What's up with HR Systems these days?
Why the HR System market is going haywire
Hello, to the 48 new Full Stack HR readers who have joined us since the last edition! If you aren’t subscribed, join the curious and likeminded HR-folks by subscribing here:
🎧 If you’d rather listen to this, it’s available on Spotify or Apple Podcast.
Hi HR-folks 👋 ,
If I had a dollar for every time, someone, in my network(s) asked,
"Looking to buy an HR System. Anyone have recommendations?"
The dollars would be stacking up by now.
It seems like everyone out there is looking to buy an HR System these days, and it's impossible to keep track of all the new systems popping up like mushrooms. So why is that? And how do you, as a buyer, navigate these waters?
Ten years ago, the hottest thing you could build in the HR world was an ATS. Lever, Greenhouse, and TeamTailor, were all founded around 2012-2013. None of them were first, but they all had a disruptive mindset to overthrow the first-gen web-based ATS like Taleo or Jobvite. Piggy-backing on the underlying trend of companies focusing more on employer branding, candidate experience, and having a UX that stood out, they all rose to prominence. And if you tried to apply for a job back in 2010, you probably understand why the market needed disruption. It was a pain, and to some extent it still is, but for most companies, it has improved. They created a recruitment tool that didn't make either recruiters or candidates bang their heads into their desks. Their first customers were just like themselves - start-ups - and when the start-ups grew, so did the expectations around having a structure and reliable HR System.
And let's be honest. Even though there were alternatives, they were few.
Workday was the coolest cat in town when it launched back in 2006, being one of the first cloud-based HR Systems.
Wait - what does this have to do with HR Systems?
Because to a large extent, HR Systems stand where ATS did ten years ago. The same underlying principles that created many new ATS are now being applied to the HR Systems market. The more traditional HR Systems providers like Workday, Oracle, and such are underserving the same companies that are now used to accessing nimble and agile recruitment systems. Disruption arises.
Harvard Business School professors Clayton Christensen and Joseph Bower coined the phrase "disruptive innovation" in a very 90's-named HBR article titled Disruptive Technologies: Catching the Wave. (Kudos to notboring.co for the discovery of the article and the quote below.)
First, a quick recap of the idea: "Disruption" describes a process whereby a smaller company with fewer resources can successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others.
Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents' mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants' offerings in volume, disruption has occurred.
This is exactly what's happening in the HR Systems market right now.
There's a large cohort of companies that are under-served by mainstream suppliers. Thus, new players arise and are competing by offering a better product at a lower price. That's also why venture capitalists are now looking to HR systems, almost more than anything else in the HR Tech space (except one area, which I'll cover in an upcoming post).
Personio announced a Series D round of $125 million in January. AlexisHR raised $1.4 million and HiBob raised $70 million. With cash flowing into the HR system space, the ones benefiting most are us – the ones in the HR/people space. We're given more choices and more opportunities. But that also requires us to be better buyers.
How to buy an HR System?
We are circling back to where we started. How does one buy an HR system these days? Given all the choices we now have, it's essential to define your needs. What do you want the HR system to solve?
Do you need to replace your good old Excel sheet that you've been using to "keep control" of your employees, or do you want a more forward-leaning HR system that can help you conduct your yearly performance reviews? It's way better to think about this before you go out and start talking to the systems out there; they will promise that they will solve most things.
In essence, make a list of what you can't live without and what would be a nice sparkle on the top. Way too many don't do this and buy an HR system that is too complex. They end up buying (and paying for!) a Ferrari F8 when a Kia Sorrento would do the trick.
An overly complex system is not only usually more expensive, but it's also harder to implement and to get the most out of it. Worst case, you end up with an expensive, fancy-looking HR system that you can't utilize. Hands up if you've seen this happen. It's better to start small and then change to something more complex - if you find the need for it.
That's it for today. Let me know your thoughts on HR systems and if you found this practical or somewhat inspirational, make sure to share it!