HR Software Considerations for Small-Business Buyers
IndustryView | 2014

The human resources (HR) software market is segmented, with a range of vendors offering different applications specialized to meet different business needs. This report will provide small-business buyers with insight into the most common applications and packages offered by HR vendors. This information can help these buyers determine which applications to prioritize when working with a limited budget.

Key Findings:

  1. A stand-alone applicant tracking system (ATS) was the most commonly available product offering for potential buyers, offered by 34 percent of vendors. This is an affordable option for small-business buyers with limited budgets.
  2.  
  3. Applicant tracking and applicant sourcing were offered together by 10 percent of the vendors evaluated in this report. This combination of applications is well suited for smaller organizations that have high-volume hiring needs.
  4.  
  5. Small-business buyers most often requested personnel tracking, benefits administration and applicant tracking, but only 17 percent of vendors offered these together, as part of an integrated suitemeaning buyers may need to purchase applications from multiple vendors.

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Introduction

Choosing the right HR software is an extremely important—and often difficult—choice for small businesses. Software can be expensive, and while organizations may hope to purchase multiple applications, budget constraints may not allow them to buy their entire wish list of products.

To help these buyers better understand the HR software market, we will first define two primary areas of functionality: core HR and strategic HR.

  • Core HR encompasses the three traditional human resources management functions: benefits administration, personnel tracking and payroll.
  • Strategic HR involves growing your company by attracting and developing the best talent, and improving the way you manage your workforce.

With these definitions in mind, we analyzed the available applications offered by 284 software vendors. We then compared our findings with data collected in Software Advice’s previous report on ATS buyers to determine what application pairings are available, and which of these buyers seek most.

Applicant Tracking the Most Commonly Sought Strategic HR Application

When we analyzed our data on buyers’ requests spanning the entire human resources market in 2014, we found that applicant tracking—also known as "talent acquisition"—was one of the most common HR software applications sought by buyers, second only to personnel tracking. And looking only at strategic HR applications, applicant tracking was by far the most popular.

Top-Requested HR Applications

Top-Requested HR Applications

Strategic HR is a relatively new area of functionality in the HR software market, and thus may not be well understood by many small-business buyers. As Brian Sommer—an HR tech analyst of almost three decades and a writer for ZDnet, a technology news publication—points out, “The advent of these talent acquisition [applications] … is still in the formative stage.”

Given the high demand for ATSs by small businesses, as well as their relative novelty, we decided to dig deeper into how vendors are offering these solutions. Can buyers expect to purchase an ATS while also meeting their needs for the core HR applications that scored highly on their list of requests?

Stand-Alone ATS the Most Common Vendor Offering

First, we wanted to learn what applications vendors offer in conjunction with applicant tracking systems. The graphic below illustrates the most common application combinations buyers can expect to find, with each row representing a different available combination.

Most Common ATS Application Pairings

Most Common ATS Application Pairings

By far, the most common offering on the market was applicant tracking as a stand-alone system, with 34 percent of the vendors we analyzed offering just an ATS and nothing else. From there, the combinations leveled off quickly. The next most common offering was ATS paired only with applicant sourcing, with 10 percent of vendors offering this combination.

Meanwhile, 3 percent of vendors offered an almost-complete talent management suite, missing only applicant sourcing and video interviewing. Next up was the combination of ATS with employee scheduling, also at 3 percent.

While these findings are strictly limited to vendors offering applicant tracking systems, these combination trends can be extrapolated to the broader HR market. The HR talent management suites are targeted toward larger businesses with bigger budgets. Meanwhile, Sommer reasons that many vendors may offer stand-alone applications due to the limited technology budgets of small businesses’ HR departments.

“Money is so tight for these firms that they’re never going to spend more than the absolute bare minimum for whatever technology they’re going to use,” he says. “All they can afford is to buy a single, stand-alone app.”

So while buyers may want to purchase more than one application at once, limited resources often prevent them from doing so. And because applicant tracking is a much more complicated process than buyers’ other top request—personnel tracking—the need for an ATS often trumps the need for personnel tracking software.

This is because applicant tracking requires employers to store applications, schedule interviews and update applicants’ status throughout every stage of the hiring process. Personnel tracking, on the other hand, can generally be handled more easily with manual methods, such as spreadsheets.

Vendor Offerings Don’t Reflect Buyer Requests for Core HR and ATS

Next, we compared the above vendor offerings with our previous report on buyers who contacted Software Advice in 2014 seeking an ATS. In that report, we evaluated what system buyers were using at the time to track applicants, what pain points they were experiencing and why they were seeking a new system. We also asked these buyers what applications, in addition to an ATS, they needed to improve their day-to-day business operations.

We found that many of the buyers seeking an ATS were also seeking core HR applications, such as personnel tracking and benefits administration (mentioned 26 percent of the time).

Top-Requested Apps Supplementing ATS

Top-Requested Apps Supplementing ATS

Source: Applicant Tracking Small Business BuyerView | 2014

While most ATS buyers were also seeking applications that fell under the umbrella of core HR, we found somewhat of a discrepancy between what vendors offered and what buyers were requesting. As you can see in the chart below, while over one-quarter of buyers in our sample (26 percent) requested benefits administration in conjunction with an ATS, only 19 percent of ATS vendors offered that functionality.

We were surprised to find several other mismatches between vendor offerings and buyer requests. For instance, 29 percent of vendors offered performance reviews, while only 14 percent of buyers actually requested this application. Similarly, while 33 percent of vendors offered onboarding, only 9 percent of buyers requested it.

Available Applications Supplementing ATS

Available Applications Supplementing ATS

Sommer notes that this discrepancy is likely due to the fact that many of these small businesses have outsourced their payroll, leaving HR’s administrative functions—benefits administration and personnel tracking—to be handled in-house.

When these businesses are extremely small, Sommer says, “they have a very small, manageable number of employees” that can easily be tracked using manual methods. However, as these companies grow, these methods become less tenable.

In fact, our BuyerView research also revealed that, aside from the need to improve efficiency, company growth was the top reason buyers sought new software. As these companies were likely tracking applicants as well as personnel and benefits manually prior to growth, it is logical that they would prefer to purchase these applications simultaneously.

Conclusions

Among small-business software buyers, we found that applicant tracking was the most commonly sought strategic HR application. Digging deeper into the data, we found that these buyers most often sought out two core HR applications in conjunction with an ATS: personnel tracking and benefits administration.

However, the application pairings offered by vendors do not always align with the wish lists of buyers. As Sommer points out, this is due to the fact that many ATSs are designed for businesses that generate more than $100 million in annual revenue: mid-market to enterprise-level buyers. Therefore, in order to purchase both applications from a single vendor, buyers may need to purchase a larger suite, with many additional applications they may not want or need.

In addition to the limited budgets of buyers in the small-business category, the history of the HR software market may also play a role.

According to Sommer, many vendors enter the HR space from one of two fronts: “Either from the talent management side of the world, or from the more procedural, operational HR management side, where you have payroll [and] benefits.” As a result, the vendors that offer applicant tracking often do not also offer core HR products.

However, there is good news. Many vendors offer buyers the option to pick and choose the applications they need, although this often isn’t made clear on vendor websites. When evaluating vendors, buyers should always ask if picking and choosing applications is a possibility.

Methodology

To find the data in this report, we combed top lists of applicant tracking vendors, and performed Internet searches in order to compile a data set of 284 applicant tracking vendors. We then reviewed each of these vendors’ websites to gather information about the applications offered by each. This information was then compared to the data collected in Software Advice’s Applicant Tracking Small Business BuyerView report from 2014.

Expert commentary solely represents the views of the individual. Chart values are rounded to the nearest whole number. If you have comments or would like to obtain access to any of the charts above, please contact erin@softwareadvice.com.


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