The Future of HCM

Where Is The Market Headed?

Within the human resources technology market, human capital management has long been the major leagues — the category that includes the largest and best-known brands in HR technology. Going back to category’s roots in the initial payroll service providers in the 1950s and ’60s, HCM has always been where HR technology is most directly connected to the finances of any business.

Ask any CEO what their largest expense is. Their answer is more of a qualifying question, “Head count. Did you mean after payroll?” People costs can be anywhere from 40 to 70 percent of the total costs in any business. HCM technologies gave large enterprises more control from the top down. It’s little wonder that HCM technology platforms have had a long run as the 800-pound gorillas in HR technology. They covered payroll, benefits administration, time and attendance, and core employee records and data.

The future of the HCM market is changing in many of the same ways that work itself is changing. HCM technology may have created efficiencies and cost savings by automating manual and paper processes, but it also reinforced a top-down, hierarchical, command-and-control approach to business. That world is fading away with the rise of on-demand information, social and mobile technologies, the aftermath of the Great Recession, and the arrival of millennials in the workplace. The new world of work is bottom-up, peer-to-peer, and networked. There’s probably more change going on in the global workforce than at any time since the Industrial Revolution.

B2B technology has experienced explosive growth largely because of its ability to help employers manage the volatility and velocity of these changes. In HCM, customers’ preferences for and resulting rapid adoption of cloud-based solutions for HR technology made it possible for disruptive technology and service delivery models to go to market quickly and grow rapidly. However, this trend, though important, is not particularly noteworthy.

We believe what will be more noteworthy are the changes unfolding in the years ahead. Looking ahead, it’s easy to see the profile of the modern company changing dramatically in many market segments from healthcare to manufacturing to high technology and beyond. We expect three major trends to shape the evolution of HCM software in the years ahead:

1. The rise of the contingent workforce. Employers now need fewer workers as direct full-time equivalent (FTE) employees. For example, when Facebook bought Instagram for $1 billion in 2012, it had 13 employees. Even now, it only has about 80. Compare that to Kodak, which went bust in 2012 and had 145,000 employees in its prime. Smaller companies can compete with large ones, and employers of all sizes are more interested in leveraging contingent, on-demand labor to mitigate the uncertainty and sudden changes in today’s business environment.
2. The quest for on-demand workforce optimization. Organizations are wrestling with systems and data integration for a reason. They want access to real-time, on-demand analytics to guide decision-making. And there are many new concepts and technologies emerging that will allow organizations to engage, analyze, and optimize their workforces more strategically.
3. The emergence of HCM for small and medium-size businesses. Once the exclusive domain of larger enterprise customers due to complexity and expense, it’s now possible for even small companies to manage payroll, benefits, and time and attendance efficiently and inexpensively. The shift of these capabilities to be more efficiently self-managed to the SMB is more than a trend — it’s a force in the global economy. And as a result, these companies and their workforces will look more different in the next 20 years than the past 20.

We’ll provide more details on each of these trends in the next section. Based on these trends, the future of HCM as a technology and as a practice will require current market leaders to reinvent their products and the way they help their customers adapt to the new business reality. These trends also level the playing field. It’s possible for new, emerging vendors in the HCM market to disrupt and gain traction and market share like never before.

So what does this mean?

For HCM vendors, The Starr Conspiracy believes that customer growth will be tied to brand more than ever. Historically, growth has favored the long-established, well-capitalized market leaders. Though these companies have some advantages when it comes to execution, the same trends impacting HCM customers’ workforces also open the market to disruption by new, emerging vendors. The platform players have been struggling to reinvent themselves and become more nimble, addressing not just product, technology infrastructure, and marketing challenges, but, in many cases, having to address their own corporate structures and processes used to make strategic decisions.

For HCM buyers, there is an urgent need to understand the marketplace in ways that go beyond just the feature and function lens offered to them today. Buyers now have the potential to see how vendors address the trends that are most relevant to them. And buyers can also better understand which vendors — legacy or emerging — are the ones to look at as they evaluate the future of their workforce. A strong brand and a focused message will make it easier to find a right match, but it’s also important to understand a brand’s potential and trajectory. Is your vendor going to be around when you need them?

For HCM investors, there’s a lot of opportunity but also a lot of flux. A strong brand and a focused message can eliminate some of the need for extensive research — strong brands are typically strong companies. However, in a swiftly changing market, it’s also important to know which brands have momentum and which ones have long-term staying power.