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Hosts Stacey Harris and John Sumser discuss important news and topics in recruiting and HR technology. Listen live every Thursday at 8AM Pacific – 11AM Eastern, or catch up on full episodes here.

HR Tech Weekly

Episode: 34
Air Date: August 20, 2015


This Week

This week John and Stacey discuss:

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Hosts Stacey Harris and John Sumser discuss important news and topics in recruiting and HR technology. Listen live every Thursday at 8AM Pacific – 11AM Eastern, or catch up on full episodes here.

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Begin transcript

John Sumser:            Good morning and welcome to HRTech Weekly: One Step Closer with Stacey Harris and John Sumser. I’m John Sumser, and Stacey, how are you?

Stacey Harris:            I’m good, very good. Thank you John. It’s a somewhat rainy, but warm day in North Carolina, so I’m not going to complain. We need some rain today. We’re heading into what is the busy season I think for the HR technology industry. We’ve got lots of stuff to talk about today.

John Sumser:            Oh, it’s going to be a flurry of news for the next ninety days, and some of it will be interesting.

Stacey Harris:            Just some of it yeah, not all of it, but some of it yeah.

John Sumser:            There are number of really cool things on the plate today. [inaudible 00:01:00]

Stacey Harris:            Well just a couple of things I think that are worth noting today. We can touch base a little bit, Gartner released their new talent management suite, Magic Quadrant. Talk a little bit about … You know there’s not much you can tell on that because they don’t release a lot of it unless one of the vendors sort of publishes it. We’ll talk a little bit about that. We also had announcement from CareerBuilder that their acquisition of Broadbean, which has now turned into their CareerBuilder version of recruiting analytics. They’re launching a big data analytic suite. Something I think you have more experience with then I did, so we’ll talk a little bit about that launch. We obviously can’t get away with the day without talking about Amazon because it’s been in the news all week this week and last week. There’s a couple quarterly updates with Cornerstone OnDemand and Ultimate that are worth maybe a few minutes. Then there was some news between Hackett and ADP, like I said it’s a busy busy week.

John Sumser:            Cool, so lots to talk about. Let’s start with Amazon. Let’s see how quickly we can get through Amazon.

Stacey Harris:            Yeah exactly.

John Sumser:            The New York Times published this amazing bit of research on the front page of the Sunday edition about Amazon being the equivalent of a meat packing plant in the twenties, horrific work conditions, and blah blah blah blah blah. A very very aggressive story about how awful it is to work there. Of course in our world that was a great way to roll into Monday morning. There are now hundreds of position pieces out there about what it was like. What did you think?

Stacey Harris:            I read the New York Times story and then I read a couple of the position pieces against it, you know for it and against it I should say. Then I actually read the email that Jeff Bezos put out to … Is it Bezos or Bezos, I’ve never pronounced it. Which way is it pronounced?

John Sumser:            I think it’s Bezos, but since I don’t have the hope of ever spending time with him on his yacht or in one of his rockets I think you can call him whatever you want.

Stacey Harris:            Whatever you want yeah, but his email to his employees about how he hoped that if they’d seen this kind of culture they were addressing it, but that you know there was real value in what they were trying to do. All that packaged together, my take on all this is that in some … You know we really have to admit that to grow a company the size and type of Amazon probably required some of this culture. I’m really hoping that Jeff doesn’t come to a point where he’s apologizing for what they’ve done to grow Amazon. Because I’ve been in organizations that have similar cultures and yes they’re tough, and yes there’s no doubt that you might leave some days crying. Those companies wouldn’t have grown the way they grew without those cultures. At least I don’t think so. What’s your take on that John? Do you think that’s a little too hard nosed and business focused?

John Sumser:            First of all I think this whole shebang has been very very good for the Amazon recruiting department. I’m certain that the volume of high quality applications is through the ceiling. Because now people who know that they’re that kind of person know that Amazon is for them. Cultural fit is largely a question of getting your culture publicized to the point so that the people who do fit could find out about it. Amazon was handed this spectacular gift in that way. Now do you have to run a marine boot camp to grow a company? I don’t think the answer to that is yes. If what you want to do is what he’s doing, which is building a company that runs on hyper thin margins, and is always first in every market that it touches, and produces strong innovation. I don’t think that a kindergarten with nap rugs and really sexy lunchtime snacks is a framework that produces that sort of thing. I think I agree with your part.

Stacey Harris:            I think that’s the whole thing about the whole topic in general is that no culture is great. There are some organizations that definitely cross the line, but as long as you’re not putting people’s health at risk, and there’s not safety issues. Which there are some of that, which I think there was some stated in the story because of their distribution centers. I’ll have to say that I think a lot of that goes back to both the culture of how much you have to get done, and how much time you have, and that can be adjusted. I think organization cultures are something that people need to own and acknowledge. That’s the biggest challenge often times. The worst thing that could happen I think for any organization is to try and say they have a culture that isn’t true. Then the organization ends up with recruiting people who don’t fit at all in that type of culture.

John Sumser:            Right, right, so if tomorrow morning you start seeing Amazon stories about the brightly colored sofas in their lounges be worried that they’re trying to be something that they’re not. That business of trying to be something that you’re not plagues recruiting. It really plagues recruiting. It’s largely responsible for the failure of hiring. About fifty percent of hires are understood to be failures at the end of the first year. That’s because it’s really difficult to separate what management wishes the company was from what the company actually is, and getting a clean message out about that. Really really hard work, one of these shows we’ll talk about Jason Siden’s startup, which is called Brand Amber that’s designed to try to control some of those cultural variables. There’s work going on in this area that’s pretty interesting. Amazon sounds like a great place to work if you’re that kind of person.

Stacey Harris:            If you’re that kind of person exactly. I think your point about the fact that you’re talking about a very thin margin industry is a really valid point in many of these cases. Because I worked in retail for many many years and organizations often forget how it’s pennies on a dollar that you’re making in many cases compared to what you might make in any kind of hi tech industry, or even manufacturing industry. Where there’s a lot lot more meat on that bone. Kind of speaking of the recruiting conversation it’s interesting that idea that you can hire the right person. CareerBuilder launched their BDA, Big Data Analysis, Analytics, Big Data Analytics Suite. I can’t even say the word three times straight.

John Sumser:            BDAS, BDAS, it’s BDAS, Big Data Analytics System, BDAS. You there? Stacey, did I lose you? I did lose Stacey. What we’re talking about is Broadbean’s new entry into the recruiting market that is getting popularized as the result of the CareerBuilder acquisition of Broadbean. What BDAS is is a large scale, detailed, drilled down visibility tool kit for managing recruiting operations. What you get when you plug into BDAS is a way of viewing all of the operational data about your recruiting processes organized around a funnel that you can deconstruct and see the component pieces of that funnel, and how it’s working, and the set of analytics wrapped around the funnel that allows you to measure, and understand, and monitor your performance over time. The BDAS package is revolutionary really. It’s a single stop look at the operational data associated with recruiting. Hi Stacey.

Stacey Harris:            John I’m back. Yes I did come back. My apologies, it looks like my phone just completely cut off, but I’m back. You were explaining the BDAS product to the audience a little bit more. Did you explain to them sort of your perspective on how this fits into the bigger recruiting picture right now? Is this something [really 00:10:42] brand new in the market?

John Sumser:            I should say this again. Recruiting is where innovation strikes first in HR. Because recruiting is the market facing part of HR. What that means in practice is there’s sort of an arms race associated with getting new technology, and new ideas, and new sources. The theory is that it’s speed that you acquire when you use these new tools. The array of tools for sourcing and screening is so complicated that there’s a new emerging discipline that I call recruiting operations. Recruiting operations becomes really meaningful when you have … We were figuring out in the office the other day that Deloitte is liable to hire forty thousand people this coming year. When you have to hire forty thousand people ranging from administrative staff to very specific expertise in highly educated white collar workers you do many of those hires as a knock off of the basic workflow. You can’t apply a standardized workflow to the problem of hiring and it gets totally out of control at forty thousand people. If you use a standard workflow you hire crummy people. The problem at scale is you wish you had a standard workflow in your software, but the only way that you can imagine a standard workflow is with an overlay on the data. Does that make sense Stacey?

Stacey Harris:            It makes sense. If I understand the BDA technology it still requires that you have some data that you put into it, right? This is a tool that you can enter, and they mentioned sort of the HRIS data, probably multiple job board data. It still does rely a little bit on your own clean data to get there, correct?

John Sumser:            It relies entirely on your data, but what it does is it doesn’t assume that there’s a workflow underneath the data. When all of your data is integrated and presented as a part of BDAS what you get is the ability to look at the data as if there were constant patterns in the workflow.

Stacey Harris:            It intrigued me. I think that makes a lot of sense. I do think we do have a lot of data and we don’t know where to put it. Putting it into a middleware or even into our existing applicant tracking systems doesn’t work, because it doesn’t know what to do with that data. You still have to make that next step to figure out how to picture it, or show it, or visualize it. What I thought was really interesting is that, you know they were commenting that a typical screen could show the cost of filling a position. That’s one metric that I will tell you that as of yet I haven’t met very many organizations who feel very comfortable that they really have figured that out. Would you say this tool can actually get to that answer?

John Sumser:            It’s a big question. The cost of filling a position, my view, is largely administrative, and largely has to do with the process of deciding to fill the position, and then navigating the politics of filling the position. Then even at the final moments of filling a position the question of whether or not it’s still a real thing is pretty normal. The cost of filling a position ought to include the organization’s machinations about whether or not to fill the position, whether or not there’s a job there, how to do it. You see things like a good hiring campaign results in a lot of promotions because when you get the hiring campaign in place you start to notice what you have internally.

Let’s say you’re trying to hire a senior coder. You go out to hire a senior coder and it turns out that there’s people in your organization who can do the job, so the senior coder job gets filled, and that opens up the junior coder job. As you go through that process of actually figuring out who needs to work where you accrue all of the costs associated with it. I’m sure BDAS doesn’t do a bit to help you understand that machination. That’s where the real cost to hire is. That’s why people seem to have a hard time dealing with it. What BDAS will be able to do is give you a read on recruiter’s hours, plus advertising costs, plus employment brand marketing cost, so that you can get an approximation of all of the recruiting costs, and perhaps some of the hiring management costs. It’ll only give you that approximation of the cost of the hire.

Stacey Harris:            I think even for that if you’re able to, because again you’re doing it across large quantities right, I think that would still be valuable for many organizations who haven’t even gotten to that point yet. I agree with what you’re saying. There’s a whole other side to the cost picture that often gets lost in the more subjective idea of what’s happening in the organization. It’s a very valuable conversation to start thinking about operationalizing, I think, recruiting in a way that’s not outsourced. I think a lot of times organizations if they’re getting these kind of costs it’s because they’re outsourcing, and so an outsourcing organization would be giving them at a per employee or per headcount cost, right?

John Sumser:            Right, so I think this is a good product. The recruiting operations area is going to explode. This time next year we’ll be talking about several entrants into the space as we go into the fall year. You get things, and their basic premise is that you’ve got the data, and what we need to do is wicker it together so that we can take a standardized look at your non standard data.

Stacey Harris:            I mean one of the topics that came up, well one of the topics that came up this week maybe along the lines of all this John is that this idea that the talent acquisition suite is continuing to broaden out, right with the analytics components and the various tools. Two of the things that I had into the news this week were actually about talent management suites and HRES suites to public organizations in their second quarter outputs this year. Do you think that the sort of individual talent analytics solutions are going continue to stay stand alone? Because we’re seeing great growth in the talent management suite space and the HRES suite space right now. How do you think those two worlds are going to come together?

John Sumser:            What we saw in the last research was that the more established a component of a suite is the more likely it is to be done as a best of breed. The newer an idea is the more likely it is to be bought as part of a suite. If you want to do like succession planning in a formal way still has very little market traction. It’s still a relatively new function like onboarding it. These things are purchased routinely as part of a suite, but as the technology and the ideas associated with the technology get more established what happens is that niche providers pop up who will help you do your performance management stuff in an oil processing plant setting. Things get that specific and there are standards in every industry region niche that aren’t covered by one size fits all global suite extensions. You see a very clear trend for people to purchase a more sophisticated product then you’d get in a suite as the technology establishes itself. It’s really true in recruiting. It’s really true in learning. It’s not quite as true in performance management. It’s not true at all in analytics succession management or onboarding. I don’t see an increasing trend to buy things as part of a suite. I see buying things as part of a suite as a way of testing the waters for new ideas.

Stacey Harris:            That’s an interesting perspective on it. The two companies that we’ve got in the news this week were both Ultimate as well as Cornerstone. Cornerstone OnDemand released their second quarter financials. I was pleased to see that they were up thirty-four percent over last year.

John Sumser:            Holy moley those guys at Ultimate are on a roll. It’s really fun to watch that.

Stacey Harris:            Well that’s Cornerstone OnDemand. That’s Cornerstone OnDemand. Let’s make sure we get the right one. Ultimate though was up as well. Ultimate’s up twenty percent from last year, or twenty percent from the quarter. They always show their numbers a little bit different. They’re on a roll as well. Both of those groups are making very good money on their year over year and their what they call their recurring revenue numbers, right?

John Sumser:            Right.

Stacey Harris:            One of the questions I had, and maybe this goes along with what you were just talking about. Which is as an HR buyer how much should they read into the HR buyers? Not the stock market buyers, but the actual buyer of the technologies and the solutions. How much should they read into these annual updates, quarterly updates? Both Cornerstone OnDemand and Ultimate’s reports showed good progress as far as revenue goes. Cornerstone OnDemand is struggling with their profit numbers. Ultimate had some commentary about their overall operating expenses being high, but they were still I think showing some profit. Should those be things that worry buyers? I know that these are things that other analysts look at on a regular basis. We look at things like satisfaction scores and what organizations are looking at from a buyer’s perspective of a relationship. How much does a buyer have to include all of the stock market information, if an organization is public, into their decision making process? Do you have a thought on that John, and does it fit with some of the stuff you were just talking about as far as niche products versus suites as well?

John Sumser:            I do and I’m sure you do as well. One of the things that’s really critical when you buy anything is the financial health of the seller. The more significant the purchase the more it’s critical to your work. The more you really need to have a clear picture of the financial health of the vendor. Because who wants to buy a great product from somebody who’s out of business? Who wants to do that? Nobody, nobody wants a great product that can’t get support. Now understanding the financial information that’s fairly tricky. Both Cornerstone and Ultimate are navigating in a universe where the rules don’t quite make sense. It used to be that profitability was pretty easy and that every company had some way of manipulating their profitability numbers. In a SaaS environment the accounting rules are extremely precise. You can be in the black generating margin and not be able to show it on your financials, or not be able to show all of it on your financials because of the peculiarities of SaaS accounting.

That basically is, in the subscription business you can only take credit for the sales and revenue that you make on a month to month basis. If you’ve got a twenty-four month contract you can take one twenty-fourth of the sales and revenue this month. In the old days you have to declare the sales on day one, soon as the contract was signed, and largely had discretion about when to declare the revenue. The ability to manipulate the books was part of every company’s strategy. That’s harder to do today. It’s harder to understand, when someone talks about profitability it’s harder to understand what that means. In the SaaS world there’s a measure called free cash flow. Free cash flow is something like what margin used to be. It’s the extra money you have lying around because what you’re doing doesn’t cost everything that you’re taking in. The difference between expenses and cash in is free cash flow, but it doesn’t become profit. It doesn’t become profit automatically. It becomes profit over time.

Stacey Harris:            In this industry, and this is the thing that I also always remind organizations because I think all the commentary that you just made is actually really good for buyers to keep in mind. Because they hear a lot of this news right, and they’re not often sure how to sort of … Yes, you look at the financial health, but what does that mean compared to an organization maybe that has a large install base right, and what they’re showing as profitability. I think your point is exactly fine is that there is this really different approach to doing SaaS organizations. I think the one news that came out about Ultimate’s second quarter notice, which I thought was sort of buried but interesting in the numbers is that this is the first quarter where they have no licensed revenue on the books. They’re finally completely license free if you want to call it that, right. They’re a completely SaaS based organization at this point. The one thing about SaaS, and this is something we’re finding in our research and I know you did as well is that brand and image is just as important as everything else, and because of the fact that you’re doing this month by month, right. Even if you have a three year contract organizations often times can make moves faster then if they were doing a licensed purchase, right?

John Sumser:            Right.

Stacey Harris:            What we’re seeing is that organizations have to really invest more in both sales and marketing I think then they ever did in a licensed environment in some cases. Do you see the same thing on your side as well? Do you think that’s the case is that the marketing and sales in early investment really does require a lot more in these environments?

John Sumser:            I do, I do. It’s fairly predictable these days that you lose money on the customer in the first year or two of your relationship. The SaaS business is really all about renewals in the third, fourth, fifth, sixth, seventh year or so in the relationship. Because it’s so expensive to do sales and marketing that you can’t possibly break even in the first year or two of the relationship. It’s critical to spend the money. It’s hard to spend the money because that means that growth is something that you have to purchase. You can’t expect growth to be there. It costs more money than you’ll take in to grow. What you find a lot in these SaaS companies is that the simplest way for them to get to profitability is to stop selling. You’ll hear that a SaaS company would be profitable if it wasn’t growing, and that the management of the company always has this choice to become profitable, or to continue to grow. The two choices seem to be mutually exclusive. Make sense?

Stacey Harris:            Completely makes sense, and I think it goes back to our conversation about Amazon a little bit. The margins are much tighter in this market, and the financial timing is a lot different. It’s something that all buyers have to take into consideration. You know kind of the last piece, a couple of pieces we had on the news as we’re wrapping up today is that there was an announcement that Hackett Group and ADP signed an agreement that Hackett advisory programs would now be offered with ADP’s Vantage HCM Solutions. I think that’s a conversation maybe we can get into next week. Which we’ve been talking about it on a couple of past weeks. Which is this idea that each vendor is trying to offer more and more services, and tools, and value add to continue to keep that buyer as part of their relationship.

ADP now has created this relationship with Hackett to do it. Then just kind of as we’re wrapping up today, you know we have good friends over at Gartner who released their talent management suite Magic Quadrant on August 10th. That’s Evett, and Jeff, and Ronald, people that we work with on the analyst side. The purchase price, and I didn’t know this, so I thought I’d share this with the audience. Because I don’t go out and look at Gartner’s Magic Quadrant too often, but I often get people asking me how much it costs, one thousand nine hundred and ninety-five dollars for just that report. Then there’s obviously membership programs with Gartner. Not an advertisement for them, but just to note I think it’s a big topic that often comes out in the market. Which is you know when is that released, who’s on it, where’s that? You’ll probably hear a lot more about it as organizations start to tout where they’re at if they came out good on that quadrant.

John Sumser:            A conversation we might try to have or we might try to avoid is there’s a broad sense that the Magic Quadrant at Gartner is something that you can purchase participation in if you’re a big enough company. It would be interesting to try to navigate the, is that a creditable way of looking at the market or isn’t it? Of course I have a strong view in that area. I think it’s a conversation worth having. What does the Magic Quadrant actually mean would be a really interesting thing to talk-

Stacey Harris:            Yeah definitely maybe we could bring that in next week. We could even maybe get some commentary from some of our friends in that area. Maybe the bigger question isn’t even whether, you know what Magic Quadrant means from a Gartner perspective, but how are organizations looking at all the various research efforts that are being done in the HR technology space. How do you think about them, how do you balance them, and where do you put your investment, and time, and energy? I think everything has a bit of value, but you have to really know what’s behind it to make [inaudible 00:32:08] definitely be a good conversation.

John Sumser:            That’d be a great conversation. We have stifled through our allotted time again. What a great conversation. Thank you so much for spending the half hour Stacey. Thanks everybody who’s listening for taking the time to pay attention. We think these conversations are fun and hope you get a lot out of them. Thanks again Stacey. We will see you next week. Have a great day.

Stacey Harris:            Bye everyone.

End transcript


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