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HR tech: should you go sector giant or niche challenger?

With the fast-growing appetite for HR tech, especially cloud-based human capital management software, showing little sign of being satisfied, vendor numbers are mushrooming.

Yet at the heart of a market likely to be worth some $22.5 billion (£17.4 billion) within three years, according to global market research firm AMR, lies a classic David-and-Goliath struggle.

For while established technology giants such as Sage, Oracle and ADP promise welcome economies of scale in placing everything from diversity and inclusion analytics to payroll in the hands of one provider, the young bloods boast thrilling disruption and innovation.

What is the right HR tech strategy for you?

Deciding whether to go holistic or niche with your HR tech can be difficult, says David D’Souza, membership director of the Chartered Institute of Personnel and Development, particularly for the many HRs who cite spreadsheets as their current HR tech of choice.

“There are a few end-to-end solutions providers to choose from and most are very well known, but if you use one for logistical reasons, you may find it that much harder to buy into the brand new systems coming on stream,” he says.

“It’s true that the ‘tech-stack’ approach means you must engage with a myriad number of smaller vendors with all this entails, but it’s an approach that could well allow you to be more fleet of foot.”

Yet both strategies have their merits, he believes, particularly now that the barriers to entry into this highly fragmented industry are now lower than ever.

“Nobody should be left behind in the current data revolution, whatever their budget or level of technical expertise,” says Mr D’Souza.

Should you go for a joined-up approach, or something more agile?

For long-time payroll processor ADP, the firm’s iCHM2 product, branded as a “complete human capital management system in the cloud”, clearly demonstrates the superiority of holistic HR tech solutions in both raising engagement levels and pegging costs.

Don McGuire, the firm’s president, believes that too many human capital management purchasing decisions are based on “neat functionality and cool widgets” when a more joined-up approach is what’s required. ADP’s iCHM2, in contrast, can “break down processing silos to give forward-thinking organisations a way to deliver a more seamless, relevant and useful employee experience”, he says.

At the opposite end of the HR tech market lies Breathe HR, whose hunting ground is growing businesses that need to be “actively supported by, not buried in tech”, in the view of founder and chief executive Jonathan Richards.

While he believes the enterprise end of the HR tech market offers “high-ticket consultancy for very large and sophisticated users”, his own firm’s unique selling point is to provide the jargon-free, user-friendly approach that he says so many smaller businesses crave.

“You can subscribe to our product on a Monday and by Friday all the data will be in and all the employees will have logged in. We offer value for money, quick returns and lots of help and that’s why no-nonsense niche players like Breathe are becoming so popular,” he says.

Is HR tech moving towards a platform-based market?

While many purchasers may hope that the current shakedown in HR tech leads to greater choice of all-singing, all-dancing products from big-name vendors, this is unlikely, says David Hargrave, director of Willis Towers Watson.

“What I do see, however, is more of a platform-based market, which allows you access to a competitive marketplace for each different tool on that platform as soon as you subscribe. If you want to use the salary survey tool, for example, you will be able to choose between a number of different suppliers depending on things like the size of the headcount and, of course, how much you are prepared to pay.”

While Mr D’Souza notes the current impact of “literally thousands of new players offering their own ‘lite’ versions of the big, all-encompassing platforms”, he too identifies a gradual move towards “ecosystem” products, akin to Apple’s App Store.

Although there are clear dangers to being locked into a single-vendor arrangement at a time when innovation is driving the market, the prospect of a multitude of small HR tech suppliers potentially replicating both in-house information systems and each other is, for many, equally nightmarish.

dataset describing top HR tech in use

How smaller HR tech providers are breaking into the market

Yet there may be hints that smart niche firms are already beginning to play the big boys at their own game.

“What’s most exciting at the moment is how smaller, best-of-breed providers are talking to each other to deliver a more seamless service,” says Mr Richards. “By collaborating with two other players, one an engagement tool provider and the other a scheduling service, say, there is an opportunity for an operation such as Breathe to literally become the central hub and employee data holder around which other services revolve.”

This sort of collaboration does much to counter the fear that juggling too many HR tech suppliers inevitably causes breakages, says Kate Cooper, head of research, policy and standards at the Institute of Leadership & Management.

“The notion of small, specialist tech firms banding together to rival the big platforms is a very good example of how people can make tech work for themselves, rather than the other way around,” she says.

Whichever provider you choose, embrace the HR tech opportunities

HRs, who are constantly being told to be agile, responsive and flexible, should view HR tech not as a threat, but as a way to ensure they continue to lead the way with all people matters.

“Whether it’s long-term policy decisions or day-by-day changes to job descriptions, reliance on a single procurement provider makes it more difficult to stay ahead of trends,” she says.

“Even though there may be headaches inherent in going ad hoc, I advise companies to take advantage of the disruptors and tap firmly into their research and development. There are many tech opportunities out there right now and nobody can afford to miss them.”