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The Top 10 Disruptions In HR Technology: Ignore Them At Your Peril

This article is more than 9 years old.

The HR technology landscape, which is now more than a $15 billion market in software, is exploding with growth and innovation.  We are tracking more than 100 new startups in social and referral recruiting, talent analytics, assessment science, online learning, and mid-market core HR systems. New tools to help manage employee communications, engagement, recognition, and workplace wellness are also red hot.

Fueled by this new cycle of innovation, private equity and venture capital firms are investing heavily in the space. The top 50 HR technology investment deals this year were over $560 million and the top 50 learning and educational tech deals were over $800 million (private equity research).

And these valuations are resulting in lots of acquisitions. Just recently Skillsoft, one of the largest e-learning companies, acquired one of the largest LMS companies, SumTotal Systems.  Earlier this year LinkedIn acquired Bright to aid in employment matching, and two years ago IBM acquired Kenexa, to build out its talent software offering. Anxious venture firms are looking for ways to get part of this fast-growing market.

As money comes to HR technology, so do new ideas and smart people. The result:  we are seeing one of the most innovative times ever in the HR technology market.

How do you keep up? In this article I highlight ten of the biggest disruptions happening in the space, and give you guidance for your technology roadmap or investments over the next year.  (Click here for the detailed report.  (Click here to view the Slideshare view of this article.)

1. Shift from Systems of Record to Employee Systems of Engagement.

Today the most important factor in HR software is no longer the functional feature set, but rather the "degree of user engagement."  Can people just sit down and use it? Do they use it every day? Or do they find it a drudgery and only use it when they have to?

There has been a total shift in the purpose of Human Resources Software.  Initially, perhaps 30 years ago, HR systems ran on mainframes and were back office systems built to automate, store, and manage employee data. They ran payroll, stored employee data, and managed performance reviews, training administration, vacation policy, and time and attendance. They were primarily used by HR managers.

While such automation continues to be a huge market, today HR has changed. Now HR systems are used by employees. They are all “self-service,” meaning that we use them ourselves. So just like all other enterprise software, their success is dependent on how easy they are to use by employees, managers, and even job candidates.

Look at recruiting systems for example. Only a decade ago these "applicant tracking systems" were electronic filing cabinets used to store and index resumes. Today recruitment systems run on mobile phones and you can apply for a job with one click, take an interview via the phone's video camera, and take an online assessment as you apply. The most attractive candidates aren’t likely to write a resume, they'll probably upload their LinkedIn profile. So we have to make recruitment software so easy to use it's actually fun.

Internal HR Management Systems (HRMS) are also too complex, creating a need for an army of consultants to build self-service front-ends.  We need to make it simple and easy for people to update their status, find their benefits, locate other skilled people, find and take courses, complete onboarding for a new job, locate skilled professionals, assess candidates, and set or monitor goals.

These various processes, which were once “paper-based HR practices” are now all online and they  should be easy to do right in the middle of our work. We don’t even want to “log into the HR system” to do these things any more, they should be so integrated into our lives that they can be done as part of our daily work.

So the HR systems of the future are now “systems of engagement.”  I like to think of them as “work management systems” now: they may embed and automate HR practices, but rather than being things we do once a year, they are applications we use every day (or they should be).

Think about goal management. Do you want your teams to build goals once per year and not even look at them until performance appraisal time comes (the HR approach)? Or do you want the goal management system to be “agile” and “always in use,” helping people manage their weekly, monthly, and quarterly objectives?  Our research shows that companies who manage goals quarterly generate 30% higher returns from that process than companies who manage them annually. Why wouldn’t the HR system facilitate this agile, continuous goal management process?

Think about learning. Do you want your employees to “log into the LMS” only when they think about it to find a course? Or would you rather them always viewing new videos, new instructional modules, and new learning opportunities every day or right in the context of their work?  Today we want employees learning to be “fully integrated with work” – not someplace they “go when they have time.”

This tectonic shift – from “system of record” to “system of engagement” is massive. It is radically disrupting IT and dramatically changing the HR system world.

Many vendors are figuring this out: Workday, Hirevue, CornerstoneOnDemand, PeopleFluent, Skillsoft, and ADP have radically redesigned their user interfaces and invest heavily in object-based design, embedded analytics, and ease of use in every way.  New companies like Betterworks (agile, gamified goal setting based on OKR),  SmallImprovements (simplified agile performance management), Achievers and Globoforce (social recognition) are developing applications that are just fun to use.

2.  Mobile is everything:  Build mobile Apps not just “mobile Versions”

What we used to call “mobile” is now becoming “the internet.”

According to Kleiner Perkins research, there are now 5.2 billion mobile devices and 1.6 billion smart phones, while only 789 million laptops and 743 million desktop PCs. This means that your employees, most of whom are more than likely to have a smartphone, are 2-5 times more likely to access your HR applications on their phone than they are on their PC.

This is not to say that web applications are going away – but rather that the focus of new applications should now be “mobile first.” Vendors have to look at usage mechanics, user interface, and design of mobile apps. In a mobile device we “tap and swipe” rather than “click and type” – so if your HR system is not designed well for mobile, look carefully for a vendor that has made that investment.

And mobile apps are just that: apps. They are small, interactive, easy to use, single function systems. They look more like SnapChat and less like Outlook. They have red dots, simple swiping mechanisms, lots of feedback, and are fast and efficient. A mobile app should be usable within one or two clicks: many HR applications take dozens of clicks just to get started.

Think about all the typical HR applications that work better on mobile devices:

  • Time and attendance: most hourly and consulting and service workers are mobile.  They need a rapid fire mobile app multiple times a day.
  • Online learning: what better time to learn than when standing in line, sitting on a plane, or waiting at the doctor’s office?  Especially if it is certification or compliance training.
  • Employee directory: in most cases we will phone someone through a mobile device, shouldn’t the directory be there?  Single click, find someone, send an email, or give them a call.
  • Goal setting and management: what if I have a great idea for a project or goal over the weekend?  Why can’t I update my goals while I’m out and about?
  • Employee communications:  people are more likely to read a newsletter or email on their phone during off hours.  I want to read company news in my Twitter feed or phone reader, not have to browse through email.
  • Job candidates: as we described earlier, more than half all job responses start from a mobile advertisement and companies tell us that their best candidates are those who apply from their mobile devices.  undefined
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  • Feedback and engagement: engagement and feedback surveys, which are becoming more dynamic every day, can be done on a phone in minutes.  Adobe found that their employee feedback increased by five-fold when they put their pulse surveys into mobile.  If I have something I want to say right now about the work environment, can’t I just post it instead of logging into a corporate HR system?

The trend toward mobile apps is only accelerating. With new products now starting to offer “sensing” and “the internet of things,” the mobile device will soon likely be the primary interface to all HR related applications.

3.  Analytics-driven, science based solutions.  Data analysis is now the solution, not the product.

We used to think of HR systems as giant file cabinets for people-related data. Well they are – but they do much more. As our Talent Analytics research shows, companies who go through the process of “datafying” their HR organization[1] are seeing 2-3x better results in quality of hire, leadership pipelines, and employee turnover.

And in many ways, the whole value proposition of software itself is shifting – the software itself is more and more like a commodity: it is the data, decision-making, and analytics that drives value.  I met with one of the world's largest HR service providers last week and they told me they can see a day in the future when "our services will be free but you'll pay for the data."

Consider the following: typically companies spend 30-60% of their revenue on payroll (people). This enormous expense goes into salaries, benefits, training, facilities, travel, and many other areas. If we want to improve profitability, customer service, revenue generation, or product quality, shouldn’t we carefully analyze the biggest expenses we have?

The HR analytics problem any companies have is simply one of investment. While finance, marketing, and supply chain organizations have been implementing analytics solutions for decades, HR is now just starting to get serious. Our research shows that only 4% of large organizations have any ability to “predict” or “model” their workforce – but more than 90% can model and predict budgets, financial results, and expenses. So the problem is not only one of poor analytics skills in HR, but a historic problem of lack of investment, poor data quality, and old fashioned HR systems.

HR organizations now understand this need.  I call it “The Datafication of HR” – the beginning of a decade long transition toward data-driven people decisions.

Articles, books, research, and conferences now educate us about how the strategic information we have: people’s characteristics, job experience, development, and assessment data. This data, coupled with real-time work related data, gives the company amazing opportunities to make science-based decisions about who to hire, how to improve sales performance, how to improve patient outcomes, how to reduce labor costs, and much more. Today’s HR systems should not simply be “data analysis” applications but rather “data driven” applications.

A new solution from Deloitte, for example, looks at real time labor activity and uses analytics techniques to show companies how to save  what could amount to millions of dollars in payroll expense without reducing any worker flexibility or productivity. Similar solutions now let companies scientifically understand who are their leading recruiters and how to source far better candidates based on the success profile of existing employees.  One vendor has a “virtual educator” who looks at an employees’ online activities and actually recommends training and learning based on their patterns of activity.

What does this all mean for HR technology?  It has profound effects: today we buy HR tools because of their functionality and ease of use: in the near future we will likely buy the tools because of their “intelligence” and “analytics capability.”

Vendors that offer these “embedded analytics” solutions today include Oracle, ADP, Workday, Ultimate, Saba, Skillsoft, SuccessFactors, and others. If your software vendor is not providing you out of the box analytics which “do the analytics for you” then you should probably look elsewhere. Yes of course we always need good analytics tools, but today the tools are available at very low cost – intelligence is where the value will reside.

Finally, let’s remember that before long your HR vendors may be selling you “data” in addition to the system. Today ADP offers a vast database of benchmarks with their new talent management software.  SuccessFactors is doing the same. Before long you should expect your HR systems and technology vendor to offer benchmarking data with their systems – and this will help certain well entrenched vendors disrupt their competitors.

4.  The science of leadership, assessment, and psychology evolves with Big Data

A large part of HR is dedicated to industrial and organizational psychology. This industry, dominated by PhDs with backgrounds in statistics, organizational development, and psychology, has brought us many of the most powerful assessment solutions and leadership development solutions in the world.

Nearly every major leadership development and assessment company, including leaders like Korn Ferry/PDI, DDI, SHL, Wiley, and many others, are now sitting on years of data about leadership, sales skills, employee performance, and the power of personality. Almost all these companies have been acquired, and they are now in the hands of larger companies. Why the convergence?  Because a lot of these assessment and I/O science tools seem the same. Buyers often cannot differentiate between the tools so the market looks commodity-like.  (We’re not saying that it is, but it “feels” that way.)

Well just as disruption has taken place in core HR software, a set of disruptive assessment solutions is emerging. New vendors are now trying to build assessment solutions based on “real time big-data,” rather than core psychological models. Many of these companies may start with the Big Five personality traits (a public domain personality model) but then quickly build tools to collect social data, peer assessment data, and behavioral data which expand the world of assessment. These new vendors are not only smart psychologists, but they are also data scientists – so they may find performance-driving characteristics we never thought about before.

Some of these companies include Evolv (just acquired by Cornerstone), Good.co, IBM/Kenexa, Kaisen, Roundpegg, Jobfig, Logi-Serve, Smarterer, and others. They are combining traditional assessment with big data and “social sensing” to better understand the relationship between skills, personality, and organizational culture. While most of these companies are still relatively small, they have the potential to disrupt the market for pre-hire and leadership assessment, and give us ways to assess everyone in the company using a combination of data, gamified tools, and social information.

Given the tremendous focus on work-life balance and better work environment, new tools that help us monitor employee engagement and manage our health and work-life balance are emerging as well. Tools which assess culture, fit, personality, and style are being redesigned and are now an exciting new part of HR.

5. Sensing, crowdsourcing, and The Internet of Things. Systems become more real-time.

As more and more people use internal HR applications, they become more useful as employee sensing and communications systems. And while most HR applications were designed for a top-down organization, today’s companies operate in a flatter, peer-to-peer manner. The result: HR systems now becoming real-time communications systems.

Look at the Learning Management System, for example. Originally designed to be a registration system for training with an online course catalog, today these systems recommend training, connect people to content, people to information, and people to people. We see a flurry of new social skills matching and content matching applications changing the way people learn. Rather than only take what training you are assigned, why wouldn’t you also look at what training is popular?  What courses your mentors are taking? What courses are most active today?

A second  exploding category is employee feedback and engagement tools. These systems, which used to be annual surveys, are rapidly becoming real-time feedback, social sensing, and analytics systems that can gauge and measure employee feedback quickly. Companies like BlackbookHR, tinyHR, CultureAmp, BetterCompany, and many others now let employees offer feedback at work in real time, giving leaders immediate information about work and management issues.

Crowdsourcing or social systems are also transforming HR practices. Just the concept of voting up or down for certain ideas (once called an IdeaFactory) has huge power. HR can now immediately get feedback or commentary on any new program, organizational change, or new idea.  HR systems that facilitate this transparent sharing of information will likely become mainstream.

Social recognition is now big. Many vendors now offer points-based recognition tools that let employees provide real-time “kudos” and “rewards” to others in the company. These tools have a dramatic impact on employee engagement, and engagement has become one of he most important issue on the minds of business leaders.

And finally, as mobile device vendors unleash a new barrage of mobile phones and other wearables, we have more location and employee data available than ever before. One vendor's tools monitors employee location and showed managers that engineers who sit at larger lunch tables are more productive! We believe most HR solutions should plan to accept and manage real-time data, real-time feedback, and continuous social feeds to provide value to people.

We believe that the “quantified self” will likely become the “quantified employee” over the next few years.  Read “The Quantified Self becomes The Quantified Employee for more information.

6.  Radical changes to recruiting as social and referral based recruiting becomes the norm.

The recruiting market has dramatically changed. Thanks to tools like LinkedIn, Facebook, Indeed, Glassdoor, and many others, we now source, attract, and recruit candidates through social and referral recruiting.  Recruiters look for candidates based on their social profiles and new referral systems (Careerify, for example) let us find candidates through the networks of our employees.

We now market to these individuals through candidate relationship management systems and can track their activity and interest in our brand. We monitor our brand through new sensing tools and can now begin to build local employment brand based on opportunities with a country.

New recruiting platforms (like Workday, Careerify, Lever, SmartRecruiters, Cornerstone, Greenhouse, and Saba) now connect to this new world of social recruiting applications, facilitating the transition from traditional “post and pray” applicant tracking systems to highly interconnected recruiting applications.

From a technology standpoint this means that recruiting applications are now also networked, and most applicant tracking systems (many of which are 7-9 years old) must be complimented by referral recruiting tools, candidate relationship management systems, candidate analytics systems, advertisement management systems, video interviewing tools, mobile recruiting tools, and employment data providers like BurningGlass.

The world of recruiting is now all about "managing the people network," not just capturing and tracking resumes.

7. Dramatic changes to performance management and talent mobility.  Agile, transparent practices are a new area of focus.

The old fashioned performance appraisal is under duress.

While most companies still have annual reviews, more than 80% (Deloitte Human Capital Trends 2014) tell us they are not worth the time people spend on them. Today companies want programs that focus on real-time feedback, coaching, development, and agile approaches to goal management. This means redesigning performance management to be more agile, developmental, and transparent.

A new breed of performance management tools now includes features for regular check-ins, transparent sharing of goals, and agile team management. While end of year reviews are still important, new tools facilitate the regular process of coaching and checking – and if they are hard to use, they won’t fit the bill. And social recognition, a market which today exists as a separate set of vendors, is now becoming integrated.

The talent review itself is changing. We used to sit in a locked room and place people on a 9 box grid to decide who is a HIPO and who should get the next developmental assignment. Our new research shows that this information should be shared with people, and that individuals should get direct feedback on their performance.

Dynamic talent pool management and tools that let managers and HR teams find people based on experience, role, skills, and job history are now becoming common. Many large organizations today are struggling to build a new generation of talent mobility practices, making it possible for younger employees to take “tours of duty” and developmental assignments. HR systems must not only measure performance, but they must help manage employee skills and mobility as well.

Remember also that one of the most important practices in management is development planning. Our research showed years ago that of all the practices to consider in performance management, development planning is among the most important. While most HR systems bolted together their performance and learning modules with some integration, today these systems are much more tightly linked and employees can now browse for development and use crowdsourcing to understand what experiences or training they may need.

Because of the increase in talent mobility, onboarding is now becoming a critical part of the talent process. When an employee joins the company, changes roles, or is promoted to a new assignment at a more senior level they need a whole set of things to prepare them for the change. Vendors are beginning to understand that “onboarding” and “mobility management” are similar problems, and you should look for this kind of functionality in your new systems.

8.  Learning Management systems change and market expands.

One of the oldest HR technologies is the learning management system. Originally designed as classroom scheduling systems, this market has grown and changed rapidly over the years. In the early 2000s these systems turned into “e-learning management systems” and in the last four years many of the successful LMS vendors were acquired.

Today the LMS market is over $2.5 billion in size and grew by over 21% this year, so it is the fastest growing major segment in HR software. Why the growth?  Corporate learning, content, and collaboration have become fundamentally strategic to nearly every company. Today every company needs to reskill technical staff, onboard and train new employees, build deeper leadership pipelines, and help people learn how to do their job better.

There is a rapid shift away from LMS as a “training administration system” to the LMS as an “learning engagement platform.” New LMS technologies now integrate learning with talent and performance management, they include integrated content and expertise management, and they often have integrated collaboration, recommendation engines, and tools.   Massive Open Online Courses (MOOCs), for example, represent a whole new source of learning – as does YouTube and a wide variety of new content sources. Your LMS should incorporate this into an employee’s experience.  And the new technology called “Tin-Can” will let you track any and all learning activity, including just clicking on a website.

One of the other disruptive changes in the LMS market is the emergence of “embedded learning” and “intelligent learning” as keys to success. One vendor, for example, connects its LMS technology to retail store management systems and can “pop learning” right into the window of a retail employee when they have a quiet time in their shift. Another vendor offers a direct link to Salesforce and can automatically register employees in courses and pop content into their window after they execute certain transactions. Imagine a sales person, for example, who opens an opportunity for a multi-million dollar deal but has not yet been certified for “large account selling” – the system would automatically register them and notify them that they must complete the course before moving forward.

9. HRMS and Talent Management merge: ERP vendors catching up.

What about the big issue of buying all your HR applications from a single ERP vendor? With Oracle, SAP, Workday, SumTotal, Infor, ADP, Ultimate, and other HRMS providers offering a range of talent management applications, is it time to consolidate to a single vendor solution?

Well in many ways consolidation has already occurred. All major HRMS vendors offer recruitment, learning (with the exception of Workday), performance management, talent management, and analytics solutions along with their core HRMS and payroll applications. So you can now select an HRMS or ERP provider based on your infrastructure or broad existing investment and expect much of your core functionality to come from that vendor.

Are all the ERP vendors the same? Not at all. Each vendor has its own core strengths and a variety of new vendors now focus on the mid-market. If you are a global company you must evaluate payroll solutions as well as country-specific solutions and support. If you are a mid-market company you should make sure the system is both affordable and very easy to use.

Despite the consolidation, you will still end up with multiple vendor solutions. Innovation in the areas of networked recruiting, analytics, crowdsourcing, real time engagement management, social recognition, and collaborative learning still continues. The ERP vendors now offer credible, trusted solutions for most core applications of HR and talent, but most of the innovation continues to come from small providers.

While ERP providers have an impressive and broad array of solutions, the pace of innovation in HR is accelerating. So while buyers must obviously select one or only a few ERP providers, we believe that the HR market will likely always have new disruptive innovators.

You as a buyer should always be open to taking your existing ERP vendor standards and opening it up to new small vendor solutions. The “one vendor” idea has come and gone. In today’s cloud-based technology environment, companies can easily integrate multiple solutions so we should design and assume that there will be new disruptive products to buy, and just make sure we are ready to integrate them with our ERP investments.

10. Technology savvy vendors will likely outpace their peers and "Acqui-Hiring" will continue.

The final disruption is the rapid change in technology itself.  Vendors with legacy products and architectures will likely find life more difficult in the coming years. Cloud-based systems, flat user interfaces, mobile apps, video, and advanced analytics are all now standard technologies for startups. Vendors with expertise in these new engineering and design paradigms will likely outpace their peers.

Look, for example, how fast companies like Snapchat and Whatsapp became billion dollar valuation companies. It wasn’t because these companies had thousands of advanced features – in fact it was quite the opposite. These development teams were able to harness new mobile and cloud technology to create a highly engaging user experience that makes communications or photo sharing easy. This is not as simple as it sounds. They invested many hours of trial and error to learn how to build highly engaging mobile applications, eventually creating something transformational in our lives. HR vendors have to do the same.

Winning vendors will build agile, highly expert teams. They will likely release new features and interfaces every few months and they will be able to rapidly adapt their products as technology, user experience, and client demands change.

(The war for technical talent is raging: Vendors like Hiqlabs, which just released an innovative new analytics solution for retention, have attracted some of the top data scientists in Silicon Valley.  Workday "acqui-hired" their team from Identified, and Cornerstone just "acqui-hired" theirs from Evolv.)

The rules for HR software are changing. Companies no longer buy HR software solely based on features: they look for the total employee and user experience. Vendors have to build deep skills in design, mobile, analytics, cloud, integration, and modern programming technologies.

And even more importantly, disruptive HR vendors know how to attract and retain their teams. There is a huge market for the leading software engineers, so they go to the well managed companies. HR vendors will likely not be able to attract this type of talent if they aren’t building exciting products and creating an environment that drives high levels of customer value.  Engagement is not just a market for HR technology; it is also an important strategy for the vendors themselves.

Bottom Line:  Tomorrow’s HR solutions will likely be radically different.

Bottom line:  the days of selecting an HR vendor based on features and checklists are coming to an end. Many vendors have similar HR process features, and most of the strong product managers move from company to company to share their skills. Winning vendors will embrace these ten disruptions and deliver products that feel like consumer apps yet have the data analysis, network integration, and compelling user experiences of Apple, for example.

The incumbent, larger vendors will likely remain, and the winners will continue to acquire smaller companies. Vendor sales forces will probably compete as vigorously as ever, but buyers will start looking at HR technology as a total “employee experience."

Implementation of HR technology will always be a challenge: but other than change management and communications, the systems are becoming easier and easier to use, making HR technology “disappear” into the corporate infrastructure and become just “part of doing business and coming to work.”

Vendors have many challenges to deal with over the next few years, but the marketplace is filled with highly trained, motivated, smart people and we believe HR technology can add ever more value each day. This is a dynamic market filled with talented and committed vendors, and we see the value of HR technology going up rapidly. Perhaps for the first time since the original personnel database was developed on a mainframe, we believe HR technology can become one of a company’s most important tools for talent management, strategic decision-making, and overall company success.


[1] “The Datafication of HR,” Josh Bersin, Deloitte University Press, January 2014

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