What’s plaguing the HR startup universe?

In the startup ecosystem, HR has often been at the bottom of the pyramid, usually overlooked and majorly outsourced. Although the “recruiting” arm of HR has got its fair share of limelight and the first one to go online, the remainder of the HR functions often falls to the wayside. However, change is inevitable, and we have seen the investment activity pick up in the so-called “prosthetic” arms of HR, like training, talent assessment, performance management, compensation & benefits etc.

As HR moved from paper to digital, information to analytics, subjective to objective decision making, and the conventional to new age skills, we started to see the entire bio-network of organisations trying to solve various HR problems using technology in a more creative way than the other. This is when we started to see IITians jump in.

The HR space has seen a flurry of deals – acquisitions and investments in the last one year. All of a sudden it has gained favour with the investor community. The global HR tech industry is nearly $400 billion and while India has had a slow start, it is picking up the pace and gaining investor attention. The investments are pouring in with just the last two quarters exceeding $200 million in India and it is not just the pure-play HR firms that are raising funds; staffing, skilling, hiring, assessments, which are critical HR needs for all organisations, are attracting investments.

They solve the mass problem being faced by the world’s largest workforce. India, more than a global consumer market, is looked at as a global talent market. For us to stay relevant, we need to constantly whip up the best. Like how every startup has creatively solved the problem faced by the consumer and business, the emerging HR space is doing the same for the employee and employer.

Investments in the HR face many challenges as the startups try to solve “spot” challenges with targeted solutions. It is great to have best of breed solutions. But after the initial good run, they soon get into the typical challenge of new growth, become transactional and are unable to drive greater value to a client. Their lack of differentiation leads to a low entry barrier for others and, before we know, it is already a commodity.

Many HR tech startups are venture-backed and grappling with sub-optimal size. On the other hand, the organisations that initially are excited about the new cool thing very soon get frustrated working with many disjointed parts. Like how HR is accused of delivering to the process than driving business outcome, deeper is the problem with the evolution of HR startups. They have innovated one part of the process and stayed there. In talent acquisition, we have sourcing, skilling, assessment, candidate reference etc., all sitting separately in the ecosystem while the client is one. Similar will be your observation if you pick performance or learning.

HR is about intent, design and experience all coming together. A lot of the new players are playing on the fringes and are relegated to being called vendors. They have already achieved their level of utilisation and saturation. Because new growth is incremental, they are focusing on profits, which on their base doesn’t give them the bandwidth to build a full system. Many will not sustain this rapid pace of HR evolution. We are seeing this with teething issues of niche HR clouds and HR bots. Integration will be a challenge, the scale will be a challenge. The next new act will take away the benefits from the system.

The opportunity is for large organisations or VCs to stay the course for the long term and create a platform that will bring the operations, analytics, technology, digital and advisory together. An Amazon could not grow by only selling books. A typical business system needs to work for it – forward, backward and alongside integrations are critical for seamless delivery to the client.

In an organisational system, you cannot just junk iPhone 7 to buy the next new model. The investment, effort and adoption are a steep climb. You need a platform, with all the moving parts and trusted advisors to make a microcosm that is sticky, consistently relevant, and linked to business impact. The differentiation is not about innovation alone, it is about bringing the adjacent areas and integrating them, quickly achieving scale, and getting the world used to your way.

So the big question: investors, VCs or large services firms - who will move beyond just connecting the dots and draw a line for a better future?

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)