hfs blueprint guide: predictive capabilities in hcm...

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2017PredictiveCapabilitiesinHCMSystems1

HfSBlueprintGuide:PredictiveCapabilitiesinHCMSystemsFebruary2017|Author: SteveGoldberg,ResearchVicePresident,HRTechnologyandWorkforceStrategies,HfSResearch

WhatYouNeedtoKnowAboutPredictiveCapabilitiesinHCMSystems

Nowthatsolidprogresshasbeenmadeonthesocial,mobile,andcloudfrontswithintheHRTechnologydomain, people analytics, and specifically predictive analytics or “bringing science to human capitalmanagement(HCM)”,hasbecomeagreatcandidateforin-depthanalysis.Therearealsosomeinterestingandperhapsnot-so-obviousorwell-knowndynamicspertainingtotheadoptionofthesecapabilitiesbycustomers,andaroundtheinvestmentinthesecapabilitiesbyenterpriseHCMSoftware(orHRSystemofRecord,HRMS)providers.Thesedynamicsincludethefollowing:

» Manyvendorsandcustomersareplayingawaitinggame:HfSResearchbelievestherearethreemain reasons: (1)Bothpartieswant to seemore signsof returnon investment (ROI) as thesepotential investments (from either side) are typically not modest. (2) There is change andinnovationoverload,orperhapstoomanychangestoabsorbatonce.Thesechangesincludetheshifttothecloud,leveragingsocialmediaandsocialcomputinginHCM,aswellasnewcognitiveandartificialintelligence(AI)capabilitiesinthesesystemsthatshowconsiderablepromise,plusthe regularity of other types of HR transformation initiatives within organizations. (3) TheEuropean Parliament’s shake-up of data protection laws (EuropeanUnion Directive 95/46/EC)aimedatgivingcitizensmorecontrolovertheirpersonaldata,inadditiontoharmonizingcountry-by-countrydataprivacyregulations.Compliancewillberequiredandenforcedbymid-2018.Asalways with complicated regulations, interpreting and then operationalizing the changes are“causeforpause,”sotospeak.

» Solutionproviderswantspeedandscalability:AsreportedinHfS’soontobepublished“StateoftheOutsourcing, SharedServicesandOperations Industry Survey”and shownbelow, softwareindustryexecutivesviewspeedtomarketandscalabilityasmissioncritical.Clearly,thedecisiontoproductize a predictive capability set does not flow naturally from these business goals,irrespectiveofthepotentiallycompellingbusinessbenefitstocustomers.



Exhibit1:Software&Hi-TechThoughttheseC-SuiteDirectivesWereMissionCritical

Source:HfSResearchinConjunctionwithKPMG,“StateofOperationsandOutsourcing2017”Sample:n=454EnterpriseBuyers

» IdentifyingemployeeflightriskwasthefirstpredictiveHCMcapabilityformanyHCMSystemsvendors,butotherexcitingusecasesarenowbeingbroughttomarket:ThelogicalreasonsforthepopularityofretentionorflightriskamongHCMvendorsincludethefollowing:

(1) Thebusinesscaseforvendorsandcustomerstoinvestinthis“intel”isverycompelling,asmostindustrybenchmarksconservativelyputthereplacementcostofkeyemployeeswhovoluntarilyleaveatonetotwotimestheircompensation.Thisbenchmarkisgenerallyconservative.Althoughitoftenreflectssearchfeesandtemporaryproductivitydips, itdoesn’tusually factor inotherpotentialbusinessrisks,suchaslosingkeycustomersorotherkeystaffordelayedprogressoninitiatives.

(2) Theriskofbeingwrongisnotthatsevereorconsequential,eitherintheformof“falsepositives”(identifyingsomeoneasat-riskwhoisn’t)or“falsenegatives”(missingsomeoneat-riskwhothenleaves). Having a coaching sessionwith an erroneously identified at-risk employee is neitherdisruptivenorcostly;andnotidentifyingahandfulofat-riskemployeesbeforehandoftenleadstotheadjustmentofHCMpractices.

(3) Factors that contribute to employee retention risk do not vary much from organization toorganization,forexample,aperceivedunfavorablechangeincompensationorbenefitsplans,anew line manager, excessive change or uncertainty in the operating environment, a longercommutetowork,orslower-than-expectedorpromisedcareerprogress.Thesimilarityoffactors



meansthatthetime,effort,andmoneytodevelopandthen“tune”algorithms(thepredictiveengine)aremuchmoremanageable.

ThefollowingchartcapturesvariousexamplesofpredictiveHCMusecases,someofwhichHCMsolutionprovidersandcustomersmightconsiderinvestingin.Basedonourmanyconversationswithbothsidesofthisinvestmentequation,andasdepicted,it’seasytoseewhypredictingflightriskhasbeensopopularwithearlyadopters.

Exhibit2:PredictiveHCMUseCases–IllustrativeExamples

Source:HfSResearch2017

» Biggercustomerandproductfootprintsarenotapanaceawhenitcomestobringingproductinnovationstomarket:Yes,theseusuallycorrelatewithadditionalandmoresubstantialsourcesofrevenueforenterprisesoftwarecompanies,butbiggerfootprintsalsoimplyadditionalpotentialprioritiesacrosswhichtospreadfiniteoperatingbudgets.TheseprioritiesincludeR&Dbudgets,account management and customer support resources, sales and marketing spends, plus the



continuedfundingofcurrententry-levelproductsinordertoachievemorecompetitiveorevenmarketleadershipranking.It’sasimplecaseofnotbeingabletomakeeveryproductareaapriorityeveryreleasecycle.

Thenthereistheoldaxiomthatlargerplayersaretypicallynotasagile.Whentrue,thisaxiomispartially due to amore complex andbroader changeprocess.However, investing in emergingcapabilities (beforetherearemanyproofpointsaboutrevenueoradoption) isoften justifiablysupersededbypreventingthe“negativemultipliereffect”:Losingonecustomerprobablyrequiresfiveormorenewcustomerstooffsetthe loss,asthecompetitorthatwinsoverthatcustomeroften captures away more market share if promoted well. Customers love displaced vendorexamples.Thisdynamicoften influencesvendors toprioritize long-standingcustomer issuesorcomplaintsoverrespondingtonewlyidentifiedinnovationopportunities.

» Theso-calledsecondtierissometimesthefirsttier:TheBig3intheHRTechnologydomainbymarketshare—allHRMSplayersvs.TalentManagementSuiteorPointSolutionvendors(namely,Oracle,SAPSuccessFactors,andWorkday)currentlylagbehindseveralotherHRMSproviderswithfar less capitalization. As shown in theMarket Grid within this report, not only did UltimateSoftware, Kronos, and Cornerstone OnDemand score better on the Innovation and Executioncriteria we associated with predictive HCM capabilities, but also several lesser-known HRMSvendorsbycomparison(Infor,Ramco,andUnit4)wereevaluatedasclosetotheBig3onthesecapabilities.Finally,there’softenmoreacquisitionactivityacrossthelargerplayers,whichrequiressignificantattentionandresourcestointegrateacquiredassets(people,products,andcustomers)effectivelyandquickly,somethingforwhichthe industryasawholehasn’talwaysearnedhighmarks.

AboutThisBlueprintMarketGuide

TheprimaryaudienceforthisHfSBlueprintMarketGuide,aswithmostHfSresearch-basedguidance,isthebuyerorcustomercommunity.Thatsaid,HCMsolutionvendorsshouldalsoderivevaluefromtheinformationshared,includingsolutionvendorprofiles,keythemes,andimplications,howweplacedthegroupofninevendorscoveredintheInnovationandExecutionGrid,andwhatwecanexpectinthisspacegoingforward.

WeusetheBlueprintMarketGuideapproach(vs.amoredetailedanalysisofcapabilitiesandcustomerbusinessissues)whentheareawearecoveringisnew,mostprovidersareonlyatthebeginningoftheirsolutionmaturity cycle, andmost end-customers are still figuring outwhat their strategy should be.PredictiveHCMcapabilitiesunequivocallyfitsthebill.Additionally,inourBlueprintMarketGuides,HfSemphasizesa solutionor servicesprovider’scommitment to,andearlyexecutionof, relevantproduct



innovation.Theresultingbusinessimpactsonbuyingcustomers,andtheirpotentialchallengesinderivingbusinessvalue,arealsogivensignificantattentionintheseresearchefforts.

ThescopeofthisGuideisHRManagementSystem(HRMS)platformsorHRSystemsofRecord,andtheirproviders.Thus,wedidnotincludevendorsthatspecializeinoneareaofHCMorspecializeinanalytics.ComparingananalyticsvendorornicheTalentAcquisitionsoftwarevendorwithcompellingpredictivecapabilitiestoanHRMSvendordoesnotmakemuchsense,whenthelatter’sproductsuitehasamuchbiggerandbroadermission:serveasanenterprise’smainsourceofpeopledata.

Finally, althoughHfS coined the term “As-a-Service Economy” tooriginally refer to services providersleveraging such elements as on-demand operating models, enabling technologies, design thinking,intelligentautomation,andreal-timeanalyticstodrivematerialbusinessoutcomes,youwillalsoseetheAs-a-Servicemonikerinoursoftwareproductsevaluationgrids.Manyofthesamecoreidealsthatpertaintomodernservicescompaniesarealsocritical success factors forenterprisesoftwarevendors,as thefollowingchartshows.

Exhibit3:MappingAs-a-ServiceCoreIdealstoHCMSoftwareDomain

As-a-ServiceIdeal

EssenceofIdeal ImplicationsforHRTech/HCMSoftwareVendors

WriteOffLegacy Adoptingthemindsettooverhaulobsoleteprocessesandwrite-offtechnicaldebt;preparednesstoinvestinchange

§ Modernized,uniformuserexperience

§ Movetocloudandopenarchitectureorwebservices

§ Acquiredproductsintegrated,legacysunset

DesignThinking Definingandprioritizingoutcomes

§ Newproductcapabilitiesmappedfirsttodesiredbusinessoutcomesandsolvingbusinessproblemsofstakeholdergroups

BrokersofCapability

Sourcingandmanagingexpertisebypullingallavailableleverstooptimizecapabilitygaps

§ Partnershipecosystem(techandservicespartners)designedtoaddvalueseamlesslyandincustomer-specificways



CollaborativeEngagement

Identifyingandmotivatingsuppliersasbusinesspartnerstoachievedesiredoutcomes

§ Softwarevendormakesunderstandingcustomerbusinesscontextapriority

§ Softwareandservicessuppliersworktogetheroncustomer’sbehalf

IntelligentAutomation

Embracingautomationandcognitivecomputingtoaugmenthumanperformance

§ Embracesthebenefitsofcognitivecomputing,machinelearning,andNLPasdemonstratedinR&Dspendandroadmap

AccessibleandActionableData

Applyingforward-lookinginsightstoreal-timedatawithmeaningfulbusinesscontext

§ Offersreal-time,robust,highlyconfigurable,andbusiness-integrated“peopleanalytics”engine,withactionabledashboardandalerts

HolisticSecurity Proactivelymanagingdataacrosstheentireservicechainofpeople,systems,andprocesses

§ Bestpracticesdrivesecurityarchitecture,useraccessmodel,datatransmission,andencryptionmethods

§ SOCauditsandcertificationsinplace

PlugandPlayDigitalServices

Pluggingintoreadytogooutcome-focused,people,process,andtechsolutionswithsecuritymeasuresandconsumption-basedpricing

§ Vendorfacilitatesorencouragesleveragingofcomplementarythirdpartyapps,tools,andcontent

§ Value-basedpricing;e.g.,formodulesused

Source:HfSResearch,2017

TrendsandThemes

HfS has identified the following trends and themes as having the most relevance for not only HRTechnologybuyersbut also suppliers. These trendsall pertain to the still emergingareaofpredictivecapabilitieswithinHCMSystems,andofcourse,theirpotentialbusinessvalue:

» AsexploredinourPOV“TimetoPredictiveValueinHRTechnology,”thetimetopredictivevalue(TtPV) is defined as the average length of time it takes for a typical customer organization toconsistently experience the predictive capabilities within a technology tool or system, and



thereforederivemeaningfulandincrementalbusinessbenefitsfromthatsolution.TheshortertheTtPV,thebetter.

ThekeyforHRTechnologycustomerstoexperienceafavorableTtPVwithdeployedtechnologiesstems from the ability to account for, and minimize, a broad range of potentially relevantoperationaldependencies.Thesourceofthesedependenciescanbeproduct,vendor,and/orend-customer-linkedandincludes:

(1)Vendorand/orcustomerhasaccumulatedoraggregatedalargeenoughandrelevantdataset.Thisrequirestime,oftenmanymonths,althoughthecyclecanbemateriallycompressedwiththetechnology-enabledcapabilitytoretrospectivelybuildthedatasetbasedonhistoricaldataandactivity.

(2)Vendorand/orcustomerhassufficientanalyticsanddatasciencecompetenciesamongstaff—andenoughstaffwiththesecompetencies.Thistakesfinancialresourcescommitment;andthesizeoftheinvestmentistypicallyafunctionofthescopeofthepredictiveHCMprogram(customerside)orcapabilityset(vendorside),andtheinvestmentsaregenerallyadjustedup/downbasedonROIachieved.

Forexample,Google’sHRprogramsareoftencitedasbestpracticesandarefrequentlyassociatedwithGoogle’sinvestmentinpredictiveHCManalyticsandthenactingonwhattheanalyticstellthem.VariousindustryaccountshaveestimatedthesizeofGoogle’sPeopleAnalyticsTeamatasmanyas30full-timestaff(notconfirmedbyGoogle).Thebenefitsandbusinessimpactshavebeensignificantand far-reaching, andpresumably justified the team’sexpansion.Benefitshavealsobeenserendipitousonoccasion.Forexample,whenthecompanywasdevelopingalgorithmstopredictthebesthires indifferentroles,Google(unintentionally)alsodiscoveredthatvery littleincremental value came from conducting more than four interviews. The average customerorganizationdoesn’thavetobetheoverallindustryleaderinleveragingscienceinHCM;therefore,investmentscertainlydonothavetobeonthisscale.

(3) Vendor and/or customer has well-defined and broadly representative data scenarios forvalidatingthealgorithmsused.

(4)Tuningor calibrating thealgorithmsdevelopedyieldsmaximumpredictivevalue.Themorecomplexthesubjectmatterandthepotentialsetofdatalinkages,themoretimeanditerationsare involved. The calibration process can be done by machine (via machine learning) and/orhumans(typicallywithdatascienceexpertise).HfSbelievesthatvendorsthatofferbothmethodsunderlyingtheirpredictivecapabilities,orthatintendtoofferboth,aremorefavorablypositioned.



Both methods have advantages in different predictive scenarios; e.g., the length of time toaggregatedataortocalibrateandvalidatealgorithmscanbeshorterforonemethodortheother,dependingonthepredictiveHCMusecase.

» Cross-functional,multi-sourcedpredictivecapabilities:ThisisaboutlinkingHRandpeopledatatoothertypesofbusinessdata.Thelattercouldresidewithinoroutsidetheorganization.In-housesourcesmightbeactualandforecastedsalesandcustomerandfinancialdata;andoutsidesourcescouldincludemarket(e.g.,customertrends),externallabormarketdata,orawiderangeofotherindustrydatasources.

Thefollowingcharthighlightstimetopredictivevalueandcross-functionaldataasamongthekeyfactorsthatcontributetodeliveringthemostbusinessvalueforcustomers.

Exhibit4:PredictiveCapabilitiesinHCMSystems--ValueHierarchy


» Theabilitytoembed—andprescribe:Ashighlightedinthechart,anothercriticalattributeofHCMSystems that aspire to be best-in-class (relative to this particular capability set) is predictiveintelligenceseamlesslyembeddedintheuseofthesystem.Asanexample,includingthefollowinginamanager’stask list isconsideredideal:“Johnshouldbecoachedtodaybecausetwoofhisteammembers tendered their resignation yesterday.” This coaching logicallymakes systemusage andinsight consumption much more efficient. This example also highlights another critical theme:prescriptive guidance. The coaching examplementioned is about amanager; the following is an



employeeexample:“IfyoutakeXYZcourse,andarrangeamentorshipwithanexpertintheXYZarea,yourchanceofreducingthetimetoyournextpromotionshouldimprove.”Prescriptiveintelligence,ifrigorouslyvalidated,removestheriskofmisinterpretingwhattheinsightsarehighlighting—oftennotanegligiblerisk.

» “There’sgoldinthemhills”:LeveragingunstructureddataintheHCMscienceandpredictionsarenacanbeavirtualgoldmineifthecosts(andrisks,seepage1concerningnewEUregulationsondataprivacy)areaccountedforandproactivelymanaged.Forexample,considerthepotentialvalueofrelatingthecontentandtoneofacustomerservicerep’scallsloggedinacasemanagementtooloremails sent on a particular day (examples of unstructured data) to the employee’s likelihood ofquitting,orthechancesofhavingdissatisfiedcustomersthatdayorthenextday.Althoughtheseexamplesdon’tcarrysignificantrisks,incorporatingFacebookpostsintothisscenariomight.

» Influencing vs. causing: HfS believes that although causality is a great goal to aspire to in anypredictiverealm, intheHCMspace,thisbar isgenerallytoohighto justifytheextradatasciencerigor,aviewborneoutbytheend-customerswesurveyedforthisresearch.Additionally,causalityelongates the cycle time inwhichpredictiveenginesare validated,which isnotwhat vendorsorcustomersneedtosustainsupportandmomentumfor these investments.Knowingthataskingarestaurantorretailemployeetoworkveryunpredictablehoursweekafterweekusuallydramaticallyincreasesflightriskshouldbegoodenough.

» Employeeengagement—amajorinfluencer:OneofthehottestthemesinHRcirclesforafewyearsand increasingly in the HR Technology arena, employee engagement is logically correlated withemployeeretentionandproductivity.Moreover,ashighlighted inscholarlyarticles inHR journalsovertheyears,engagementisalsocorrelatedwithcustomersatisfactionandthereforeprofitability.HfSbelievesthatakeydriverofvaluerelativetoemployeeengagementdataiswhetherthedataiscollected in real-time or often enough (in non-invasive ways) and quickly leads tomanagementactionsifwarranted.Ahealthcarefacilityundergoingaregulatoryauditoncarequalitywithinthenextweekmustknowimmediatelywhetheremployeeengagementhasprecipitouslydeclinedandwhichfactorsprobablyinfluencedthedecline.

RecommendationsforBuyers

InadditiontothevariousrecommendationsandpotentialinsightsforbuyersimplicitintheothersectionsofthisReport,buyersshouldseriouslyconsiderthefollowingspecificrecommendations:

» Unique changemanagement aspects: That a well-conceived and executed changemanagementprogramshouldaccompanytherolloutofnewpredictiveHCMcapabilities isnorevelation.Using



technologytoguidemanagersintheirpeoplemanagementactivitiesorinwhatneedstheirattentionisamajorchange.

Theuniqueaspectofthischange,however,isthenaturalskepticismthatjustannouncingthechangewillgenerate,arguablyduetotheseriouslackofrelevantproofpointsinsidethecompany,andnotanabundanceofproofpointsoutsidethecompanyeither(giventheearlystagesofthisemergingcapabilityset).Thisisnotanewpayrollsystemorrecruitingsystemthathundredsorthousandsofothercustomersareusing.

BasedonHfS’assessmentofchangemanagementprogramsofallkinds,werecommendthatthechangemanagementprogramaddressthisuniqueaspectinearnest,e.g.,byleveragingrealcustomerexamples of ROI from these capabilities and not necessarily using Google’s example, as fewcompanieswillmakethattypeofinvestment.Additionally,werecommendacknowledgingthegoodreasonsforskepticism,andultimately,theforgingofapactwithend-usersregardingtheirtrustandconfidencerisingwhenadequateproofofpredictivevalueispresented.Thisproofshouldideallybemeasuredorframedinawayagreeabletothekeystakeholders.Iftheyagreetothemethodofproof,thentheyshouldacceptthecaseforchangeifthecaseiscompellingenough.BehavioralchangesthatmightbeneededintermsofhowmanagersapproachtalentorpeoplemanagementisnotwithinthescopeofthisReport.

» DealingwithHRdatadistrust:GiventhatevensomethingasbasicasheadcountreportsisoftenmetwithskepticismfromHR’sinternalcustomers,andtheinformationprovidedisonlydescriptive,thereisworktobedonehere.HfSrecommendsthefollowingimportantstepstocounterHRdatadistrust:

(1) Develop,publish,andtrainend-users(directandindirectconsumersofthenewcapabilities)onthebasicsfirst.Thebasicsincludedataandconceptdefinitions,datastandards(e.g.,howXYZwillbemeasuredandreferredto),theworkdonebehindthescenestoensuredatareliability,andwhattypicaloutputsorothervisualrepresentationswillconsistofandmean.Thenprogresstowhatisbeingcommunicatedbythepredictiveinsights,theirdegreeofreliability,andmethodsofdeliveringalevelofreliabilitytodriveappropriateactions.

(2) Develop, syndicate, and get buy-in on a data ownership model, e.g., who is responsible forinitiating, reviewing,and/orapprovingallworkforce transactions that spawnthedataused inpredictiveanalyticsandthestepstocertifythatdata.Similarstepsshouldbeappliedtootherdatasources.

(3) Investigate and ascribe appropriate value to vendor tools and processes that help customersachievehigherlevelsofdataintegrityandreliability.AsmentionedinCornerstoneOnDemand’s



vendorprofilelaterinthisReport,Cornerstone’steamsusetheirDataScopetooltoproactivelyidentify data reliability gaps with customers. Cornerstone uses Data Scope to qualify whichcustomersaregoodcandidatesforandarereadytodeploypredictiveHCMcapabilities.

» Importanceofapeopleanalyticsroadmap:Briefly,everyorganizationofanysizeshoulddeveloparoadmapthatdepictstheincrementalstepsthatwilltaketheentityfrombasicdescriptiveanalytics,suchasheadcountasofaspecificdate,tomorecomplexdescriptiveanalytics(e.g.,yearoveryearheadcount trends) topredictiveanalytics (e.g.,will the sizeof staff indifferentareasneed tobeincreased?,or thepercentageofkeyemployeeswhoare retention risks) toprescriptiveanalytics(whattodoaboutakeyemployeewhomightbeleavingoradecliningemployeeengagementtrendbehindtheimminentdeparture).

» AssesshowHRTechnologyvendorsareintegratingacquiredassets:Thispracticeshouldalwaysbestandard for customers in the HR Technology domain, as some vendors have used the word“integrated” a bit loosely on occasion. In the predictive analytics realm, and as covered in thefollowingVendorProfilessection(roughlyhalfofthevendorsprofiledandagoodpercentageofotherHRTechvendorsofferingthesecapabilities),havepropelledproductsuiteadvancesviaacquisition.Post M&A integrations can take months to years, and usually progress in stages. Two specificrecommendationstobuyerstosomewhatneutralizevendorintegration-relatedrisksare:

(1) Duringtheevaluationprocess,providethevendorwithusecasesthatmeaningfullytietogetherexisting(organicallydeveloped)productswithacquiredproductsandcapabilities,includingdatamodelanduserexperienceaspects.

(2) Determinewhetherthekeypeopleintheacquiredcompany(datascientistscanbeas,ormorecriticalthanleadershiporcompanyfounders)havestayedon,andifnot,whatknowledgetransferorinfusionoccurred.

PredictiveCapabilitiesinHCMSystemsBlueprint:TheGrid

Giventhenewnessofthisspace,HfSdidnotdevelopafullBlueprintatthistime.However,wehaveaperspectiveonwherethevendorsstandandhowthey’repositionedfor futuresuccess.TogiveyouapictureofhowHfSseesthemarketlandscapeatthemoment,toevaluatethesecapabilitieswithinHRMSproviders,welookedattwoprimaryareas:



Execution

» “Skininthegame”intheformofR&D,otherimpactfulinvestments,andallotherrelevantindicationsof sustained commitment to this capability area. These indications might include crafting anassociated business case and roadmap, co-creating use cases with customers, pursuing relevantacquisitions,effectivelyarticulatingan“HCMsciencevision”andhavingablueprintforexecutingonit,orbringing tomarketpredictivecapabilities inadjacentHCMareas,orotherareasofbusinessoperations.Anyrelevantcustomerexamplesprovided,notwithstandingtherelativenewnessofthiscapabilityarea,wereheavilyconsideredinourdetailedscoringmodel.

Innovation

» Innovationstartswiththesoftwarevendor’sexistingandplannedexamplesofproductinnovation(oreveninnovativethinking)inthiscapabilityarea,includingthedepthoftheirsurroundinganalysis.Becausetechnologyvendorsoftengetveryexcitedaboutnewofferingsandtoutthemasthenextgreatmarketdisruption,whileleavingittoclientstoenvisionhowthattechnologymightbeappliedtotheirspecificbusinessproblems.Thus,wealsocreditedprovidersthatcouldexplainbusinessvalueandpotentialfromthenewcapabilitiesinwaysthatwouldresonatewithbuyers(andwithus!),overvendorswithmoregrandiosebutperhapsnotverytangibleideasabouthowtoprogressinthisarea.

HfSemploysaweighted(evaluationfactor)scoringmodel,witheighttotencriteriaforInnovationandExecution.Weightingsarebasedonacombinationofresponsesfromover1,300crowdsourcedsurveyparticipantsandintelgatheredincustomercallsaboutwhatisdrivingorimpedingbusinessvalue.Weusea1–10scoreforeachcriterionandthenrankwithineachscoredcriteriontoconfirminternalconsistencyofour thoughtprocessand theapplicationof that thoughtprocess.Thedata-gatheringeffort for thisReportincludedvendorbriefings(sevenofthenineHRMSvendorscoveredgavebriefings;OracleandSAPSuccessFactorsabstainedfrombriefingsfornow,althoughSAPSuccessFactorsprovidedvariouskeyinfofor their vendor profile), an abbreviated RFI process, interviewswith numerous customers (differentcompanyprofilesanddifferent roles) and implementation services consultanciesworkingwithoneorseveraloftheproducts,reviewingvendorcollateralincludingcasestudiesandevaluatingtheinformationpresentedinrelevantthird-partypresentations(e.g.,onYouTube).

Asanexampleofourcommitmenttouncoveringandvalidatingkeyinformation,welookedtoidentifyand leverage the perspectives of CHROs andHRIS headswhowere familiarwith (recent versions of)multipleHCMsystemsproducts.Afewofthoseindividuals,afterourconversationwiththem,referredustoothersintheircurrentandpreviousorganizationsforadditionalinsights.



Exhibit5:PredictiveCapabilitiesinHCMSystemsGrid




BlueprintGuideGridSummary

Tomake it into theWinner’scircleofanHfSBlueprintMarketGuide,avendororganizationneeds todemonstrateanabilitytoconsistentlydeliverexcellenceinExecutionandInnovationwithinthecapabilityareacovered.GiventhatpredictivecapabilitiesinHCMSystemsarestillintheearlystagesofevolutionandcustomerdeployment,noneofthenineHRvendorsincludedqualifiedfortheHfSWinner’scircle.Thatsaid,fiveofthevendorswereevaluatedasHighPotentials:SAPSuccessFactors,Ramco,Infor,Oracle,andUnit4.HCMSystemsprovidersrankedasHighPerformers inthisdomainwereUltimateSoftware,Kronos,CornerstoneOnDemand,andWorkday.Overall,however,ifastandarddeviationtestwasappliedtoassessthedegreeofvariabilitybetweenvendorscores(andultimatelygridplacement),itwouldrevealonlymodestvariability,particularlywithintheHighPotentialsgroup.

Youshouldseethisgridasastartingpoint.Withoutquestion,buyersandvendorswillstarttoseemoreproofpointsandthenmorecapabilitiesaddedovertime.Differentvendorswillemergeasbeingoutinfrontatdifferenttimes,includinginfirst-to-marketways.Itwouldbepureconjecturetoassertwhichoneswillbeleadinginthiscapabilityareatwotothreeyearsdowntheroad,butthevendorsthatdemonstratedacontinuingcommitmenthavedonesoforgoodreason,andthatwilldrivefuturepredictiveHCMproductinvestmentsandinnovations.



HCMSystemsVendorProfilesKey:

TopQuartileCapability

AverageCapabilityLimitedCapability

UltimateSoftware Forecasting/Scheduling/CostingLabor

StrategicWorkforcePlanningTalentAcquisition(BestFit,TopTalent)Potential&PerformanceEmployeeEngagementLearning&DevelopmentNeedsComplianceandSafetyRisksOrganizationalReadinessforChangeRetention/FlightRisk

FraudorOtherCriminalBehavior HCMFactorsLinkedtoBusinessPerformance Other(See‘Examples’)Strengths • Aninitialsetofpredictivecapabilitiesareavailabletoallcustomersbydefault,

andthesepredictionsworkoutofthebox,sominimalsetup/trainingisrequired.• Demonstratedability toprogress itsHCMpredictivecapabilities fairlyquickly;

e.g.,startedwithretentionrisk,thenextendedtoengagementandperformanceusecases,thentoselectprescriptivecapabilities.Canalsopredictperformanceinthecontextofpotentialroles.

• Firsttomarketwithitsinnovativeandhigh-value“LeadershipActions”capability(2015),offeringprescriptivetalentmanagementguidancetolinemanagers.ThisinnovativecapabilitycombinestwoofthemajorsourcesofdifferentiationandinnovationinthepredictiveHRTechdomain:embeddinginsightstoseamlesslymakethempartofdailywork(e.g.,likeatasklist),andprescribingbestactions.

• OneoftheveryfirstHRMSplayerstoincorporateNaturalLanguageProcessing(NLP)intoitscoresystem,soalsoinnovatinginthecognitiveHCMrealm.

• The company’s acquired technology from Kanjoya, including NLP capabilities,measures thequalitativeaspectsofemployeeandmanager feedback suchascommon emotions expressed. This generates an “Emotional Promoter Score”thatletsmanagersknowtheirteams’topconcernsandtheintensityofhowtheyfeel. It also guides best actions to take to improve employee engagement,retentionandproductivity.

Predictive Capability Areas inToday’sHCM/HRMSSystems



• Highlyvisualoutputsareextendedevenfurtherbyintegrating3rdpartyBItoolssuchasCognosBI.

Challenges • Recruitingareapredictivecapabilitiesand linkingHRtonon-HR/businessdata(fromexternalsources)mightberelevantgapsforsomecustomers.

• Algorithmswereinitiallydesignedtobedrivenoffmachinelearningvs.people-basedre-calibrations.Ultimateplanstoeventuallyutilizebothmethods.

• Still in early stage of embedding prescriptive capabilities within daily workactivities (e.g.,withUltiPro Leadership Actions); and prescribing certain HCMactionsrequiresextremeprovingoutofpredictivevalue.

• Roughly60%ofUltimate’scustomersarebetween500and2,500employeesandlikelyhaveonlymodestin-housedatasciencecompetenciesatbest.Theabilityto scale a “customer successmodel” to support a fairlyhigh-touchpredictiveanalyticsprogramwiththesecustomerswillbecriticaltosustainingthevendor’sexcellentmomentuminthisarea.

• The vendor’s plans to perhaps tie Payroll data into its predictive capabilitiesrolloutwilltakedeftpositioninggiventheabsenceofafullFinancialssuite.

KeyCustomers Ultimate’s predictive capabilities customers (additional details in next section)includeAmericanFidelity,AndersonCenterforAutismandINTRUST.

Examples/Results • Ultimate’s(roughly1,000)customersusingtheirRetentionPredictorhave35%lowervoluntaryturnoverthanthosecustomersnotusingit.

• American Fidelity, the supplemental-benefits provider with over 2,000employees,deployedUlitPro’spredictivecapabilitiestoenhancemanagement’sleadership skills and address retention goals. AnUltimate Software customersince 2004, they began using the UltiPro Retention Predictor™ in 2014. ThePredictorisdeliveringmeaningfuldatatoexecutivesandthecompanyistakingactiontoretaintopflightrisks.

• AndersonCenterforAutism’simplementationofPredictiveAnalyticshelpedtoreduce turnover fromahighof 30% to currently 17%.Due to the amountoftraining Anderson provides new hires based on regulatory requirements, theaverage cost per hire is approximately $20,000. Reducing turnover from 240employeesperyearto136savedapproximately$2.1milliononaverage.

• INTRUSTBank in Kansas,with approximately 900employees, usesUltiPro forcore HR, payroll, employee and manager self-service, performancemanagement, and recruitment, in addition to the vendor’sHigh-PerformanceIndicatorandRetentionPredictor.Thecompanydeterminedthataccuracywasconsiderably higher with Ultimate’s predictive tools than when managers’assessmentswere utilized.Managerswere alsomore optimistic in predictinghigh-performanceemployeesthanwhattheHighPerformanceIndicatorfound;andmoreoptimistic about judging flight risks. TheRetentionPredictor foundmoreemployeesatriskofleaving,basedonretrospectivevs.currentanalyses.

InBrief Ultimatestarted in2011withanemployeeretentionpredictorbefore investing inpredictingperformance,followedbyemployeepotentialin2013,andengagementin2016.Unlikemanysolutionproviders,UltiPropredictorsareincludedinitscoreHR



solution.In2016,thecompany’sacquiredsolutionfromKanjoya,brandedasUltiProPerception, now couples machine learning, natural language processing andpredictiveanalyticstohelpcompaniesunderstandandactonemployeefeedback.OnemajorquestionthatremainsishowUltimatewillfacilitateadoptionandoptimalusage across a large customer base that often has onlymodest data science andanalyticscompetencies.

WhattoWatch

» Theriseofcollaborativebusinesscases(betweenvendorsandbuyers)tojustifyfutureinvestmentsinthisarea.HfSbelievesthatHCMpredictivecapabilitiesrepresentsanunprecedentedopportunityforsolutionvendorsandend-customerstoworktogetheroncraftingbusinesscases.Asopposedtobothpartieswaitingandwonderingiftheother’sinvestmentandcommitmentto“leveragingscienceinHCM”isforthcoming,thisprocesscanbeacceleratedformutualbenefit.Thisismuchmorethan1-to-1 interactions. We believe vendors working with customer groups on business casecollaborations,andcustomerssharingintelwitheachotheronROIfromthesenewcapabilitiesandwaysofmitigatingchallenges,willpropelprogresswhileminimizingunder-performingorprotractedinvestmentsfromboth.

» TheemergenceofverynicheServicescompaniesdedicatedtohousingcustomerdata,andmoresignificantly,developingpredictivemodelsaroundit.Thesecompanieswilltypicallyutilizeastaffofdatascientiststhatrotatebetweencustomerengagements.Onesuchcompany,justforillustrativepurposes, isCrowdFlower (https://www.crowdflower.com).HfSbelieves this typeof services firmmight fuel broader and faster adoptionwithin the customer community, particularly adoptionofpredictiveandanalyticstoolsetsvs.pre-definedusecases.

» WilldroneseverplayaroleinHCMpredictivecapabilities?HfSseesstrongpotential.Anexamplethatsurfacedinourconversationswithonevendorprofiledherein(RamcoSystems)involveddronesflying over construction sites to see if and when workers were utilizing protective gear moreconsistently.Thiswouldpredictnotonlydifferentrisksandcosts(fines,lawsuits,andabsenteeism)butalsowhichactionsbymanagersorthecompanyoverallwereeffectiveinachievingamoresafety-consciousworkforce.Althoughworksitecamerascanservesimilarpurposes,unstructuredoutputsgeneratedbydronesmightbeeasiertobuildalgorithmsaroundthantraditionalimages.

» Finally,HfSseesanopportunityforHCMsystemspurveyorstorethinksomeoftheirnotionsaround"which business risks are worth taking.” The HR Technology landscape has occasionally beencharacterizedas“M&Aonsteroids”duetodozensofacquisitions,someofwhich(e.g.,SAPacquiringSuccessFactorsandOracleacquiringTaleo)inthe$2-3billionrange.Certainlyacquisitionsareone



waytoaggressivelypursueadifferentiatingproductvisionandaddressproductgapsandinnovationopportunities..

TheproblemisthatmostM&A’s,withinoroutsidetheHRTechnologyarena,comewithsubstantialrisk. These range from key people driving the value of the deal leaving, to conflicting companycultures, to challenges harmonizing pay and organizational structures, to political in-fighting, todisruptionsinvolvingin-progressstrategicinitiatives.ObserversoftheindustrywitnessedhowlongittookOracletocoherentlyarticulatetheirstrategyforfolding-inthePeopleSoftcustomerbaseandproductsuite,anarticulationwhichchangedseveraltimesduetoalltheinherentcomplexities.We’vealsoseennumerousotherHCMsolutionvendorssometimestakeyearstofullyintegrateacquiredassetsindifferentcapacities(e.g.,achievingthesameuserexperienceacrossproducts).Thepointwe'rehighlightingisthatinvestinginthetypeofproductcapabilitiesdiscussedheremightpresentless of a business risk than a potential M&A scenario, while offering fairly compelling if notcomparableupside.

InSummaryTheHRMSproductcapabilityareathatservedasthefocusofthisresearchgenerallystartedslowlyandconservatively intermsof investmentfrommostvendorsandcustomers.However,predictiveengineswithin HRMS platforms are clearly on the cusp of gaining momentum. Examples shared by thoseinterviewedinthecourseofthisresearchindicatedpotentialsourcesofvaluefromthesecapabilitiesisquitebroad,includingvarioususecasesweweren’texpectingtohearabout;e.g.,predictingcomplianceorevenlegalrisks,andprescribingactionstotaketomitigaterisksandembeddingthemintheformoftasklists.Themainopenquestionishowlongitwilltakebeforeacriticalmassofcustomersstartadoptingtheseproductinnovations.Yes,thecostsintermsoftimeandeffortarenotinsignificant,butcustomerscanperhapsstartwithamodestinvestmentoftimeandeffort(somevendorsalsomakethesecapabilitiespartofthecoresystemsonoextraSaaSfees).Thatsecondwaveofearlyadopterscanthengofurtherintothisrealmwhenbusinessimpactsareobvious.Intime,HfSbelievestheywillbe,andearlyadoptersoftenholdontocompetitiveadvantageoncetheyhaveit.



AbouttheAuthorSteveGoldberg

SteveGoldbergisResearchVicePresident,HRTechnologyandWorkforceStrategiesatHfSResearch.StevebringstoHfSauniquecombinationofinsightsandexperiencesfromhis30yearsinverydiverseseniorrolesintheHRTechnologydomain.

Steve's previous roles include leading HRIS and Talent Managementfunctionsat investmentbanks in theUSandEurope,headingupHCMProductStrategyandservingasprimaryspokespersonatPeopleSoft,co-foundingaboutiqueHRSoftwarecompany,operatingasVPHR-M&Aand

HRSharedServicesatrenownedindustryconsolidatorWayneHuizenga’scorporatecenter,andevenastintasaprincipalindustryanalystatBersin&Associates.

Inrecentyears,Steve’sHRTechnologyandChangeManagementadvisorypracticehasbeenengagedbyover30solutionvendorsaroundtheglobe,andsomefairlyprestigiouscorporateHRclientsintheUS.He’salsodelivereddozensofcompellingwhitepapers,webinarsandfeaturetalksaspartofthethoughtleadershipserviceshe’sprovidedtohisvendorclients.

Steve’sthought-provoking,butintrueHfSfashion--“keepingitrealandmakingitactionable”--researchagendawillbeshapedbytheaforementionedexperiences,hisclosecollaborationwithHfScolleagues,andhistirelesscommitmenttoknowingwhatkeepsbothbuyers/end-customersandsolutionprovidersupatnight.Heisaprovenindustryinfluencerwhoenjoysbeinginfluencedjustasmuch.

Specific focus areas of Steve’s HfS research will likely include the relationship between As-a-ServicethemesandHRTechnologythemes,leveragingchangemanagementandothervaluedriversindeployingHRTechnology.StevewillalsofocusonthechangingfaceofHROutsourcing(multi-towerandspecificallyRPO),bestpracticesrelativetopeopleanalyticsroadmaps,frameworksfordefiningwhatglobalorverticalsolutionsreallymeans,andthetruesourcesofproductdifferentiationintheHRTechnologylandscape.

SteveholdsaBBAinIndustrialPsychologyandanMBAinHumanResourceManagement.Outsideoftheworkthatheremainssupremelypassionateabout,Steveplaysbluespiano(taughthimselfatage17)anddoesvolunteerworkincorrectionalinstitutions,somethinghe’sbeendoingformorethan10years.



HfSResearch:TheServicesResearchCompany™

HfSResearchisTheServicesResearchCompany™—theleadinganalystauthorityandglobalcommunityforbusinessoperationsandITservices.Thefirmhelpsorganizationsvalidateand improvetheirglobaloperations with world-class research, benchmarking and peer networking. HfS Research was named"IndependentAnalystFirmoftheYearfor2016"bytheInstituteofIndustryAnalystRelationswhichvotedon170otherleadinganalysts.HfSChiefAnalyst,PhilFersht,wasnamedAnalystoftheYearin2016forthethirdtime.

HfScoinedtheterms"TheAs-a-ServiceEconomy"and"OneOffice™",whichdescribeHfSResearch'svisionforthefutureofglobaloperationsandtheimpactofcognitiveautomationanddigitaltechnologies.HfS'visioniscenteredoncreatingthedigitalcustomerexperienceandanintelligent,singleofficetoenableandsupportit.HfS’coremissionisabouthelpingclientsachieveanintegratedsupportoperationthathasthedigitalprowess toenable itsorganization tomeet customerdemand - as andwhen thatdemandhappens. With specific practice areas focused on the Digitization of business processes and DesignThinking,IntelligentAutomationandOutsourcing,HfSanalystsapplyindustryknowledgeinhealthcare,lifesciences,retail,manufacturing,energy,utilities,telecommunicationsandfinancialservicestoformarealviewpointofthefutureofbusinessoperations.

HfS facilitates a thriving and dynamic global communitywhich contributes to its research and stagesseveralOneOffice™Summitseachyear,bringingtogetherseniorservicebuyers,advisors,providersandtechnologysuppliersinanintimateforumtodevelopcollectiverecommendationsfortheindustryandadddepthtothefirm’sresearchpublicationsandanalystofferings.

Nowinitstenthyearofpublication,HfSResearch’sacclaimedblogHorsesforSourcesisthemostwidelyreadandtrusteddestinationforunfetteredcollectiveinsight,researchandopendebateaboutsourcingindustryissuesanddevelopments.

HfSwasnamedAnalystFirmoftheYear for2016,alongsideGartnerandForrester,by leadinganalystobserverInfluencerRelations.

hfs blueprint guide: predictive capabilities in hcm...

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