HR Technology Strategy: What Small Business Leaders Need to Know for 2019

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Running a successful small or midsize business (SMB) requires making the right choices on an endless road of branching paths.

Which goals should you prioritize, and which ones should you set aside? Which potential customers should you target, and which ones should you ignore?

The same goes for technology. With limited budgets to work with, SMBs have to make crucial decisions on which systems they need to invest in to grow and thrive, and which ones they can afford to forego. Make the wrong choice, and your competitors will eat up market share while you play catch-up for years to come.

Which brings us to HR technology: that sprawling category of software and tools designed to help businesses attract, retain, and manage their people.

Just how critical is HR technology to SMB success in 2019?

HR technology strategy: what small business leaders need to know in 2019

As part of Capterra’s 2018 Top Technology Trends survey, we asked 715 SMB leaders in the United States about the role that HR technology plays in helping their organization achieve its goals.

Here’s what we learned: 91% of SMB leaders say HR technology is critical or beneficial to their business, yet only 57% are currently using it. That means many SMBs are missing out on important tools that would help them address growing talent management concerns such as dwindling skilled labor pools and stringent labor regulations.

That’s not all we learned. Our findings, presented below, will help you determine next steps with regard to your HR technology strategy and whether or not it’s time to pull the trigger on new software.

SMBs are adopting HR technology to address compliance and talent retention concerns

Data highlight: 70% of SMBs will be using HR technology by 2020, led by organizations in heavily regulated industries such as banking/financial services (91%), healthcare (90%), and construction (79%).

 Analysis:  Over the past few years, as the U.S. labor economy has experienced a sustained period of record-low unemployment, the power has decidedly shifted from the employer to the employee.

Workers—especially those with skills and experience in high demand—have their pick of good jobs to choose from.

As a result, if SMBs fail to meet the expectations of these employees, there’s little stopping them from taking their talents to someone who will. Those SMBs are then left with the undesirable task of filling important vacancies from a diminishing pool of options.

These conditions have put enormous pressure on the HR function to not only take care of the administrative needs they’ve historically been in charge of, but to also develop a unique and engaging employee experience that workers can’t find anywhere else.

They can’t do it alone, which helps explain why more and more SMBs are turning to HR technology.

According to our survey results, 57% of SMBs are currently using HR technology, with an additional 13% planning to implement it by 2020. Only 17% of SMBs have no plans to evaluate or implement these tools; more than half of which (51%) have ten employees or fewer.

SMB investment plans for HR tech

From time and attendance systems to performance appraisal software and employee recognition platforms, SMBs are increasingly turning to HR technology to automate the tedious administrative processes of old and enhance the employee experiences needed to compete.

Breaking these results down by industry, we find that businesses in highly regulated areas such as healthcare, banking/financial services, and construction are leading the charge with above-average adoption rates.

Small and midsize business investment plans with HR technology by industry.

Besides dealing with major talent shortages, SMBs in these industries must also stay compliant with strict labor regulations.

Healthcare organizations have to vet physicians to ensure they’re compliant with HIPAA and Stark Law, financial institutions have to follow FDIC background check requirements, and construction sites have to track contractor certifications on top of keeping the workplace safe in line with OSHA guidelines.

For these businesses, HR technology has become increasingly vital to hire highly specialized talent and automate important, error-prone tasks such as time tracking and reporting.

 Our recommendation:  70% of SMBs will be using HR technology by 2020. But how does this adoption rate compare to other technologies?

Of the technologies we included in our survey, SMB adoption of HR technology in 2020 comes in just behind that for project management technology (71%) and just above that for business intelligence (BI) and analytics (66%).

Small and midsize business technology adoption rates by 2020.

These results reveal a sort of pecking order for SMB tech investments.

Should you invest in emerging tech such as drones if you don’t have HR technology? Probably not. But if you already have a number of technologies at the top of this list and don’t have anything implemented for HR, it may be time to pull the trigger.

If you’re an SMB leader in an industry that’s dealing with extreme worker shortages or complex labor laws, though, it’s time to prioritize HR technology as your next big investment—regardless of the technologies you already have today—to set your business up for success in the face of growing talent management challenges.

HR technology is proving critical or beneficial in nearly all implementations

Data highlight: 91% of SMB leaders say HR technology is critical or beneficial to their business, while only 9% say HR technology is unnecessary.

 Analysis:  If SMBs are going to devote a sizable chunk of funding to new HR technology, that technology has to deliver. Fortunately, according to our survey results, it’s doing just that.

Of those who are currently using, planning to use, or evaluating HR technology, 43% say that it’s critical for them to do business. Put another way: Without HR technology, these businesses wouldn’t be able to operate.

An additional 48% say HR technology is beneficial to their business, even if it isn’t necessary for them to stay open.

Just 9% of SMB leaders say HR technology is unnecessary for them to succeed.

Importance of HR tech to SMB success

Global HR technology spending is now at $40 billion a year, and it’s not large enterprises that are fueling this splurge—it’s SMBs.

HR tech is no longer just lumbering, complicated systems meant for only the biggest businesses. Today’s systems and tools, built for all business sizes, are easier to set up and customize (thanks to cloud deployments), share the workload (thanks to employee self-service capabilities), and deliver better insights and data (thanks to advanced analytics and reporting).

Over time, the benefits that SMBs receive from this tech will only grow.

Looking at these results by industry, we see that 49% of SMBs in the construction industry consider HR technology to be critical to doing business (compared to 43% for the total sample). As we highlighted in the previous section, the construction industry is facing numerous talent challenges that require technology to overcome.

But there’s another industry that considers HR technology even more critical than construction: retail. More than half (54%) of SMB retail leaders in our survey say HR tech is critical to doing business.

Importance of HR technology to small and midsize business success, by industry.

Retailers always have to have one eye on recruiting, thanks to one of the highest turnover rates in the nation. Add in the burden of creating schedules, tracking hours, and doling out paychecks for a largely shift-based workforce, and it becomes clear why HR technology is so critical to this sector.

 Our recommendation:  More is being asked of the HR function than ever, despite there still being only 24 hours in a day. Moving forward, it will be even more critical for HR departments at SMBs to make the most of the time they have.

HR tech will play a crucial role in this transition, freeing up to 28% of an average HR worker’s week that they spend on tasks such as meeting with employees, administrative work, and managing redundancies so they can focus on larger issues of engagement, retention, and developing an overall employee experience strategy.

SMBs that continue to rely on manual methods in the face of increasing benefits from HR technology are setting themselves up to fail.

Adopting HR technology can immediately impact SMBs en route to a positive ROI

Data highlight: 86% of SMBs investing in HR technology are already significantly impacted by it, or expect to be significantly impacted by it within one to two years.

 Analysis:  Unlike other technologies in our survey such as blockchain, where the business impacts are still more theoretical than practical, HR technology has already made its mark, and continues to do so rapidly.

The speed at which HR tech is having an impact is good news for SMBs cautious of investing in systems that don’t immediately deliver a positive ROI.

Respondents currently using HR technology or planning to use it in the next one to two years say they either already see a significant impact (68%), or plan to see a significant impact by 2020 (18%).

Expected time frame until HR tech investment impacts business success

 Our recommendation:  HR technology is not a “wait and see” prospect. This is a mature market that is providing immediate returns for SMBs that identify their biggest talent management needs and adopt systems catered to address them.

This, in turn, allows SMBs to achieve their talent management goals more quickly.

With the threat of another crippling recession on the horizon, it’s imperative that SMBs act now to have their HR technology stack in place. A well-implemented HR tech stack can provide process efficiencies that will save companies money during the tough times ahead.

Identifying the right HR technology for your SMB

Fifty percent of SMB leaders say identifying the right technology is one of the top challenges their organization faces when making technology investment decisions. With so many business tech categories to choose from, all vying for market share and promising the world to potential clients, it’s easy to understand why.

Top challenges that small and midsize businesses face when they invest in new technology.

As our results show, more and more SMBs are choosing to invest in HR technology because of the benefits that this tech brings to addressing critical talent management concerns: from day-to-day compliance and administration to more grand-scheme issues such as retention, engagement, and crafting a unique employee experience.

But even SMBs that plan to invest in one comprehensive HR suite packed with functionality for everything under the sun still have to decide which suite is best for their needs. If you’re piecemealing a solution together from multiple systems, you have even more tough decisions to make.

To help, here are some additional free resources:


Information on Capterra’s Top Technology Trends for SMBs survey

Capterra conducted this survey in June and July 2018 among 715 U.S.-based SMBs with more than one employee and annual revenue of less than $100 million. The survey excluded nonprofit organizations. The qualified respondents are decision-makers or have significant influence on the decisions related to purchasing technologies for their organization.

Looking for Talent Management software? Check out Capterra's list of the best Talent Management software solutions.

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About the Author

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Brian Westfall

Brian Westfall is a Senior HR and Talent Management Analyst for Capterra. His research has been cited in various publications, including TIME, Entrepreneur, Fast Company, and Undercover Recruiter.

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