The Ups and Downs of HRTech Disruption

(It kind of sucks right now, but it’ll get better)

Aaron HuangThis month has been a great opportunity for meeting new companies, benefits and people specialists, and technologists at HRTech, the EBN Benefits Forum, and other meetups. One thing is certain: there’s A LOT to digest!

 

#EcosystemDivergence—Disruption

Sigh. It used to be so easy. While ADP and Workday didn’t really evoke the warm and fuzzies, everyone knew what they were dealing with.

Known knowns are better than known unknowns, or even worse, unknown unknowns.

But we’re witnessing a phase shift, not just in technology, but in how the wider culture is affecting this change. 1.0 HR systems are not geared towards the ways new, modern organizations are being managed, engaged, and driven successfully.

Unfortunately, we also know that human beings change slowly, which makes culture one of those great brand marketing labels, but internally create a bit of cognitive dissonance. There are a few patterns coming into play in the next 12-18 months.

Systems of Record

The original all-in-one systems still tout fully integrated products true to form. Yet the marketplace has spoken. ADP is known for payroll. Workday is known as an HCM solution. They have both been marketplace tested, and the marketplace primarily uses them for their most robust feature sets. So too, will newer 2.0 all-in-one systems similarly over time have their own brands defined by their most robust feature.

1. All-in-One: ‘Closed Open’ Ecosystems

The newer all-in-one systems have neither the funding nor the architecture to be far enough along to really drive a high customer satisfaction on all areas of their stack. What they do have is great marketing and value propositions in an era of smaller People teams, higher overhead, and a greater focus – especially for earlier stage 100-250 person companies – on recruiting and talent management.

Their platforms are what I would call ‘closed open’. They don’t play with other competitive solutions, but they will open up to 3rd party plug-ins that don’t openly compete with their stack. But if the original all-in-one systems could not accomplish this feat, I am skeptical newer 2.0 systems can.

2. All-in-One: ‘Begrudgingly Open’ Ecosystems

In fact, what is interesting to see are 1.0 systems like ADP, Paylocity, and Ultipro expanding their marketplace ecosystems to compete with the slew of new vendors in the space. This offensive/defensive move makes sense as their install bases for payroll are still extremely sticky (no one likes to switch our payroll, and don’t even try to fight finance!).

While Zenefits didn’t ‘succeed’ from an investment point of view, they did shake these 1.0 vendors out of their market dominance complacency in the small/mid-size market.

Arguably that will be good for everyone in the long term. The market forces have now spoken and told these vendors they are good for their main feature (payroll). Their other modules could “use some work” but at this point, their legacy architectures will be extremely expensive to re-architect for the modern use cases that new companies are creating in droves.

3. Best of Breed

Which leads me to the last section, where companies like Lumity stand. HR is a complicated landscape.

Is it elegant to tell a client you’ll do everything, or do one thing very well?

It’s seductive to think that a single vendor can accomplish all use cases – but the simple fact is that all companies (and teams) are not the same. On top of that, the vagaries of the health insurance/healthcare market are driving a new crisis in affordability, and at some point, we will see margin compression from rising healthcare costs affecting all companies in this country.

Don’t get me wrong – integrated workflows are critical.

That’s why Lumity is partnering with many players in the space. But tying the broker + benadmin piece together and plugging into your existing payroll now addresses both workflow and cost drivers, one pain point being day-to-day systems, the other being a slow (sometimes abrupt) boil – but both being mission critical to the success of your people and your business.

By the way, the other pattern I see here is People professionals from larger companies moving into innovative, smaller start-ups. There needs to be education around *when* certain systems of record, both payroll and HCM, are necessary at certain lifecycles of a business. There are too many narratives I’ve heard out there of 12-18 month Ultipro, Workday installations that go horribly awry – carrier integrations notwithstanding.

Part of my #HRPitchfest was this notion borrowed from AI – ‘Humans in the Benefits Loop’ – we are really still in a 1.5 ecosystem. Nothing is fully automated and only ‘just works’ if either someone on your side or your vendors truly has the expertise to pull the right levers and the right time for the right use case. Which segues into the AI discussion.

Talent Management a la ‘AI’

Let’s face it – anyone with a bit of algo background and a data engineer with a design spin can create a Talent Management / Employee Engagement platform ‘powered by AI’. What no one tells you is what the machines have learned, if anything. They just tell you that the machines can or are learning.

AI is being positioned as enhancing the recruiting experience, but I still haven’t met a machine that can beat an expert human being and their intuition. And each time there’s a ‘success’ story, both machines and humans will rejoice in what are arguably false positives and cognitive bias.

The vendors push the envelope, but be aware and make sure there truly are ‘humans-in-the-loop’.

Your due diligence here will really still be about how integrated these systems are into your downstream workflows.

Truly, the real test will come once the funding environment becomes less exuberant and some of the less robust vendors shake out of the ecosystem. Vendor analysis in this marketplace is extremely challenging – it’s best to make sure you do your due diligence and also back channel current customers in your private HR groups.

#EcosystemBifurcation—A 2.0 World

There’s an ongoing battle between legacy systems and newer solutions. The market will probably bifurcate into companies with simple enough use cases (<100) to use all-in-one systems and those whose use cases necessitate best-of-breed solutions.

What is increasingly apparent is that smaller companies are becoming more complex in their HR and People processes earlier, due to the war for talent, remote work, newer leave policies that reflect the modern cultures of our time, etc.

With modernity comes a balance of power towards skilled (and scarce) knowledge workers, and innovation now flows back to the folks on the People teams – something we’re excited about for the future of our workplaces and cultures.

As a quick synopsis of my healthtech/benefits panel at #EBN this past week – there was a lot of discussion around where these data insights are leading us, a la the ‘consumerization’ of healthcare. There is really a dearth of professionals capable of managing these types of programs in-house, let alone at sub 500 person companies. So let’s acknowledge that, and let’s also acknowledge that most people in this country work for companies with less than 500 employees.

Solution providers like Lumity, Amino, CostofCare, and Abartys Health are going to have to integrate, analyze, and proactively recommend actions for employees.

The healthcare system is too complicated for the average consumer/employee.

While this is the case, we will also have to find ways to unmask and demystify the process through ongoing education at the points of decision, and to ensure there are adequate ‘humans in the benefits loop’, not just AI, that advise on what is arguably the most emotionally-laden personal finance and health-related decision people have to make every year.

In short, it’s complicated, but we’re making progress.

Stay glued to your seats. Keep calm and keep plugging away at Big Hairy Audacious Goals.

Also, check out some ongoing vendor analysis I’m doing HERE.