Would Human Resource Turn More Resourceful? The market for startups in human resource (HR) technology space is finally beginning to find backing from companies and investors. But would it be able to turnaround some big success stories?
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HR function has expanded its scope significantly in the past few years. From hiring people, retaining outgoing employees and managing payroll to strategic functions like learning and development, organizational design and talent management that includes competency management, performance management, succession planning, leadership development etc. There are many startups like CoCubes, SutraHR etc., that serve each of these sub-functions through technology ever since the likes of Flipkarts and Zomatos came into existence around 2007.
TRANSACTIONAL VS TRANSFORMATIONAL
In more than a decade, however, there have been few takers for the opportunity that this sector offers as most of the startups have been lured by other markets disrupted by technology like e-commerce, food, transportation, logistics etc. Nonetheless, the past 12-24 months have seen some green shoot investments driving the market sentiments up to create a large enterprise. The market size, on the other hand, varies from $34 billion to $400 billion as per various reports by Gartner and Deloitte Consulting. One of the reasons which can be attributed to this shift is that many companies' attitude towards the technology impact in HR functions has changed. A recent survey of HR managers by jobs site TimesJobs found 75 percent respondents are using technology to boost their HR practices such as centralized processes, better data management and improved productivity. While, the remaining 25 percent are still reluctant to adopt technology — a possible reason being the return on investments (ROI).
"The ROI in technology solutions for HR functions is not clear, unlike a sales software which gives a measurable increase in ROI. Can you say that your revenue would increase with better employee engagement? Hence, there might not be a direct correlation between them," says Saurabh Jain, founder, Benepik, a Gurugram-based startup that helps businesses engage and reward their employees via app, and provides them customized surveys and deep analytics. Radha Kizhanattam, investment director at seed-stage impact fund Unitus Ventures, which backed BetterPlace, a digital trust platform for managing blue collar employees, says, "If the HR solution is addressing softer aspects such as improving employee morale via better rewards and recognition programs, organizing fun employee engagement activities etc., measuring RoI in monetary terms is difficult. However in other areas like recruitment which directly impact the firm's business performance, there is straightforward RoI measurement."
The HR tech market can be put into two categories: transactional HR that includes solutions such as ERP to manage payroll, attendance, recruitment, etc and transformational or soft HR (which is hugely underserved) that caters to employee engagement, growth opportunities, setting the right culture to share feedback etc.
"There isn't any integrated experience platform and that's what drove me to launch Benepik. A bank, one of my clients, has been doing this offline but didn't have the technology to integrate all. Many companies have built fancy platforms around customer experience and journey for customers, we want same consistent experience for employees too," adds Jain. Adit Jain who runs an HR chatbot company Leena AI to automate HR helpdesk with instant replies, employee queries such as salary break-up, leave queries etc, also looks at improving transformational side of HR functions.
With clients including Coca-Cola, Marico, Pidilite, Axis Bank etc, Jain is also exploring the behavioral aspect of employees for better retention by the companies. The Y Combinator-backed startup has also acquired a company (name undisclosed) that uses its experience in augmented reality, virtual reality, and analytics to build solutions. He says, "There is a shift that has happened in HR as their job role to make sure operations (such as administrative services, recruitment, job analysis) run smoothly is limited to just 10 percent today. This will soon be reduced to twothree percent. Getting the right talent and talent engagement will become the central focus and from that perspective, we are in a very strategic position in a company's HR functions because it is not possible to individually understand thousands of employees in a company."
The market is still far from creating a unicorn. Some of the well-funded startups like HackerRank (a coding talent evaluation platform) and Belong (a predictive hiring platform) are yet to reach a significant valuation milestone. HR as a function always has a set budget allocated from management of a company and is a cost center for the company.
By that logic, as an HR startup, one is always automatically limited by the revenue that one can generate from the company. Hence, the pie of opportunity has been small to vie for. So, with many customers but with only a few million dollar revenues, it is doubtful to turn into a big company. However, the same cannot be said for across sub-sectors in HR.
"Consider a platform like LinkedIn. It is a classic HR product which went beyond simply creating a job portal to building a professional community, allowing individuals to build networks, find jobs and also get themselves trained. If you create a platform that is not limited by your customers being only the HR/learning and development functions in organizations (hence limited by the budgets they have), you will definitely be able to scale globally and build a unicorn," adds Kizhanattam. Vidyarthi Baddireddy understands that too. The co-founder at Reculta – a software-as-a-service (SaaS) startup that assists colleges and companies to conduct hassle-free campus placement processes claims the concept of SaaS never emerged earlier for campus placements.
"Companies like Naukri.com launched Firstnaukri.com for campus hiring but that didn't succeed because they had the business-to-business model simultaneously running with a business-to-customer model," he says. So while Naukri.com was working with institutions, it was also telling students to upload profiles online for recruitment. "Institutions, hence, showed resistance to Firstnaukri. CoCubes also tried this but it pivoted to doing assessments on behalf of companies in engineering colleges. We are a SaaS model and hence we are in the right place at the right time," adds Baddireddy.
The startup automates the placement process by providing insights to the placement team and the students. From every campus the data gets filled in a uniform format and the recruiter can objectively evaluate the candidate. The industry is yet to see the disruption similar to what happened in transportation with Ola or in hospitality with OYO. But it changed the way organizations recruit and manage people. However, there would be a few pockets of change that would grow big. For example, freelancing would gain pace tremendously for certain skill-based projects for a particular duration.
Secondly, robots would occupy a larger presence in the HR functions by conducting interviews and recruiting people using artificial intelligence and machine learning to help in more objective and unbiased assessment of people. They would also be better in observing non-verbal behavior such as body language, eye contact, self-confidence etc. For HR personnel, on the other hand, the role will be increasingly strategic. "They will be more empowered to make data-driven decisions at the right time. For instance, if the bot alerts that an employee is planning to leave then it would be the HR's job to get involve before he or she quits and retains the employee," adds Adit. Setting the culture right early on in the life cycle of a company is critical for its success. Particularly, when startups raise money and scale, apart from operational challenges, the culture of the organization risks getting diluted.
Technology, here, can help bring some uniformity and efficiency in processes, for example, newemployee training and onboarding. "These sub-functions and other HR process-related functions can be supported with technology solutions freeing-up time of the HR team to handle more peopleintense activities like recruitment, internal relations etc." says Kizhanattam. It is thus, companies that offer integrated HR experience would dominate the market in the next five years. And those focusing merely on one or two aspects might be acquired.
(This article was first published in the November issue of Entrepreneur Magazine. To subscribe, click here)