slow to innovate, and the new vendors that emerge disrupt their market. Instead of building out their own products to compete, they acquire these companies to add to their product suite. Ex: SAP acquiring SuccessFactors and Oracle acquiring Taleo. The same thing will eventually happen with the next generation of Digital HR tools as the space continues to grow.
A quick synopsis of the history here. In the early 2000’s, we saw organizations installing HR enterprise-class tools from companies such as Authoria, Docent SuccessFactors, etc, focused on automating and managing an enterprise-wide talent process in the areas of applicant tracking systems, performance management systems and learning management systems. As these markets grew, buyers shifted to wanting these standalone systems to fit together which is popularly called “integrated talent management suites.”
As the vendors in this space grew, we saw consolidation take place when SuccessFactors which had its own performance management and recruiting product, acquire Plateau a leading LMS provider. Taleo built out its performance management product by later acquiring Learn.com. As these companies grew and the category of integrated talent management became institutionalized, cloud computing became popular with companies like SuccessFactors which had introduced a cloud HR database meant to replace a company’s core HRMS. Over next several years, the HR software market shifted. SAP acquired SuccessFactors with the intention to build out an end-to-end cloud-based HRMS, payroll, and talent management suite.
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 moved to the cloud, realizing it was the future.
We then saw 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.
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We now see that a new set of HR software vendors have arrived called “people management systems.” Josh Bersin’s research shows that companies now 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/team-centric learning environment.
Today people interact with technology through a growing generation of mobile apps. These apps, Bersin explains, unlike cloud-based browser applications, can “take advantage of location, sounds, and a wide range of new sensors.” This new set of apps, is called “Digital HR.”
The last 15 years was focused on making HR tools easier for HR people, and not for the employees. The HR technology of today needs to focus on delivering a great employee experience. They need to “feel more like Facebook, Twitter, and YouTube and less like training and Performance Administration.”
This has opened the door for disruptive startups with hundreds of small vendors building “new tools to make work better.” These are led by mobile-first companies, which focus on technologies like feedback, video, integrated analytics, and gaming. The app-based HR software market seems to now converge into categories like performance management, engagement and feedback, wellness, always-on learning, and social recognition.
Who will be the winners in this new wave? Well, they definitely need these four things to succeed:
- A management team that understands how to position, market and sell their product
- Have product strategies that are relevant and expansive
- Have a scalable technology architecture and experience building real mobile apps
- Have patient and enduring management teams
With that being said, we need to stay aware that we are still in the early days. It’s a highly competitive space with both the incumbents and the younger companies playing to win market share. There is plenty of room for more disruption. We are excited to see how things evolve over the next decade and being a key player in this space.