Innovation in HRTech: Enterprise vs Startup
This morning there was a great article in Harvard Business Review that got me thinking about innovation in HR technology between the enterprise vs startup players. Within the world of HR Tech there has been an unwritten understanding that the larger, enterprise players weren’t able willing to move forward and build innovative technology themselves. The excuses I have heard since entering this market back when SaaS was non existent and going “online” was still a novel option, have always made it seem like there was no demand for enterprise to do better. Which was partially true, because even sub-par products were succeeding.
The user interfaces were tired, but buyers didn’t really have a lot of choice.
Then…Workday hit the market and looked & felt much more like a startup Saas for enterprise than an enterprise product trying to be a SaaS. It kinda shut everyone up for a bit.
Most of the larger core products, along with the larger supplemental solutions started to refresh the UI/UX and products moved from the 90’s to the 2000’s. But beyond a new dashboard and a few streamlined pages – the products remained mostly unchanged themselves.
Startups paved the way for how people were actually working.
Especially in the area of hiring and recruitment, but also in performance management (Sonar 6), analytics (Jobs2Web) and Engagement, start ups were popping up everywhere. They were doing things differently, they were built without regard to how things had always been. There were no sacred cows. By 2011, the rise of these solutions resulted in a huge spike of investment into this space. From 2009 to 2014, nearly 2.4 billion was invested in startups or established vendors. What was a bit of a unknown, became new standard for how people did business. And investors were looking closely at HR Technology.
From products that actually did something unique, to products that simply allowed an easier way to do things, buyers were spending a lot of money outside of their core offering to work.
It is not uncommon to see human resource departments in Fortune 1000 have not only a core HRIS/Talent Management system, but also a number of supplemental solutions to support the process. I personally worked with F500 clients that had upwards of 30+ vendors in their talent acquisition and onboarding process alone they were trying to streamline into a simplified process – wishing their core solution would solve the issue for them. In the mid-market the issues weren’t much better as the options for unified talent management were much more limited for companies under 10k employees. Seeing 15-20 vendors in a company with 5,000 employees is not as rare as you would think.
The buy vs build mentality was proven over and over.
HR Technology vendors were starting to get the message, but they also didn’t think they had the ability to build with the speed needed for market. The sacred cows and red tape I heard from more than one enterprise product manager kept their hands tied. Within a matter of just a few years during the late 2000’s and into early 2010’s, nearly all of the smaller vendors were acquired to round out larger solutions. Then, those larger solutions (Taleo, Kenexa, SuccessFactors) were in turn acquired by the enterprise players.
What has resulted was a total reset of the HR Technology marketplace, opening the doors to the biggest relaunch of startups we have ever seen.
Ironically, new ideas and problems arose, even after all of the acquisitions and fixes. The first half of 2015 saw nearly 1.4 Billion dollars of VC investment – almost equal to what was spent the full year of 2014 and over half what was spent in the 5 years prior.
But not all glistens is gold.
I am a huge supporter of startups. But I am a huge supporter of products fixing, not creating issues into existence that aren’t there. There are a lot of what I would consider retread products getting investment, mostly because there is a lack of knowledge base by venture capitals and equity firms throwing money at every Stanford grad with an (unvetted) idea. I hear about products that do something “no one has ever done before” that is an exact replica of a startup I worked with a decade ago. I listen to startup founders tell me things like “enterprise is just now starting to look at hr technology because of the success it has had in silicon valley start ups” and know they really believe its true. Some ideas were before their time and would succeed now when they failed 5 years ago. Some were simply bad ideas then and now.
My latest list of companies I watch in this space has nearly 500 vendors – 300 of those are start-ups within the last 24 months. I expect less than 25% will be around 5 years from now.
A lot of the products on the market actually created a problem that doesn’t even exist to solve. They are great for another, smaller startup or in a tech environment but unrealistic in a manufacturing or warehouse facility in the midwest. More and more I see products that make me believe the bubble is building for the bubble.
Enterprise Technology needs to compete.
The product advances that have happened and acquisitions have been great for both vendors and practitioners, but if you look at where the money is being spent and the challenges are still being faced by companies from 100 to 100,000 employees – its not what I’m seeing on a lot of the talent management suite roadmaps. Beyond the roadmaps, the challenge (ie. cost) for many of the startups to partner officially with larger solutions is impacting clients. They are buying the products and just not integrating them. They are making workarounds that don’t always work and they aren’t blaming the start ups…
A check mark that you have a solution isn’t enough for today’s buyer – especially in talent acquisition.
The larger vendors need to really invest the time to look at their product roadmaps and strategies in house and get a little more aggressive with the “non-essentials” your clients are spending money on outside of you. Just in the case of recruiting – look closely at where we are building (and selling) products like recruiting CRM, employment branding, recruitment marketing, video interviewing, etc.
As a buyer or a vendor, we should be challenging ourselves to expect and be more.
Buyers need to have a process and strategy in place before thinking any technology is going to save the world. It won’t. Bad technology just amplifies a broken process. We ALL also have to stop assuming the big vendors can’t innovate as well as startups. I have seen some really great stuff coming out of large vendors, but its not always the things people care about. HR leaders – if you want something more from a vendor or are buying supplemental solutions – tell your account manager. Vendors – Listen. Ask. Act. If established companies like New York Times and General Electric can reinvent themselves and prove you don’t have to be a “Startup” to be innovative – surely, we can start seeing faster innovation in terms of HR Technology from the giants that are full of some of the brightest, experienced talent in our space and have the budgets to not only work with experts both in and out of our industry but also the start up technologies that seem to be popping up every day.