From large global corporations to small businesses, every business needs a way to manage its human capital. Payroll and human resources are essential to any successful business that employs people. To make this work, most companies purchase human capital management systems (HCMS) to help them track the needs of their employees.
Competition among service providers is tough, and there is a wide range of choices for businesses looking for help. Recently, GLG’s Sterling Wong hosted a conference call on the topic with Bob Schiff, GLG Network Member and CEO and President of Cyberlitica, a digital threat intelligence firm that works with all major vendors in this space. Below is an edited excerpt from that teleconference.
Who are the major HCM market players and what are they doing?
For software and service providers working in HCM, everyone is a prospect. Whether a company has one or a million employees, it needs a payroll, and it doesn’t matter if it’s in the United States, Asia, or any other part of the world.
There is no shortage of HCM vendors. Each provider has its pros and cons. Some work better for larger companies; others are more suited to small businesses. As for the main selling propositions, they covered all the niches.
Large enterprises tend to choose from HCM vendors such as Workday, Oracle, and SAP, three of the biggest players in the HCM space. These vendors provide a full suite of end-to-end offerings and can manage scalability. They excel both domestically and globally in the HCM software business. They can sell to any part of the world and be successful in those markets. These vendors offer many onboarding and robust programs that help their customers manage large workforces.
Midsize businesses often turn to vendors like Ceridian, ADP, or Ultimate Software, which primarily focus on this segment. These vendors thrive on targeting national companies with around 5,000 employees or less and offer good products and plenty of APIs.
On the small business side, Paychex and Paycom are leading the way. Bamboo and Gusto are also in the mix at the top of the food chain here, but there are plenty of other smaller players targeting this space. Their unique selling propositions are very similar. They just offer payroll and HR benefits and don’t include robust product suites like larger companies. They tend to be more affordable.
Could you elaborate on the key differences between industry offerings on factors such as ease of use, breadth of offering, and typical pricing?
There aren’t many key differentiators among HCM vendors. Pay is pay, and if people get paid, they’re happy.
Human capital management systems are more comprehensive. Some products are stronger than others. The region of the world, the type and the size of the company could distinguish what is different among the suppliers of HCMS.
All providers offer mobile, and that’s a change that’s happened over the last few years. From an applications perspective, Workdays, Oracle, and SAP have big advantages because they can offer more. They have a whole enterprise resource planning (ERP) system.
So a company looking for an ERP or accounts receivable, or a good general ledger system, may want to go with a big player because they have integrated systems.
Smaller companies like Ultimate Software, Ceridian, and ADP, as well as Bamboo and Gusto, don’t offer a full suite and rely on add-ons. They are single-point solutions that only provide payroll, HR and benefits. That means they don’t offer the ERP systems that Workday and Oracles offer.
As for the price, it is very competitive. Most charge on a monthly plan per employee. It’s a fee based on what the customer wants. Generally, for an HCM that includes benefits, the price ranges from around $20 to $35 per person per month. Big companies like Workday cost up to $70 per person per month.
What kind of companies are looking for end-to-end HCM solutions versus best-in-class point solutions focused on specific HCM functions?
Right now there’s a lot of cost cutting on the small business side. Businesses are extremely price sensitive.
As for the type of provider that businesses gravitate towards, it depends on their size and their needs. A company that needs a full ERP system will choose one of the larger ones because it has real ERP capabilities.
They interface with every program possible, including manufacturing and distribution software, and major HCM vendors have their own systems. If the customer is focused on full integration with their distribution systems, with their manufacturing systems, then the customer will go with one of the bigger names.
Otherwise, if it’s a medium-sized company with a few hundred or even a few thousand employees, end-to-end functionality may not mean much. They can work with a smaller supplier because a single point gives them what they need.
About Bob Schiff
Bob Schiff has a proven track record and over 20 years of experience defining and implementing transformational business development initiatives for dynamic companies. Bob is CEO and President of Cyberlitica, a digital threat intelligence company that works with all the major vendors in this space. Bob is also a partner at Miller+Schiff HR Consulting, where they advise companies on HRMS systems such as Workday, Ultimate Kronos, Ceridian and others. Bob was Senior Director of Sales at Ultimate Software, where he was instrumental in launching Ultimate Software (Kronos) nearly 28 years ago.
This tech industry article was adapted from GLG’s “Deep Dive into the HCM Software Market” teleconference. If you would like access to events like this or would like to speak with tech industry experts like Bob Schiff or one of our more than 1 million industry experts, please contact us.
Questions asked during the conference call:
- Could you give us an overview of the competitive landscape of the HCM software industry? Who are the main players in this market? What services do they offer and what are each of their unique selling propositions?
- Could you expand on the major industry differences in terms of factors such as ease of use, breadth of offering, and typical pricing?
- Could you share your perspective on customer preference for end-to-end HCM solutions versus the best point solutions focused on specific HCM functions? What types of businesses or businesses gravitate towards the former, which towards the latter, and why?
- Could you discuss the typical bidding or purchasing decision process and key selection criteria when choosing an HCM software vendor?
- What are typical contract terms for HCM software?
- In terms of implementation, what is the typical lead time for such solutions?
- What are the reasons customers would switch HCM software vendors?
- What are the barriers to entry for this industry, and how easy is it to get into this business?
- How has the industry grown in the past and what do you think are the prospects for the future?
- What are some of the key growth drivers for this HCM software space, and what are some of the key challenges?
- In terms of M&A, what do you see in this space? Should we expect a consolidation? Why or why not? And if so, who could be the buyers and who could be potential targets?