State of the HCM Market: Where’s the Money Going?

The HCM market continues to be a growth category in technology representing over $17 billion in total worldwide spend in 2021. Global HCM players have been working feverishly to solidify and grow their base of Clients and get them locked into a platform for several years to shore up stock price and shareholder value. Like most market dominant players, these firms are more focused on driving average revenue per Client up, than they are on innovation. But with the rapid pace of change in the workforce, many customers are finding these large market players are not nimble enough to meet their needs. And if the investment money flow is any indication, the market agrees.

Venture capital tech investment in 2021 was approximately $16.8B worldwide, with a large portion of that dedicated to HR/Employee Management platforms. The VC space is betting big that there is a plethora of niche providers that are positioned to meet these workforce challenges head on, in a way that may be impossible for the large ‘incumbents’ to handle. These niche providers are better able to pivot for customers and are substantially more adept at responding to the evolving needs that are unique to smaller companies.

While the large market players meet core functions, like talent management and ‘classic’ HR features, they are lagging behind new employee management imperatives that are quickly coming to the forefront for HR leaders. Customers are quickly becoming less concerned with an end-to-end platform solution, and more inclined to seek alternatives that better serve their needs.

Outlined below are some the biggest challenges these companies have, and by extension their customers, who must decide how much more business to give them:

  • Niche players that focus and innovate on retention management and or a contingent workforce are key needs that ‘platform’ players aren’t leading on right now
  • The behemoths (Workday, Oracle, SuccessFactors, UKG) are being labeled as dinosaurs that are supporting processes that today’s employee (and their employers) are less interested in enabling
  • Their tools are now considered mature with little room for innovating what they do at their core
  • Not developed for mobile first out of the box, as mobile only/apps are becoming more commonplace with technology developing that doesn’t even include a non-mobile platform
  • Customers have little tolerance or patience for lengthy and expensive implementation projects that typically accompany the big HCM solutions
  • Platform solutions are too expensive

In summary, we encourage any firm that has new or changing requirements to give themselves maximum flexibility when dealing with the large HCM providers. Anticipate your future needs and negotiate in such a way that will enable you to make decisions that are best for the company and employees, and not have to accept an inflexible ‘platform’ solution. Ideally, you can have the best of both worlds where your incumbent is handling your core HR functions, yet you have the flexibility to go outside their orbit to find better solutions. We often see Clients who have boxed themselves in to spending ever more budget with the same provider over time, such that they have no flexibility and are ‘locked-in’ to a supplier and related agreements that hinder performance.

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