The human capital management (“HCM”) industry stands at the intersection of people and technology. We’re bullish on HCM because human resources has evolved beyond the administrative function it once was – business leaders increasingly view it as a strategic imperative to achieving long-term success. We’re excited about the prospect of joining a business in the space, working with an owner on the right transition, and partnering with employees to continue to build and grow a lasting company.
Jeff Neblett, Co-Founder and Partner of 20 South Partners, recently sat down with Greg Morton, CEO of Next Concept HR Association and advisor to 20 South Partners, to discuss the current state of the human capital space and trends that are changing the market. Below is a transcript of their conversation.
Jeff: We hear about disruption from AI, machine learning and big data across nearly every industry, and HR seems to be no exception. What are the biggest technology trends that have affected HR in recent years and will continue to drive change in the next three to five years?
Greg: The biggest change I’ve seen is in the recruiting space. The war for talent has been digitalized by AI. It’s not only a cheaper way to source talent vs. traditional means, it’s a methodology that by its nature provides more data to be analyzed while providing the feedback to make changes for longer term recruiting efforts.
I think after recruiting, there is a great chance it’ll be ’employee experience’. Engagement and culture will be affected most as AI begins to contribute to employee experience, anticipating employee needs, and suggesting resources all focused on making employees happier and more productive. Employers will use AI to understand when employees need help, how they like to be helped, and what’s important to them.
Jeff: As we’ve spent time looking at the HR space, we’ve noticed significant consolidation of various providers, specifically within the Professional Employer Organization (“PEO”) and outsourced HR market. What are your thoughts on the consolidation trend? Does it hurt middle market companies that rely on outsourced HR providers?
Greg: I don’t think it hurts them. I think in the end the consolidation will create more credible and adequately resourced providers that have less limits than the previous iterations of the offering. The PEO market is currently an oligopoly with less than 5 credible national providers, so I do believe there’s going to be continued consolidation as the regional players lack the resources and breadth of offering to survive long term. I see the overall PEO model evolving in a way that leverages the significantly intimate and important relationship they have with their customers, venturing into many tangential areas of support based on the existence of a great amount of data they have from the customer.
Jeff: How do the changing dynamics of work (e.g., increased career mobility, remote work, the rise of the ‘gig’ economy, etc.) affect the way HR providers deliver their services?
Greg: Starting now and going forward desktop-oriented deliverables will be the tell-tale sign of companies failing to evolve their offering, and they’ll pay the price. New generations of workers are leap frogging technologies and are increasingly mobile. If your business (and its functionality) isn’t on a smart phone or tablet, you don’t have a business.
Jeff: What differentiates a great HR provider from a mediocre provider?
Greg: The providers that truly understand and believe in the power of the people to make their clients’ businesses successful are the great ones. They are the ones that have the higher QC and accuracy because they know they’re impacting their client’s most important asset – its people. The mediocre companies are merely chasing their own personal success and aren’t as focused on their client’s success.
Jeff: Greg, thank you for your time. The HR space is clearly a rapidly evolving, value-add industry. We appreciate you sharing your insights and expertise and are looking forward to working together as we try to find the right opportunity in the market.