HCM Top 500 Vendors To Navigate 22 HR Software Markets In Bumpy Year

Aging workforce, paradigm shifts & political changes shape HCM strategies

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A confluence of technological, people and macro factors are expected to put the Human Capital Management applications market on a roller-coaster ride in 2017.

Optimism is shared among key stakeholders in the $15-billion HCM apps market based on our 36-month-long research findings that covered thousands of survey participants and interviewees for the latest HCM Top 500 Market Report, which ranks the world’s 500 largest HCM apps vendors by their annual revenues across 22 segments in three primary groups – Core HR, Talent Acquisition and Workforce Management.

Aging workforce, paradigm shifts & political changes shape HCM strategies
Aging workforce, paradigm shifts & political changes shape HCM strategies

Some of these vendors responded to our surveys and follow-up interviews suggesting they had bigger 2014-2015 revenues and higher growth rates than our previous estimates. In addition, they anticipate similar results through 2020 because of widespread adoptions of Cloud, mobile and analytics-based HCM solutions.

Still, past performance does not guarantee future success. A fair amount of caution, if not downright fear, uncertainty and doubt, is not misplaced either. In some cases, near-term prospects border somewhere between user indecision and downward spiral.

Recent earnings results from HCM vendors such as Cornerstone OnDemand and Workday blamed their shortfall on the political uncertainty surrounding Brexit and the presidential election in the United States. Throwing another monkey wrench into the mix was the surprise November 8 election win by real-estate mogul Donald Trump who has vowed to repeal Affordable Care Act, a piece of legislation that has propelled HCM apps vendors to new heights because their compliance tools can help clients meet ACA reporting requirements in conjunction with the expansion opportunities to upsell and cross-sell other products.

On December 21, big HCM and payroll vendor Paychex announced its 2QFY17 results for the quarter ended November 30 reiterating caution around the uncertain fate of ACA, which accounts for anywhere between 1% and 1.5% of its revenues. Instead of seeing a flood of companies taking on ACA reporting tools during the quarter, Paychex CEO Martin Mucci said it saw “a little more inactivity than what we saw last year.’’ Mucci is confident that Paychex will be able to replace the revenues if the repeal of ACA is done in an orderly fashion.

To put the implications of a possible repeal of the ACA into concrete terms, consider Paychex competitor ADP, which generated more than $100 million in revenues from its ACA offerings in its fiscal 2016 ended June 30. ADP’s new business bookings dropped 5% in its second quarter of fiscal 2017 ended December 31, 2016 because of user inertia on potential ACA changes. ADP’s guidance for the second half of fiscal 2017 has also been revised downward now pointing to flat new business bookings.

During the earnings call on February 1, 2017, ADP CEO Carlos Rodriguez said up to $200 million in HCM revenues could be at risk because of the uncertainty surrounding ACA. Despite the setback, ADP’s defensive strategy is to create a diversified product portfolio including its recent decision to pay $105 million for Marcus Buckingham Company, which offers a range of research, data and performance management offerings.

Among the HCM Top 500 Vendors, dozens have invested heavily in their ACA offerings over the past few years and a repeal of any part of ACA could render those products less appealing in the eyes of potential buyers. As Mucci said during the earnings call – “ACA for midmarket last year got you in the door.’’

Other vendors suggest that any change to ACA will only mean reallocation of a company’s HR spend from one bucket to another. Benefitfocus, which offers benefits administration applications, said, “Regardless of the ACA’s fate, the challenges facing the individual market will reinforce the perception of employer-sponsored benefits as a key tool to attract, engage and retain employees. As large employers continue to invest in their plan offerings, we will see rapid adoption of benefits management platforms that are cloud-based, mobile-optimized and purpose-built for engaging employees.’’

While a repeal of ACA could shave a point or two in revenues for some vendors, a much bigger issue is the domain-specific forces at work in the HCM applications market potentially upending its three key product groups (Core HR, Talent Acquisition and Workforce Management) and the underlying 22 segments from Applicant Tracking to Time and Attendance.

For the HCM applications market to grow from the current level of $15 billion in annual product sales to $18 billion by 2020 at a compound annual growth rate of 5%, here are a number of customer and vendor developments that will shape the three product groups and the 22 segments in 2017.

A Customer Scenario

Among the 100,000+ customers in our Buyer Insight database, new implementations of HCM applications are never in short supply. Builder ABC (real name withheld) is one of these recent HCM applications customers after years of operating in the construction and real estate vertical.

With the aging population in the United States, ABC reinvented itself from a builder to a service company by providing nursing and medical care to residents who pay thousands of dollars each month for room and board at one of its long-term care facilities.

As a builder, ABC was mostly relying on a number of Excel-based systems as well as HR and payroll outsourcers. Soon a new way to manage people became a top priority. ABC realizes that its corporate culture – rooted in cost-based transactions of building and selling homes for a profit – is no longer compatible with its new model that thrives on being employee-friendly and customer focused. Having had to deal with a number of noncompliance issues and customer complaints for insufficient staffing, ABC began to invest more in new HCM systems for Core HR, scheduling and time and attendance aimed at boosting quality of service as well as enhancing employee relations, especially in winning over a new generation of workers that demand ease of use, transparency as well as flexibility in the workplace.

The builder’s trials and tribulations are symptomatic of the market forces at work with demographic shifts impacting its HR and customer pipelines alike, while competitive pressures are forcing companies like ABC to invest in new systems that can hide complexity from its employees as it places less emphasis on penny pinching, but more on metrics that maximize employee retention and job stability. The new system of record that ABC wants to establish for its HR function, or its entire operation for that matter, is designed to give it a better handle on its HR risk profile as it continues to expand and add people.

In 2017, plenty of companies will be in ABC’s shoes as they struggle to contain rising labor costs, while grappling with new technologies and perhaps an increased HR risk profile compounded by macro events that could be beyond their control.

Core HR Outlook

Here are our current projections for the Core HR segments through 2020. Click on each of the following segments to drill down the vendors that cater to those markets.

Exhibit 1 – Core HR Market Forecast 2015-2020 By Segment, $M

Core HR Segments, $M 2015 2020 CAGR, %
Benefit Administration 568 711 7%
Compliance 280 317 4%
Core HR 2967 3027 1%
Payroll 2396 2530 2%
Pension Administration 60 71 5%
Total 6271 6656 1%

Source: Apps Run The World, January 2017

In Core HR, which also includes performance management, traditional tools for personnel administration may give way to new Core HR apps that represent a dynamic system of record for multiple corporate functions from finance to legal in addition to HR.

Traditional Core HR applications vendors, which have engendered an array of existing and legacy systems, now face increased competition from conventional HCM companies including many that are migrating from HR outsourcing to HR technology selling and servicing via the Cloud. SAP, Oracle and Infor are logging heads with ADP, Paychex and Ceridian on a regular basis.

Top 10 Core HR Software Vendors

Other BPOs are beefing up on learning development to better differentiate themselves from competition.

Similarly, one of the biggest payroll service providers in the UK, MHR, formerly Midland HR, has invested heavily in HCM applications development. Currently it offers core HR, time and attendance and payroll applications to a large number of companies in the UK. Its payroll service already covers 10% of the UK workforce, or three million employees.

In 2016, Midland changed its name to MHR as it started laying the groundwork for global expansion including the US market. Currently MHR offers payroll services in Egypt, Germany and France.

Other vendors like Software Europe are aiming to transform the Core HR market, or general-business processes for that matter, by collapsing multiple functional areas into one via Cloud delivery. Software Europe now sells Cloud-based apps that span across human resources, finance, procurement and legal, allowing customers to develop more efficient processes by managing people, expenses, and contracts through a consolidated system that hides complexity along the way.

A system designed for HR can be extended to adjacent areas enabling users to configure workflows easily to accommodate similar processes such as approval of minutes for legal department and requests for budgets in finance, all of which can be accessed via the Cloud.

That kind of cross-functional aspect of Cloud delivery has made the likes of Gusto (formerly Zenpayroll) and Zenefits possible, especially in selling an integrated set of Core HR, payroll, expense management and benefits administration apps to midmarket where convenience and value trump features and technology advances.

In September 2015, ZenPayroll changed its name to Gusto as it continues to scale out its reach beyond payroll by addressing health benefits and workers’ compensation needs of millions of small and midsized businesses. Already Gusto has secured more than 40,000 customers running its payroll and HR software, doubling its customer count over the past few years. In September 2016, Gusto announced a full range of HR, onboarding, and benefits software with a $39 monthly base price and $6 per employee monthly fee.

Zenefits, which has raised more than $580 million in funding since its founding in 2013, now has more than 20,000 customers using its HR, payroll and benefits apps.

Then there is the freemium model that aims to challenge the incumbents by breaking down the pricing barriers. Flock is an all-in-one software platform to manage HR, Benefits, and Compliance. The free software is being subsidized by its partner network of insurance brokers that sponsor the benefits administration and compliance modules. Similarly, Goco has raised over $1.6 million in funding to go after the Zenefits installed base with a freemium approach to help sell its HR, benefits and payroll applications. Already, Goco said it has serviced nearly 30,000 companies.

Performance Management Outlook

Here are our current projections for the Performance Management segments through 2020. Click on each of the following segments to drill down the vendors that cater to those markets.

Exhibit 2 – Performance Management Market Forecast 2015-2020 By Segment, $M

Performance Management Segments, $M 2015 2020 CAGR, %
Compensation 330 393 5%
Learning 889 1109 7%
Performance Management 546 686 7%
Succession Planning 258 311 6%
Total 2023 2499 4%

Source: Apps Run The World, January 2017

The push to have continuous feedback and performance management could redefine corporate hierarchy as line managers and team members alike are calling for greater transparency, collaboration and better metrics to evaluate and improve one’s career path, while achieving work-life balance that adapts to the changing demographics.

The bottom line is that individual performance will have to be measured as much as that of the team.  Similar to any successful software development, small teams are more effective than large and matrix-reporting hierarchies.

In other words, companies may be better off investing in tools that put more emphasis on team performance than what an individual can bring to the table. With the advent of telecommuting, much of the work is handled by small teams that spread around the world. The stakes are much higher to sustain a team’s performance by leveraging tools that ensure smooth handoff of project milestones and deliverables from one person to another and even from one day to the next. Communication is the key, so is accountability and trust in the system. All these would require team members to share the workload as well as the reward, recognition and team-wide compensation.

Learning may well be the glue that binds together performance, compensation and competency management, delivering short tutorials and training videos on general topics and industry-specific subjects as in ViDesktop for legal, Flex Databases for pharmaceutical industry, and BirdDogHR for construction.

For many learning apps vendors, expanding a content library is a challenge. The same applies to fending off the ubiquity of Youtube and Lynda from LinkedIn.

All major HCM vendors including SAP, Infor and Workday have set their sight on Learning as one of their key areas of growth for 2017. The issue is whether users are better off with courseware, do-it-yourself microlearning development tools, or something perhaps more structured and extensible from HCM suite vendors. Another issue is whether the current crop of learning vendors are able to meet training requirements for new jobs like biofuels energy traders or drone operators that barely existed a few years ago.

Talent Acquisition Outlook

Here are our current projections for the Talent Acquisition segments through 2020. Click on each of the following segments to drill down the vendors that cater to those markets.

Exhibit 3 – Talent Acquisition Market Forecast 2015-2020 By Segment, $M

Talent Acquisition Segments, $M 2015 2020 CAGR, %
Applicant Tracking 568 766 9%
Contingent Labor Management 342 502 12%
Marketing 323 444 10%
Onboarding 307 401 8%
Recruiting 991 1243 7%
Sourcing 608 661 3%
Total 3139 4017 7%

Source: Apps Run The World, January 2017

In Talent Acquisition, technology and market forces will transform how companies hire and retain talent with the advent of recruiting robots, a new breed of job boards as well as the growing popularity of contingent labor management.

Top 10 Talent Acquisition Software Vendors

For example, Leoforce’s flagship product is a recruiting robot named Arya that finds talent through intelligence by learning from recruiters, remembering their best practices and repeating successful behaviors. Entelo does the same with Entelo Stack, which uses data science, machine learning, and directed scoring to automatically rank inbound applicants, making recruiters and hiring managers dramatically more productive and effective while improving key metrics such as quality of hire, time to hire, and cost per hire.

The influence of big job boards like Indeed owned by Recruit Holdings will increase as CareerBuilder and Recruit Holdings are flexing their muscles by acquiring complementary HCM apps.

In April 2015, Recruit Holdings of Japan acquired Aurion’s parent Chandler Macleod Group for $246.5 million, enabling the Australian software and staffing company to tap into Recruit’s vast resources such as job board Indeed for global expansion.

Aurion has invested heavily in its mobile and Cloud delivery of HR technologies for employee self-service, compressing the time to market and value. Its software development team can compile a clean build in as little as 7 minutes, compared with a day in the past. In addition to Aurion, Recruit Holdings has been partnering with Newton Software, the applicant tracking system and recruiting software division of Paycor, to allow candidates to apply to open jobs directly on Indeed.com via an Indeed Apply integration combining the job posting and application processes into a seamless experience.

In September 2016, CareerBuilder acquired WORKTERRA for cloud-based benefits administration and talent management apps. That followed CareerBuilder’s purchase of a majority stake in Textkernel in 2015 for its AI-based resume parsing technology.

What these developments underscore is the evolution of job boards, which have already usurped the dominance once held by newspaper classified ads for job posting. Now these job boards are going up the food chain by adding HR apps in order to become more entrenched with recruiters.

In the contingent labor segment, consolidation is on the rise. In December 2016, Beeline, a division of Adecco, merged with IQ Navigator, which is owned by private-equity firm GTCR, to better compete with Insperity, Peoplefluent, SAP Fieldglass, Upwork, Work Market, along with a host of upstarts.

For example, Wonolo is helping companies flexibly address their unpredictable labor requirements. From the platform, businesses can manage either their own internal workforce or Wonolo’s community of vetted on-demand workers and schedule work all in one place.

The expansion of the gig economy will fuel the growth of the above vendors, but not without afflicting damage to other vendors in the talent acquisition market as the composition of today’s workforce continues to shift. At a time when some workers either prefer or have no choice but to hold several part-time jobs, it’s incumbent upon the employers to leverage different tools to manage and optimize their full-time equivalents regardless of their status.

Workforce Management Outlook

Here are our current projections for the Workforce Management segments through 2020. Click on each of the following segments to drill down the vendors that cater to those markets.

Exhibit 4 – Workforce Management Market Forecast 2015-2020 By Segment, $M

Workforce Management Segments, $M 2015 2020 CAGR, %
Absence Management 359 515 11%
Fatigue Management 143 165 4%
Scheduling 1278 1622 7%
Task Management 214 290 10%
Time & Attendance 1312 1584 6%
Workforce Analytics 302 460 13%
Total 3608 4636 8%

Source: Apps Run The World, January 2017

In Workforce Management, any tangible productivity gain will have to be achieved through the development of a trusting culture that places a premium on job stability, positive employment experience and predictable business outcome over constant turnover, cost-based labor relation, and inconsistent results due to staffing gaps.

Similar to potential changes to the ACA legislation, the Overtime Pay rule in the United States could also be pared down. The Overtime Pay rule, which was scheduled to be enacted on December 1, was delayed following an injunction filed by a federal judge. The delay now leaves employers without a clear reason to invest in new time and attendance tools to better track the hours for certain workers in case of needing to pay them mandatory overtime.

Regardless of the outcome, the HR risk profile for any employer will only increase without the use of robust workforce management applications to optimize staffing levels, while giving workers more reasons than ever to stay put.

Top 10 Workforce Management Software Vendors

Take Ikea as an example, the Swedish-based home furnishings retailer in December 2016 announced up to four months paid parental leave to its US workers. Already, the use of absence and leave management systems is going up as more employers choose to extend flexible paid leave for parents of both genders.

In 2015 Macys adopted Kronos apps for self-scheduling among its army of store associates, boosting their morale. That raised the ante among other retailers that have been wrestling with the risks of giving their workers too much control over their schedules. Still, some big employers like Sodexho are considering following Macys’ move.

At a time when employers are trying desperately to become employee-friendly in order to better differentiate themselves in the eyes of new and existing hires, smart use of workforce management applications will allow companies to optimize visibility into their HR risk profile perhaps on a real-time basis, capturing signals that if unheeded could cost them dearly in the long run.

Again, as we get back to the trials and tribulations of the builder aiming to drive better returns for its long-term care facilities, while ensuring that the organization has the right system in place to accommodate the needs of its residents as well as its employees, one thing is clear.

Not doing anything is no longer possible as all employers are buffeted by technological, people and macro events that are reshaping our 22 HCM segments in what promises to be a tumultuous 2017.

Top 10 HR Software Vendors In 22 HCM Market Segments From HCM Top 500 Research

Check the Top 10 HR software vendors in 22 HCM market segment as part of our HCM Top 500 market research. These top 10 vendors are ranked by their latest annual product revenues attributable to that particular market segment. It also summarizes the market outlook and our forecast assumptions at the group level and for that segment, respectively.

Split by Sub-Functional Markets
 Top 10 Core HR and Performance Management Software Vendors

Further Readings

The HCM Top 500 report series covers more than 3,000 pages of content, make sure that you don’t miss any of the 500+ profiles by becoming a subscriber. Or you can catch the highlights with the following links:

Methodology

Similar to any of the hundreds of reports that we have published since 2010, HCM Top 500 is a labor of love. Since 2013, our team of researchers have been conducting rigorous research on thousands of HCM vendors, surveying them quarterly, reviewing their products at even shorter intervals because of the compressed Cloud release cycle, and discussing HR vision with their customers to better understand user needs as well as different paths to upgrade and replace their existing systems.

Each year we also attend many industry-wide and vendor-specific user conferences – HR Tech, Dreamforce, SAPPHIRENOW, Oracle Open World, just to name a few, to gauge what customers are looking for.

Throughout this process comes a rich database of more than 2,000 HCM vendors as well as over 50,000 HCM customers that have been touched one form or another through regular surveys, phone and in-person interviews, email exchanges, and social media interactions, etc.

On a proactively basis, we contact the vendors directly to tabulate their latest quarterly and annual revenues by HCM segment, vertical market, revenue type, region, country and customer size.

We supplement their written responses with our own primary research to determine quarterly and yearly growth rates in each of the 22 segments and 21 verticals, in addition to customer wins to ascertain whether these are net new purchases or expansions of existing implementations.

Another dimension of our quantitative research process is through continuous improvement of our HCM customer database, which stores more than one million records on the enterprise software landscape of over 100,000 organizations around the world.

The database provides customer insight and contextual information on what types of HCM, enterprise software systems and other relevant technologies are they running and their propensity to invest further with their current or new suppliers as part of their overall HCM and IT transformation projects to stay competitive, fend off threats from disruptive forces, or comply with internal mandates to improve overall enterprise efficiency.

The result is a combination of supply-side data and demand-generation customer insight that allows our clients to better position themselves in anticipation of the next wave that will reshape the HCM marketplace for years to come.

HCM Market Taxonomy

From hire to retire, HCM continuum extends across 22 markets, 21 verticals
From hire to retire, HCM continuum extends across 22 markets, 21 verticals

Definition of Human Capital Management (HCM) Applications

Core HR and Performance Management
Core HR and Performance Management Description
Personnel & Organization Management Core human resource management system, personnel records, HR master file, accruals, organizational development, org chart visualization
Payroll Payroll processing, tax filing, language support, country-level updates, payslip calculations, automatic deductions and other government requirements for proper disbursement of employee compensation.
Benefits Administration Benefits and health administration. Plan and design benefits lifecycle, billing and payment. Carrier solutions are also included for integration purposes.
Pension Administration Pension and retirement fund(401K) administration as well as software that helps manage profit sharing plan, defined benefit plan, or cash balance plan.
Compliance Compliance, regulatory updates and reporting including such laws as Affordable Care Act, Overtime Regulations, Fair Labor Standards Act
Performance & Goal Management HR performance management applications are designed to automate the aggregation and delivery of information pertinent to the linking of job roles and the mission and goals of the organization. More specifically, the system allows users to automate the performance review process by using mechanisms such as training and key performance indicators to continuously track and monitor the progress of an individual employee, work team, and division. Some of the key features include: Assessment of individual career objectives and organizational skills gaps that impede performance and job advancement. Continuous reviews and establishing milestones. 360-degree evaluation and real-time feedback. Performance appraisal automation. Goal setting and tracking. Employee surveys. Alignment of human assets to corporate objectives. Fast tracks for top performers.
Learning & Development Learning management systems refer to applications that automate the administration, tracking, and reporting of training events. Other tools may include courseware and other delivery, management, tracking, or integrated solutions whose focus is on the learning environment, including learning content management systems. Career development tools include apps for coaching, mentoring, employee development planning, and diagnosing of development needs.
Succession & Leadership Planning Identify and address current and potential talent gaps to create succession management reporting. Develop and maintain a continuous supply of internal talent to fill critical job roles. Improve employee engagement through digital tools to advance career path development opportunities.
Compensation Management Compensation management applications are designed to automate the process of providing cash, noncash, variable and nonvariable compensation to employees through advanced modeling, reporting, and built-in interfacing to payroll processing systems. Other key features include seamlessly manage compensation budgets and allocation in a single, shared tool. Streamline pay recommendation workflows and approvals. Support multiple pay and incentive practices. Ensure budget compliance and adherence to compensation guidelines. Quota and territory management. Calculation and distribution of commissions, spiffs, royalties, incentives to employees, and channel and business partners. Compensation analysis using internal and external data for retention risk analysis. Linking salary, commission and incentives — cash and noncash — to business objectives. Payroll and payment engine interfaces. Account payables integration.
Talent Acquisition 
Talent Acquisition Description
Applicant Tracking Applicant tracking software automates such functions as management of resumes, applicant information, scoring, workflow, matching, search, interview scheduling, job descriptions, EEOC reporting, job postings and notifications
Recruiting Recruiting applications are designed to automate the recruitment process of salaried and hourly employees through screening and skills assessment, as well as automated selection processes to improve hiring pipeline by identifying talent inside or outside the organization. Other key features include: Manage skills inventories. Create and manage job requisitions. Coordinate team collaboration within hiring processes. Video Interviewing, team building and digital coaching.
Marketing Applications designed to attract and engage candidates and employees. Other tasks automate functions such as candidate relationship management apps, career site technology, social recruiting, employee referrals, branding, video engagement, campus recruiting and internal hiring
Contingent Labor Management Processing of hiring of contingent labor, search, skills matching, assessment, interview scheduling, negotiation of rates, approvals, project milestone payments, project completion tracking, performance ratings
Sourcing Facilitate resource planning for staffing firms as well as vendor managed system, allowing for front office integration for employment agencies as well as talent acquisition apps designed for staffing firms.
Onboarding Applications designed to deploy workers to appropriate jobs, projects, or teams for accelerated on-boarding.
Workforce Management
Workforce Management Description
Absence and Leave Management Absence management applications offer automated features to support employee leave management, employer authorized leave, Short-Term-Disability/Workers’ Comp coordination, federal and state compliance, customized leave correspondence, medical certification processing, insurance premium payment tracking as well as employee self-service capabilities. Leave Management supports compliance activities related to government regulations such as the Family and Medical Leave Act in the United States and other local leave laws in different countries.
Workforce analytics Workforce analytics are used to analyze compensation, benefits, and other employee variables. These applications can also be used to analyze and optimize labor allocation for particular projects.
Fatigue Management Fatigue Management apps help automate key facets of fatigue risk mitigation, enforcing employee work-hour limits and aligning with fitness for duty best practices. Similar apps may act as electronic work diaries for real-time reporting and compliance with transportation laws.
Hardware (Time Clock) Time capture is the hardware platform that provides authentication features for clock-in and clock-out times, meal and rest breaks, as well as timesheet and payroll reporting and compliance.
Workforce Scheduling Products are designed to Increase forecasting accuracy by factoring in a variety of methods and historical patterns. Create optimal schedules to meet customer demands, while reducing costs and maximizing resources
Task Management Task Management offers labor management capabilities such as task-based and project-based activity tracking as well as measurement and reporting functions against performance standards like engineered labor standards, team standards and reflective standards.
Time & Attendance Time and Attendance applications are designed to automate employee time tracking in different locations, help reduce overtime expenses, improve payroll accuracy, eliminate pay errors and adjustments, along with the need to simplify and optimize administrative tasks and complex rate calculations by making available accurate and current labor data and full audit trail of payroll data.