The HCM Technology Landscape

Human Resource and Human Capital Management applications span a broad range of administrative and strategic applications for hiring, managing, and retaining employees. Overall, this $3 billion software market—based on licenses and software-as-a-service (SaaS) subscription revenues—is growing at a rate of 7%. Strategic applications, including performance/talent management and learning management systems, are growing at robust rates of 20% and 11%, respectively, while the more mature core HR systems market is growing at a rate of 3%. Even though the large ERP vendors, Oracle and SAP, provide a comprehensive set of HR/HCM capabilities, several best-of-breed vendors supporting strategic processes and workforce (labor) management are thriving.

The HR/HCM applications market continues to consolidate at a rapid pace, and many vendors are adopting a subscription model to achieve financial stability.¹³

Organizations spend anywhere from 40% to 70% of their total operating budget on payroll and other direct employment expenses. Those organizations embarking on the road toward maximizing their investment in human capital do so, initially and importantly, by identifying the workforce as an asset. This requires the same level of discipline for optimization and management that is expected of other business capital (i.e., financial, property, technology, equipment). Organizations expanding into new markets and developing new products and services depend on their people to conceive, communicate, lead, and execute initiatives.

The ability to rapidly address new organizational opportunities and challenges by developing and allocating the right skills is essential to workforce agility. Progressive HCM vendors are providing products that help companies establish business processes that manage the supply and demand of talent. These products enable organizations to optimize the knowledge, skills, and deployment of their workforce to meet the goals of critical initiatives through integrated and dynamic internal mobility, succession, career development, and advanced recruiting processes.¹⁴

The advent of Web-based software applications has impacted HCM in every major business process area, but too oft en these applications operate in functional silos, precluding true employee engagement and optimization. In turn, the software market has responded to enterprises anxious for integrated tools by offering software suites. In many cases, however, the vendor marketing messages are ahead of customer inclinations and abilities to take advantage of the breadth of the tools’ capabilities.¹⁵

HCM software can be divided into two major factions: core and strategic.

Core software, which represents half of sales in the market to date, consists of personnel records, payroll, and benefi ts administration. Strategic applications have evolved to support the major business process areas that traditional human resources approaches have been responsible for executing: recruiting, scheduling, training, and reviewing. These applications are driving the double-digit growth of the sector. The foundation of strategic HCM software is that integrating and optimizing these process areas should best enable employee execution of business strategy.

Web-based software applications have impacted strategic HR in every major business process area, with time and attendance as well as scheduling taking a leap forward with manager and employee self-service capabilities. Recruiting was one of the inaugural business areas that exploded on the Internet, and online training changed workplace education dramatically.

But the true transformation of HR through the use of technology has not yet been realized. While automation opened up what was once primarily an administrative function to the possibility of becoming the critical alignment mechanism to execute business strategy, different areas within human resources have undertaken automation in silos and precluded true strategic impact.¹⁶

PwC Saratoga evaluates innovation in two dimensions: one, to what extent an organization invests in innovation (e.g., the supporting infrastructure), and two, the extent to which it fosters an innovative culture. The two dimensions provide a balanced evaluation of innovation competitiveness, and an important measure of HCM effectiveness. A key indicator of the level of supporting infrastructure is the investment in research and development, a bottom-line financial indicator of corporate intent. What PwC Saratoga calls “shared experimentation” is demonstrated through actions taken to sponsor ideas and suggestions, establish breakthrough teams, involve customers and suppliers, and change structures and strategies to bring new products or services to market.¹⁷

As new technologies, approaches, attitudes, and insights into how individuals learn in organizations have come to light, learning within organizations—a key function of HCM—has evolved from siloed, functional training departments or course catalogs to a multi-faceted menu of formal, informal, social, technology-enabled, and in-person alternatives for an array of audiences. Finding the right learning options in the midst of these challenges is a signature part of ensuring that organizations can execute on their goals.¹⁸

Top learning organizations know the critical role they play in executing business strategy. Executing effectively, though, has significant challenges. Learning organizations that have the most profound impact on their business goals balance three key strategies to make the goal a reality: defining organizational competencies, making learning a consistent part of the employee life and lifecycle, and linking these practices to the business.¹⁹

The Consolidation of the Human Capital Management Market

In the past five years, the HCM market has undergone tremendous consolidation and organic development to bring these areas of functionality together in a more meaningful way. The idea is that if a company can identify its best people, it can improve its acquisition activities by hiring people with similar successful qualities. It can then better train its existing employees to meet that ideal and deploy these people as needed. Doing these activities in the same system promises synergy as well as the ability to use the same data, workflow, and reporting mechanisms to improve adoption and compliance.

But the market has evolved in such a way that these suite providers don’t do the same things: Companies with a learning management system background have a distinct development bent to their applications; companies that came out of e-recruiting have provided most of their capabilities in that realm.

These differences have confused the enterprise-community buyers that need to prioritize which strategic HCM initiatives to undertake today. Even individual HCM automation initiatives in one major strategic HCM area can be significant undertakings. These companies want to hedge their bets on the company that will be best equipped to support their next project down the line as pressures to hire, retain, and leverage personnel become more acute in the global 24/7 marketplace.²⁰