Episode Transcript
[00:00:07] Hello, everyone. Today I'm going to talk about mergers and acquisitions and HR technology.
[00:00:13] And I want to spend a little bit of time on the workday. Acquisition of hired score, what that means about the market, what it means for workday, what it means about AI. Now, for the 30 or so years that I've been an analyst, I've seen a lot of acquisitions in HR technology. And the reason acquisitions tend to occur is because a software company in HR tech reaches some stage of growth and they plateau or level off, and their investors, or their public investors penalize them and essentially say, you've lost capacity, we need to find a return or an exit strategy elsewhere, and the company is suddenly for sale. A second scenario is the opposite, where a great, fast growing, well run company is acquired by a larger, more mature company who needs the technology and the team that this smaller company created because they can't create it themselves. And this particular deal at Workday is probably the latter. Workday has been talking about AI and working on AI for a long time. And when you talk to Workday about AI, they'll tell you about all the machine learning algorithms running in the platform and the fact that they've been doing AI for a long time. The beginning of AI to me at Workday was in 2014 or earlier when they acquired this company called identified, and they started this idea of the skills cloud. But the problem is, most of the AI investments that they claim to have made haven't really manifested in super exciting solutions. And so that has given companies like Hired Score, Beamery, Gloat Eightfold, and many, many others textio the opportunity to develop things and partner with Workday, which has been great. When you're a big company and you have billions of dollars of revenue and thousands of product managers and thousands of salespeople, you don't have to build everything. You can be the core platform and partner with all sorts of innovative solutions. Well, the thing that's threatening about that now is the talent intelligence systems like the ones I mentioned earlier and a bunch of others that I discussed in the article that I put on the website are actually almost systems of record. They don't store transactions the way a traditional ERP or workflow system does, and they don't have all sorts of complex workflow management or security rules, but they store a lot of talent and human capital information that you need to run your company. And one of the most important of those applications is the searching or selection or matching problem.
[00:03:02] Now, you might think the matching problems is a small thing and not really that big. Of a deal, but it's actually everywhere. It's all over HR. When you're recruiting, you want to source people with the right skills, the right culture, the right experiences, the right contacts, the right locations, the right demographic, et cetera. And doing that by hand takes a long time. And it's very expensive for the hiring company and it's very expensive for the candidate because the candidates filling out forms in all sorts of companies, waiting for people to get back to them and so forth. So just like Google, search completely won over the search market because it was simply for consumers, a really good people search will be far more superior in finding diverse candidates or positions or people for leadership roles, or technical professionals or salespeople, or even people in high volume positions than one that isn't good. And we've done some recruiting using LinkedIn and indeed where the search engines are not really that good, to be honest, and it's really frustrating. You'll put a job ad on there, you'll do a search, and you just get thousands of candidates that are not qualified. And so you've got to go through them manually. But there's more than recruiting, there's internal mobility. We're going to do a layoff and a restructuring. Who are the right people that should move into these new roles? What are the skills that are trending up in our company? What are the skills that are trending down? How do our skills compare to our competitors skills? How do we better look for leadership? Are there secret pools of people that would be good leaders? What is the tenure of our organization and how do we improve it? What do we do about pay equity? Can we see anything in the AI system about inequities in pay?
[00:04:55] An LLM or neural network based data set of people that has all sorts of information like that creates many, many opportunities for AI models.
[00:05:09] And then the way these AI platforms work, unlike the transactional ones, is they have many models running. You could have a model to identify and source leaders. You could have a model to find high tech professionals in a particular domain, people with certain scientific backgrounds, people that have certain backgrounds in customer service. And you could define what customer service means through a type of experience, a type of skill, a type of background, a type of job title. I mean, there's just a lot of options on how to search that are really important in running your company, both for recruiting and for just running it, to be honest. And so the talent intelligence idea, the talent intelligence space, actually does somewhat threaten what an HCM does. Now, I don't think anybody's going to throw out workday because they got a better search engine from somebody else or better matching tools from somebody else. But workday, Oracle, SAP, ultimate Ceridian, which is now called Dayforce, ADP, they want to have this in their platforms because they want you to use their platforms for all of the management decisions you make. If the performance management system in workday isn't giving you intelligent information about the employee's performance, then you're not going to use it. You're going to use something else. And so more and more of the eyeballs or transactional work would come off that system. So these big platforms absolutely want to be part of that space, and that's one of the reasons, I'm sure, although I don't know the specific details, why workday acquired hired score. They also obviously acquired hired score because the workday ATS is not the most highly regarded ATS. I've seen lots and lots of people talking about it. I haven't tried to evaluate it feature by feature, but I know it has issues. And there was quite an interesting article a couple of months ago about an engineer looking for work, and he tried to apply for work in about, I don't know, 150 or 200 companies. And he had to use different atss to apply. And he said at the end of it all, I had to make 80 different, 85 different profiles on 85 different systems. And many, many of them were workday. And he said it was really a frustrating process and there was no single core data system that worked across those. Well, the talent intelligent platforms do work across multiple customers, and they've been designed in a completely different way, using vector databases, using AI models. You can go to an Eightfold or a system like gloat or a system like phenom, and you can apply for no job. Just tell the system who you are. The system will figure out, by the way, Beamery does this too. It'll figure out the kinds of roles you're appropriate for and presumably could apply for you in a particular company or multiple companies, and vice versa. A recruiter could have a much better selected candidate pool. Another company that does this is seek out, for example, that has spectacular search engine, and I think theirs maybe even better than a lot of the others.
[00:08:18] So this is kind of a key technology that is kind of hard to build on your own workday. SAP, Oracle, they all need it, as do the other ACM vendors. And there are many, many years of experience that have gone into building these systems, not only in the AI models, but in the way they're presented to users. Hired score in particular is a very highly regarded system because it has a front end that's very attractive to recruiters. It shows you ranked candidates for different jobs, internal candidates, and really makes it easy for recruiters to sort through large amounts of people for different applications. I think this is so much bigger than talent acquisition that the acquisition of hired score by workday means a lot of the other things in workday are going to get better, a lot of the other parts of the system. Now let's talk about the market. I've been an analyst for more than two decades. I've been through multiple of these cycles where companies start buying each other all the time. They tend to go in cycles because of the technology evolution and sometimes the economy. And here's a couple of things that will happen. So let's suppose this deal goes through and Workday acquires hired score. It's 99%, it's going to happen. And then Workday has a bunch of partners. They have an ecosystem of talent, intelligence partners. They have this sales relationship with Skyhive, they partner with Beamery, who they invested in. They might have relationships with fuel 50, they might have relationships with phenom. And you go to Workday rising and all these other partners are there, and Workday puts a list of their partners up there, and it turns out maybe some of these guys do the same thing that hired score does. How does workday feel about that? Well, for a while, they may not care at all because it takes a while for the workday customer base to understand the features of workday that are new. But a year, two years down the road, these products that have competitive features with workday maybe aren't appropriate to be included in the workday ecosystem. And workday just might say, I don't think I want you guys in the partner program anymore because we have a product that does what you do and those companies are forced to partner elsewhere. Now, it would be silly for Workday to cut them off because all the companies that have a competing product and also have workday want the data to flow back and forth. So there's no reason that workday would ever stop the integration with these things. But they may not promote them, they may not invest in them, they may not take them to the Salesforce. The Salesforce certainly won't recommend them. So now that workday is getting into this more intelligent oriented search algorithms, and by the way, workday will tell you they already do this, which they do, but I think the quality of what they do isn't necessarily competitive. Some of these other vendors are going to force to go elsewhere. And what that does is it creates a series of partnerships that eventually form other acquisitions. Let's assume, perhaps I'm wrong, but let's assume workday does decide a year from now that because of all of the great stuff they've gotten from hired score, they don't really want to partner with these other companies because they're kind of competitive like ATS. I'm sure Workday doesn't have multiple ATS vendors coming to workday rising. Well, those companies go elsewhere for partnerships. They don't stop doing data integrations with workday because their customers want it, but they might decide they want to get closer to SAP or to Oracle or to another HCM platform or another partner in their ecosystem. So this is not a small move when this happens. And the other effect that happens is the hired score customers, most of whom are very happy with hired score. I know that are not all workday clients. Some of them have a significant amount of business with one of workday's competitors, maybe Oracle or SAP or somebody else. So when Workday comes to them and says, well, we have some new features of hired score, but we're not putting them into the version you have, we're going to put them into the version that you get from workday. So we encourage you to switch over to workday. And the customer goes, I don't know. I'm not sure that's going to work out for me. What do they do? They look around. I mean, companies who bought Taleo in the early days were very, very happy with Toleo. Toleo walked away with this market in the early days. And then when Toleo was acquired by Oracle, most of them who didn't have a business relationship with Oracle were very unsure about what that was going to mean. Oracle did maintain taleo for a long, long time because they wanted to maintain that revenue base.
[00:13:11] But ultimately, those customers have to make a decision on whether we're going to stick with this oracle sourced piece of software in our infrastructure when maybe our core system is at a different vendor or maybe we got to switch over. So that's not a negative on a workday. That's just the state of reality. For example, when our workday acquired Pecan, Pecan which was a very premier product in employee experience. Prior to that, I know a lot of other employee engagement vendors partnered with Workday. I don't know that they do anymore because Workday has done a pretty good job of building out pecan and integrating it with all the other modules of workday and selling it. So it's not particularly nice to be in a workday account. If you have a product that's directly competing with one of workday's flagship products, it's not easy. Customers don't necessarily buy it. So there's a lot of competitive dynamics that happen. I don't think this is a huge deal that's going to immediately force all sorts of m and A, but it's going to start conversations between vendors, and this is a relatively small market. Most of the vendors know each other. A lot of them have executives that have worked at other companies. And so this could be the beginning of a wave of interest in acquiring AI core products by non AI core vendors. That could be an interesting shakeout. Now, even though that sounds reasonable, there's also the issue that the AI talent intelligence market is still very immature. And this, these new systems, as spectacular as they are, are really early in their lifecycle. They have a long way to go. If you look at what gloat's doing in talent mobility and talent architecture, if you look at what Eightfold's doing in career and in job architecture, and what they're doing in leadership with hydric and struggles, and in other areas of the government where they're doing all sorts of government solutions for career management, if you look at what B. Murray has been doing for years on CRM, if you look at what phenom has been doing very effectively in candidate experience and candidate portals, what paradox has been doing in conversational recruiting? Each one of these companies is doing very well on their own. They're starting to compete with each other, but there's still a lot of innovation yet to come and market segments that have yet to be explored. I think, for example, pay using AI technology to analyze pay disparities is going to be a really interesting one. Directly delivering learning. I talked about autonomous learning, which I'm going to spend more time on with you guys a couple of weeks ago. Those are applications that are new and haven't really become large scale yet. Using AI for the employee experience to take data from systems like teams or Zoom to identify opportunities to improve the employee experience. Using AI for employee communications if you look at what firstup's doing to send personalized intelligent communications to people so that they pay attention to what's going on inside the company, even if they're remote or working in a deskless environment, that's an application area. Using AI to improve scheduling, job scheduling in nurses and other highly regulated scheduling applications where we need certain people with certain certifications to do certain jobs. That's a big application. There's going to be lots and lots of these that are going to get better and better and better in these systems. And the core HCM, which has so much data about the company, is the desired place to have this. But these companies can't build everything workdays spending a lot of time building their financial system, and they've been very successful with that. So they, in a sense, have a lot of things on their plate. And even though they seriously are investing in AI, they can't do everything. So if you're an investor, I'm sure you're thinking about this all the time. I think we're in a very big expansion phase of the market. The HR tech market is very large. It's hundreds of billions of dollars, and there's a lot of old legacy stuff to replace that takes a long time to replace. So if you're interested in working for or investing in or buying from one of these newer vendors, and they're on a run rate that's growing and they seem to be well positioned, there's a good chance they're going to become a pretty big company. This is a big epic change in the HR tech market. And then, of course, there's the bigger issue of how the job architectures are changing and we're moving from a job centric architecture to a people centric architecture, which we talk a lot about in our post industrial age research that's going to change the market, too. So there will be lots of room for new technologies out there. And as has always been true in this space, as long as I've been in it, sometimes it's the sales, it's the marketing, it's the investment, it's the leadership team and not the best technology that wins. So there's a lot of opportunities for virtually any HCM vendor of any size to make a name for themselves in some segment of the HR tech market, whether it be by company size, by industry, by geography, by location, that they can make a good name for themselves. And I am really very excited about the workday deal because ired score really was a very cool technology. And I would imagine they were, as a company, not super big. I think they had about 150 or 200 employees, something like that, and they were probably looking at some growth strategy that involved either further acquisition, more sales and marketing, or more partnerships. And workday came along and they had been good friends already, and so the deal was done. So stay tuned for more I'm going to start having more HR tech ceos on the podcast. If you are an HR tech CEO and you'd like to be on the podcast, let us know. We're not going to be able to do everybody, but I'll start doing more of them. And as always, I'm open to discussions and debate about whether any of the stuff we write seems to make sense to you. But I think this one's a little bit bigger than it looks and probably is going to end up being something that we look back on and say it was an important step in the evolution of our HR tech towards more AI centric solutions. Thanks everybody. Have a great weekend.
[00:19:59] It.
