The Adoption of HR Technology by Small Businesses

What percentage of small businesses have implemented an HR system?  (i.e. an  HRIS/HRMS (Human Resources Information/Management System), Talent Acquisition (Recruiting / ATS – applicant tracking system) or Talent   Management System?)

A little online research reveals the adoption rates of HR technology at mid-market and enterprise levels as follows:

• Enterprise level adoption rates have been forecast as high as 85% (although less than half are in an “intermediate” or “advanced” stage of talent management utilization).
  • “Talent Management Software (@ the Enterprise level) purchases were flat to slightly up in Q1, and we believe the market grew slightly (3-5% in Q2)”. 
  • “Only 14% of (Enterprise) buyers use their ERP or HRMS vendor for talent management.” Bersin Blog.
• Numerous “experts” (read: online bloggers) have speculated that approximately 60% of the mid-market has partially adopted an HR system.
• Thirty-five (35%) percent of companies with 2,500 employees  have adopted a module (www.unitedBIT.com) of HR technology.

Having worked with more than two-dozen HRO, HR consulting, and HR technology firms over the last few years I can verify first hand that less than 1 in 10 small businesses have implemented a ‘holistic Talent Management’ system.  Ephor’s primary research reveals that the  majority of small businesses have outsourced payroll and benefits, a third have outsourced recruiting at least partially, and firms handle the remaining components of ‘Talent Management’ with internal resources or not at all!

Some discussion related to the topic of why there has been lackluster adoption of HR technology by small businesses recently took place at  HRmarketer Blogpost on the state of small business HR technology adoption with Steve Boese (professor of Human Resources Technology at the Rochester Institute of Technology).  Steve attributes the lack of adoption to the following:

1. the perception that technology offerings are very expensive,
2. the perception that HR technology is complex, and
3. the fact that for companies with limited resources adopting a new technology can be a daunting task (i.e. people are unaware of what is available).

But rather than debate the adoption rates of small business perhaps a more interesting question is at what inflection point, on average, do growing and high potential organizations adopt HR systems?

Depends on the industry, access to capital (i.e. if they are venture funded the implementation of a ‘holistic talent management platform’ occurs much earlier: as little as $1M in annual revenues), and growth rates, but on average the starting point occurs around 300 to 600 employees and the tipping point depends on the complexity of the business and sophistication of the management team. I would further assert that less than 5% of the small business marketplace is getting the needed value from their “payroll/benefits plus” system highlighting a tremendous gap and opportunity.

A few notable small business players that service the less than 100 employee market to watch include:

Zoho (http://people.zoho.com/jsp/iamlogin.jsp), Taleo (www.taleo.com), PCRecruiter (http://www.pcrecruiter.net/home.htm), People-Trak (http://www.people-trak.com/), and Vana Consulting (implementation firm for Zoho)(http://www.vanaconsulting.com/). 

I am sure that I am leaving someone out?

Comments

[Mark Willaman]

OUTSTANDING blog post Charles! And thanks for including HRmarketer in your blog. I wrote a blog aabout a year ago on a related topic, "The Consolidation Myth in the HR Marketplace. And the Importance of Marketing" that touched upon some of these themes you talk about. Check it out here: http://hrmarketer.blogspot.com/2008/11/consolidation-myth-in-hr-marketplace.html

While I don't want to as you say "debate the adoption rates of small business" I do believe that cost (and limited choice) has been a major reason for many small businesses reluctance to invest in HR systems (not the only and maybe not the primary reason) but with costs coming down so significantly and more HR technology companies entering the space and more savvy buyers the inflection point that you discuss is likely to be lower in the coming years.

- Mark Willaman, Founder of HRmarketer.