Against the backdrop of one of the most competitive labor markets in decades, organizations of all sizes are facing the challenge of attracting and retaining top talent while managing a workforce with increasingly complex requirements. More and more, CHROs are seeking software tools that go beyond traditional HR and payroll functions to deliver specialized capabilities that effectively address the hiring, performance management and employment engagement objectives of their organizations. With a myriad of solutions available, the vendor selection process can be daunting, and CHROs may be tempted to simply default to their current payroll provider who may offer some of the capabilities they’re seeking. However, as the shift to cloud-based enterprise software continues, HR professionals now have a golden opportunity to evaluate alternative approaches to legacy providers – and reap the benefits of flexibility, efficiency and innovation that next-generation, unified human capital management (HCM) solutions can offer.
Legacy payroll services bureaus like ADP and Paychex remain the largest players in the HR vendor landscape when measured by both customer count and revenues. Today, these outfits also offer software solutions – typically acquired from a smaller vendor – that complement their bread-and-butter payroll services. My experience working with high-growth companies, however, highlights the challenges that often arise in taking this approach to HCM. Legacy payroll systems often do not integrate well with core HR software systems; integrating payroll data across geographies can be clumsy as well, requiring multiple contracts with the service bureau. For many CHROs – particularly those at small to mid-sized companies – a better solution would come from a single vendor that could fulfill the full spectrum of needs, from payroll to core HR.
"Many CHROs today remain frustrated with the limitations of their HR and payroll systems. Fortunately, the HR technology landscape continues to evolve and innovate."
The cloud transition has simultaneously lowered the cost of ownership and reduced the switching costs to next-generation HR software solutions, opening the door for CHROs to explore newer vendors that offer robust functionality and integrated solutions that scale with the growth and increasing complexity of their businesses. As a result, over the course of the last five years, we’ve seen a major market share shift to unified HCM software and payroll providers such as Ascentis, Paycom, Paycor, Paylocity and Ultimate Software, to name a few. Each of these vendors offers integrated payroll services and various capabilities that manage core HRIS, workforce management, talent management and employee benefits functions. In addition to automating and streamlining many core business processes, these solutions bring HR data together in one place, allowing HR teams to leverage analytics to drive better business decisions. This ongoing shift away from the traditional payroll bureaus to unified payroll and software suite is “wave 2.0” of the HR technology revolution. The next question, then, is where is the industry headed from here?
As we speak to CHROs across the Summit Partners portfolio, we hear two consistent pain points:
Talent management: Attracting and retaining the best talent available is an issue that’s particularly salient in today’s tight labor market. We have seen meaningful innovation around traditional applicant tracking systems, including, for example, the integration of tools that improve talent assessment and automate the interviewing and background screening/reference checking process. Standalone providers represent some of the most innovative vendors in this market, and customer interest in these solutions continues to expand.
Workforce management: When it comes to workplace efficiency, small changes can drive significant savings. Do you have the appropriate tools in place to ensure overtime rules are being adhered to, or that the right person is scheduled to work on the right task at the right time? How do you track your field work force? Across end markets – hospitality, healthcare, education, the public sector and so many others – we are seeing an increased focus on integrating previously disparate workforce management technologies and demand for mobile solutions that help employee-users simplify their lives and improve compliance.
We believe that “wave 3.0” of HR tech innovation will be defined by providers that tackle these challenges and others with innovative, flexible, cloud-based solutions. Many CHROs today remain frustrated with the limitations of their HR and payroll systems. Fortunately, the HR technology landscape continues to evolve and innovate – and there are better, unified solutions that will help position your organization for future growth.