← 返回

2026.10.09 | TB | Software | HCM Software: PE, AI & Competition

原标题：HCM Software Industry – Considerations Related to PE Ownership, AI & Competition

#software

Third Bridge · 2026-10-09

Analyst-led • 5 Oct 2026

Companies: WDAY US, ADP US

Jura Slattery (JS) Independent Consultant

Scott Kessler (SK) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

SK [00:00:05]: Welcome to Third Bridge's Interview entitled HCM Software Industry – Considerations Related to PE Ownership, AI & Competition. I'm Scott Kessler. I'll be facilitating today's Interview with Jura Slattery, former Chief Customer Officer at Isolved.

Jura, before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information that is confidential, during this Interview.

JS [00:00:32]: I agree.

SK [00:00:33]: Could you provide a brief introduction and some information about your background?

JS [00:00:38]: I spent the majority of my career in two industries: One, in the HCM SaaS software space. That's been probably the last 15 years working and starting at ADP. I worked at UKG, which, at the time, started at Kronos, was there through the merger with Ultimate, which then subsequently became UKG, worked at Cornerstone OnDemand and then certainly at Isolved. I also did a stint in entertainment payroll, which certainly is not for the weak, but really gave a good in-depth understanding of how payroll can be different across the industry. In those roles, was in leadership roles throughout and spent a heavy amount of time in implementation and then certainly in the CX, customer-facing satisfaction space. Then the second industry that was primary in my career, I spent 10 years in the brokerage world on the property and casualty side for Marsh & McLennan and then also on the HCM, HR benefits consulting side at Gallagher.

Questions

00:01:54] Could you describe the major developments or trends that have been impacting the HCM [human capital management] software category? A couple that come to mind are acquisition and buyout activity and the implications for company priorities, as well as AI. That sounds like a cop-out because there's so much going on with AI, but I've heard of potential competitive threats in 2025-26 with the notion that, say, Claude could help a customer create workflows and displace HCM companies. I think it's become more apparent over the last couple of quarters that that's easier said than done. Conversely, HCM companies seem to be investing in their own AI. What's been happening on those two fronts?

JS [00:03:45]: Certainly, what you hit is the nail on the head of what is top of mind for HCM companies today. I think in listening to your question overview, the one word, is pressure. There is pressure everywhere right now, and that's coming from a number of different angles based on what you've just said. It is the pressure. Many of these companies are PE-owned, and so there's that pressure to deliver, deliver on the results, deliver on the EBITDA, do more with less, streamline, be efficient, be competitive, be ahead of everyone else when it comes to AI and do that with as few employees as possible and do they need to be in North America? Do they need to be offshore? There's incredible pressure in the industry. You have to be the right type of person who thrives on transformation and change in order to be able to survive in this industry right now. I think it's actually quite exciting, but you have to really embrace and love change where we're at right now. I do think we're really at a pivot point. With regard to PE, I'll just touch on, because of the pressure, there's copious amounts of change within the companies that are in the HCM space, and because of that, there's this underlying layer of anxiety within the employee ecosystem.

As companies are merging and acquiring, again, because of the competitive pressure, as you are bringing these companies in and doing merger integration, if it's not done thoughtfully and carefully, that anxiety just becomes the norm within a given ecosystem. That right now, I do think we'll probably touch on this in other questions, but that right now, to me, is nearing a boiling point. With regard to AI, it's funny because it's everywhere. I feel like there's this pressure for every company to say something. It has to be embedded in the marketing. It has to be in when you're responding to an RFP, our customers are expecting us to be ahead and to be at the forefront and really, at the end of the day, make their lives easier, and I get that. We all want our lives to be easier, especially when there's pressure. Forget the HCM industry. For our customers, there's pressure there, too, to do more with less and to deliver on the results. While the HCM industry is also driving AI embedded in their solutions in order to make our customers' lives better, it's also converging with AI strategies that our customers are having. There's a lot of conversation around how do you meld the two? How do you make sure that they complement each other?

Then how do you help certain customers in particular industries that perhaps aren't either comfortable still with AI or still learning it? There's also this whole thought and idea of bringing the customer along with us so that they can see that there is not just compliance in place, but there are security and audit checks and protections because you're dealing with money, you're dealing with payroll, you're dealing with protected information. With that creates a whole different level of security and trust that our customers need to have in the solutions that they're purchasing in order to make sure the data is safe. At the end of the day, you really need to make sure that the AI that these companies are building is actually delivering on ROI. When I talk about convergence and a pivot point, we're also at a time where HCM companies need to continue investing in AI, which is very expensive. In order to do that, they have to cut costs elsewhere. What I'm seeing is that they have to cut the costs now in order to do the investment, but the AI isn't delivering yet on that return. You can imagine what happens is you have this brunt and this struggle in running the business at a precipice and right before the AI is delivering on the ROI. It's a very interesting time in our industry, but it's also an incredibly pressure-tested time. Then that relates to the customer pressure.

00:08:50] The macro backdrop is one of high commodity prices influencing the industry in terms of resources that could be committed not just to AI, but to other purposes, especially when AI has become a perceived priority. You touched upon the fact that companies are looking to do more with less. I think that applies not only to resources, but also people, which has a direct impact on companies that monetise through a PEPM [per employee per month] model. Could you comment on that? How do you view macro pressures and how they might impact HCM companies?

JS [00:09:56]: It's a good topic. When you think about what's happening from a macroeconomic perspective, it makes customers and organisations a little nervous and it makes them pause. It makes them question every decision they have to make. You're not just buying a payroll system or payroll service anymore. You have time and attendance, GL, you've got compliance components, wage garnishments. You've got all sorts of solutions, and it's expensive. With these very expensive tech solutions now, it can't just be implemented by your HR temporary assistant that perhaps back in years past, you could have. You now have IT at the table. You've got head of product. You've got your tech people, you've got your CFO at the table, and there's a little bit of a power struggle of who's going to make the decisions. It's not the CHRO making those tech decisions anymore because it's so complex. Now and then you throw in AI and all that, you've got your chief security officer at the table and everyone wants to sign.

With that, just the cost and the complexity that's come into the industry over the last several years, it's lengthened the sales cycle considerably. It makes customers really pause to say, "Maybe I'm okay with the dollars and ready to do the investment," but because of the complexity, you have customers who will say, "Okay, I just purchased this. I'm excited. When are you going to implement?" The response to that is, "Customer, it's when are we going to implement?" As much as I would have loved to be able to just do all of this on our own, the customer has to be at the table and provide resources, provide the data. They've got to do the quality checks. They've got to do the testing, and that adds a whole layer of complexity to an implementation. Companies might not be able to afford to give up those resources for depending on the size of the company, it could be anywhere from two weeks to one year or longer to implement.

I do think that is making some customers pause to take the risk to go to a new solution, and very thoughtfully, and I think this is very smart, too. Many customers are saying, "My solution works. I don't love it. It's not great. I have to Band-Aid and do a lot of manual processes to work around it." You know what, maybe it's like deferring maintenance on your house when you don't want to pay the quote that a general contractor gives you. Maybe I'm just okay, but maybe I can optimise. Optimisation has become a really interesting alternative from a macroeconomic perspective. You get some of these big consulting firms who have said, "Wait a minute, maybe I can get into this game because it can be very lucrative. If I'm not going to be paying multiple millions for a new solution, maybe I'm willing to pay USD 500,000 to do a full optimisation on my system. Maybe there are product enhancements that haven't been released, maybe there are processes that I can reimagine, maybe I bought another company and there's merger implication there and maybe I can streamline and optimise the way my operation looks.'

That's become a really interesting consulting opportunity for HCM companies who really get it. Some that I've worked for do it very well. Some don't offer it at all, whether it's pre-implementation or post-implementation. It's a really interesting angle that I do think is going to continue to become more and more important as it becomes more difficult because there's these tentacles that these HCM companies want tentacles embedded. They want you to buy all of the solutions. If you buy everything, it becomes very, very difficult to leave. By design, HCM companies love that. For a customer, sometimes they feel trapped. Then certainly, HCM companies have to become more creative in the way they close the sale. I've seen a lot of really interesting proposals out there to offer things for free or to do discounting on multi-year engagements in order to try to entice the customer to stay. What I have found is that if a customer is happy with the service, they might just be irritated about the solution that they have or there might be things that just don't work the way they want them to work.

There is no perfect solution as much as every customer wants a solution that works perfectly for their particular workflows and their particular industry and their compliance requirements and the way they run their business, there is no perfect solution. I tell customers that all the time. Just to try to set the expectation is we will do as much, some will do customisation, some will say, "Here's your box and you either live with your box (inaudible 16:23)" to try to get the customer to sign, but what I have found is that customers who are happy with their support, if they get a call back quickly, if they can get their answers from a self-service live agent chat, if they can get what they need on the weekend or if they're running payroll on a Sunday when businesses normally aren't open, if they can get what they need when they need it and they're happy with or at least satisfied to a certain extent with the success manager that they have, that's the glue.

00:16:59] You mentioned implementation times ranging from two weeks to one year, and you alluded to longer sales cycles. What do those look like and what do you expect going forwards?

JS [00:17:36]: It goes back to the creativity. For, say, a new customer that we may be trying to land, it is almost like going back to my broker days. It's going back to the notion of, if I can build trust with you, I get to know your family, I get to know your business needs, you let me in on your strategy, maybe you let me join some of your executive meetings, so I have an understanding of what your challenges are. If you trust me and I can build that relationship with you just like the trusted business adviser notion with a broker, I might be able to shorten the sales cycle because you trust me, I'll give you a better pricing strategy if you agree to sign a three-year agreement vs either no agreement or a one-year, no-time agreement. That has become very, very attractive to customers.

If I build into the contract that maybe you want to be the beta tester for our new products. Maybe you want to become part of a special, we call them, VIP group to help us design the new products. I'll put you on stage at our customer conference and give you an award and you can become a spokesperson for us, which, one, helps you in your professional career. You can become certified in our product. That helps you, but it also gives you a voice, which helps. There's a certain level of power in that, and that you can help design the products of the future. Who doesn't want that VIP treatment? There's been a lot of creativity in the last couple of years around that to, one, help customers sign more quickly, but also give them those carrots that perhaps another HCM vendor wouldn't give them.

00:19:37] It sounds as if sales cycles are getting longer, but in some cases aren't, depending on how engaged and motivated a customer might be. Can you give me a sense of industry standards for sales cycles now and how they compare to a couple of years ago? What do you see going forwards?

JS [00:20:18]: What you said is so layered that it really does depend. I think it depends on when you look at it from a small to mid-market to enterprise-level customer, certainly, you can be more nimble with the smaller ones. They might be able to take more risk because the dollars aren't as high, and they can probably move a little bit more quickly. In that space, a sales cycle, again, it's generalising and it's probably not going to be completely accurate, but just to give you an idea, comparatively speaking to, say, 10 years ago, many of the sales teams would be waiting for the phone to ring. There's a real change in behaviour from a sales training and a sales approach perspective because I have not seen customers calling to say, "Hey, I want your solution. Can you get it for me now?" because the approach has changed where there's just so much competition now that these customers are getting calls. To me, that's been a real behavioural change in the sales cycle.

The sales folks have to pivot and change the way they approach their prospects in that there's more of a hunter vs a gatherer or a nurture mentality. Then from an enterprise perspective, because, again, the complexity and all of the things that I mentioned about more seats at the table, which makes it harder to close the deal, some of these enterprise multi-million-dollar deals can take years. Salespeople know that, and they're invested. It's a little bit like your insurance agent or again, your broker where that relationship is so critically important that those regular touch points and continually professing your love and your re-establishment of trust is so critical. With mergers and acquisitions, too, that adds in a layer of complexity and that stakeholders change a lot more quickly now. I might be working with you for the last two years and you're ready to sign and then your company gets bought by somebody else and you're out. With the movement of the talent makes it even more difficult. That's why there's the creativity that I'm seeing so that they can close the cycle before the mergers and the stakeholders change.

00:22:57] If we consider retention vs churn rates, all the complexity and change associated with making a transition that we've talked about seems to be causing customers to stay with their incumbent HCM providers. There may be greater levels of frustration or dissatisfaction, but that might not translate into customer losses per se. Have industry-wide retention rates been going up or remained at an elevated level as a result? I would imagine there would be less of an emphasis on customer success and account management because there's an understanding that customers are less likely to make those changes, so companies might invest more in AI and things that are going to get people excited instead. What do you think?

JS [00:24:52]: Yes, that is probably one of the things that would keep me up at night the most, because you don't know what's happening at this given company. You don't know the conversations they are having unless they're willing to share that with you. If you've got an in, or we used to call them coaches, someone who is on the inside and sharing those deep dark secrets with you, you don't know. You could say, "Look, I'm going to cut one-third of the support staff or move them offshore," and success, you're going to take on more customers, which means you can't give them the same amount of attention. You can make those assumptions, but I do think the customer experience is the differentiator now. The solution, if it was truly self-service and you didn't need a success person, this is my own utopia, and a customer was happy, great, but I don't think that's the reality. I think the reverse is actually true. I was at ADP really a long time ago. Back then, ADP was really, really pushing the self-service. They want customers to do everything. I think to a certain extent, there absolutely was good in that because at the time, the customers wanted that. They're like, "Look, you only work 9:00 to 17:00, and I need you at 19:00 or I need you at noon on a Sunday because I didn't get my work done, and I have to do payroll."

Customers really wanted it back then, and I think the pendulum swung too far. Now customers want to be taken care of. Their jobs are hard, especially in HR. HR jobs are harder than they've ever been. They are more dimensional than I think what a lot of these HR professionals originally thought their job would be. It's a really, really hard role, and they want the support. If they know that there's a dotted-line resource that they can lean on to provide that extra support. Honestly, sometimes it's just to listen, to hear their challenges, and they want that. I feel like the pendulum is swinging, but we're at a really interesting inflection point because those are the resources that are being laid off so that the HCM companies can invest in AI. It would be a really interesting time to write a book about how that all converges with the PE strategy and then the growth that the HCM companies are experiencing. Going back, I would like to just add your comment about customers not leaving, it's been an interesting strategy for a lot of HCM companies now to say, "Look, it's just too hard to take a company from another HCM vendor."

It's so hard. We'll continue doing it because you have to, and there's an expectation there, but the growth percentage might not be as great as perhaps expanding. You have all these, so you've got 12 products and that company only has two. Go in there. Especially if you've got good retention and good CSAT scores with these companies, go in there and just expand. They might not know. The focus on, say, quarterly business reviews from a success perspective, which, by the way, AI can do now. You've got, say, 10,000 customers, maybe for your top 20% you go take them to dinner and you do them on-site. If they're willing to see you every quarter, do it every quarter, but you know what, AI is pretty savvy now. AI can actually build that deck and send it out so you can stay top of mind with your customer. "Hey, I'm still working for you. I'm still doing this analysis. Look at this beautiful presentation I put together for you and how the solution is working for you." You can stay in front of the customers. There's a lot of really cool predictive analytics out there now, thanks to AI, that helps us predict whether or not a customer is thinking about leaving before they're willing to share that with us.

00:29:11] Would you agree that retention rates are higher due to the risks we've discussed? I know it depends on the type of vendor, and as you alluded to, as more vendors offer more modules and solutions, it makes it harder to displace them. One could argue that you could displace one part of the offering, which is the difference between customer and revenue retention. It sounds as if, on a pure customer basis, retention of HCM software customers has got to be as high as it's been in a long time. Is that a reasonable characterisation? The conversation might be different for revenue retention.

JS [00:30:24]: I agree, and yes, that is what I'm alluding to. In my experience, retention rates were pretty good. The PE firms were, I wouldn't say they were happy, but they were satisfied with where we were at, but there was always push for more, "always push to expand," but yes, I do think that ties to what you were talking about with the macroeconomic situation we have right now. There has to be something dangling, something sexy for a customer to say, "I'm willing to leave," because it's just so hard to leave their vendor now. When I was at ADP, because they could be still the behemoth, they would say, "You know what, we're not going to charge you. That vendor over there is going to charge you USD 900,000 to implement. We're not going to charge you anything." You know they did.

They just built it into the PEPM. It's not like they weren't getting paid, but I ran implementation for the western region for ADP in their major accounts. I didn't have a P&L. We didn't charge anything and my staff hated that because they thought they were unvalued, but I had to explain to them, "No, we're still valued and getting paid." It's more that it's just built into the PEPM. ADP, that's not any secret information, by the way. They were very vocal about being able to use that as a sales strategy. Customers knew that their PEPM rates were higher, but they could also sell the value. They were willing to pay higher PEPM rates because ADP offered world-class better than anyone else, compliance reporting and all these other analytics that I would say still keeps them as the biggest one out there.

Again, it goes back to that creativity of how you retain your customer, but to get a customer to leave now, you have to come in and say, "Okay, I'm going to take a loss on this customer because I'm going to basically almost do it for free because I know when I look at multi-year increases, I'll recoup the money in a four-year agreement, but I'm going to take a loss the first year or two just to get that customer." Really expansion and focus on retention is really the key to the growth model. Then also from a growth perspective, I would say very creatively, HCM companies using a reseller model, use your local payroll folks, but have them use your solution, there's trust at the local level. I see this person in the grocery store, and I'm willing to trust them because my kids go to tee-ball together. Then you buy that reseller and they become part of something bigger, but yet they maintain that small town cultural alliance to that customer. I find that very fascinating in our industry right now.

00:33:37] I think an industry average for customer retention rates would be 90%-plus historically, maybe lower for mid-market and SMBs. Is it reasonable to suggest those retention rates have gone well into the mid-to-high 90% range at this point?

JS [00:34:16]: I think that's a stretch. You start going into mid-90s, you're really elite. I've seen those maybe 92-94%. I've seen those in the enterprise space, but to your point, I think you're spot on, mid-market and SMB, you just can't give them the same level of attention and it's easier to move, and they're more apt to move, especially if it's a price play because they're smaller, less complicated. There's definitely more churn in the small market. Look, you know the industry well. When you look at the players that have entered the market in the smaller SMB space, they're doing some pretty interesting things. I think there's probably more attraction for a company to look at moving. Mid-to-lower 90s for enterprise for sure, but that sweet spot right now is that mid-market and especially the higher-end mid-market, where it's not quite as complex, and so maybe you can attract them to move, but your solution has to fit the SMB and the mid-market space. Again, when we go back to there is no perfect solution, it's challenging for some of these HCM companies to flex their solutions to fit a 10-person company and then a 100,000-person company.

00:35:51] Returning to the mid-market, or the upper mid-market as you described it, you highlighted a dynamic of partnering while having your own services organisation. On one hand, it sounds as if you're all for working with partners from a sales perspective, and it makes a lot of sense in terms of the day-to-day, the trust factor and the implementation side to have your own organisation to reach out and provide updates. When a company makes the choice to either be more lean internally, including sales and service, or skew more homegrown, more organic, perhaps acquiring companies to help, how does it make that choice? It sounds difficult, because either you're all in-house with your sales and service or you're all partnered. What do you think of that? Which company do you think has an approach that works particularly well?

JS [00:38:04]: I feel like we could spend a whole hour on this topic alone because there's so many different ways that companies have approached it. I'll give you a good example. UKG is a great example just because of the merger with Kronos and Ultimate. As you know, companies of like size merge together, with that creates redundancy in role, which created people deciding to leave. They didn't want to be part of the merger knowing that that's a painful process. A lot of people left voluntarily. It's public knowledge, the reductions in force that as part of their own transformation, UKG has made over the years, that's created incredible opportunities for these folks who have this incredible industry knowledge to go and say, "You know what, I'm just going to create my own company. Now, I'm 100% loyal to UKG. I know their system. I know it very well. I will be loyal and sell the UKG product and service it." Of the HCM companies that I'm quite familiar with, I find it really interesting what UKG has done because it's birthed, this merger has birthed a whole slew of really solid levels of expertise that are 100% loyal to UKG.

There's a lot of partners out there that are experts in a number of different vendors, and they'll say, "We'll help you determine which ones to buy." They can be that independent consultant to a customer and say, "You know what, I know these vendors, I'll help you make a decision. Not only that, I'll help you implement and service if you'd like." They offer different types of à la carte or full suite solutions, but UKG has created some incredible companies as a result of the merger. They can go and sell and support and service themselves, or they can say, "I just want to implement. I have a bunch of implementers that know UKG and they can contract with UKG to just implement and then UKG does the servicing," which works too. There's a lot of different ways that you can create your company to make it worth their while. Then there's companies out there, going back to my earlier point about the optimisation, that know the system so well that they say, "Look, I don't really want to implement. I don't really want to service, but I can optimise the solution better than anyone else." They find their niche and then they can market it that way. If they can get a good alliance with the partnership groups within these HCM companies, which have grown, by the way, in my experience, sometimes the partner groups have been a part of implementation.

They've been a part of perhaps the customer org in general. I've seen them attach themselves to sales orgs within the HCM companies, but I've seen them grow and become a standalone org, which I find fascinating because there's so much opportunity there. Then as I mentioned earlier, they're also now attaching themselves to these very large management consulting companies because they have access to a significant number of companies. If they can create this partnership that says, "Hey, if I can be your VIP payroll vendor, I'll give you the optimisation part…" PwC or whoever you want to, insert management company name, "I'll give you that piece." One, it helps them solidify and maintain their trust and relationship on the management consulting side, but then also holds the payroll company or the HCM company accountable to doing the best work. They'll say, "I only want your A players, and I only want your A team working with my company." There's a bit of control and power there, which I find super interesting.

00:42:25] The two large players in the HCM category are Dayforce and UKG, both owned by PE, and the one thing I've heard about them – other than the fact that they have fewer modules and solutions than other players, which perhaps puts them at a disadvantage – is that their partnership assets and efforts are immature relative to other companies that might have been around longer. Can we surmise that this appealed to PE firms, perhaps suggesting potential to build up and build out that partnership offering as a way to do the two things that PE investors really like – maintaining and accelerating top-line growth and enhancing and widening EBITDA margins? What are your thoughts on that?

JS [00:44:14]: When you look at the industry as a whole and you look at what I would call name brands, you look at Dayforce, which was Ceridian, right? You look at Dayforce and you look at UKG, these are really reputable companies. They have really solid products. They've got great marketing. They sponsor and advertise on buildings and on athletes. They've really done some things right. Now, obviously, I know UKG better than Dayforce, so I would lean more into that, but the products work. I think where you get on Glassdoor, you get on some of the other responses to their people's experiences, really it comes down to how is their service? I know I keep leaning in, but that is my area that I've been particularly sensitive to lately. Are they going to change their service model so that a customer feels taken care of? I do think they're listening. I know UKG does an incredible job at their surveys and their responses and you can see that. You can see that. They do a nice job when you go on LinkedIn and you hear customers doing more testimonials for them. I think there's a bit of an advertising campaign on that right now. From a PE perspective, because they were already solid and merging Ultimate and Kronos together, I think, was a really smart move because the Kronos time product is still the best.

That is just world-class. It's still the best one out there. Could they have married a better payroll product to that time? Maybe. Could it have been more unified? Maybe, but I do think they know that. When you look at the UKG Ready product, it's unified and it's good. When you look, going back to your mid-market comment, could you expand and build on that Ready product and go, which was typically just SMB, maybe low-end mid-market. If it's that good and that unified, could you tack on because it has the Kronos time component already built into it, could you build that out and make that your unified system? Because at the end of the day, customers don't want a 50-list tech stack and they did that. They wanted that in COVID because everyone was trying to pivot and trying to figure out how to work from home and so they bought a lot of products, a lot of technology. I was talking to a customer at a conference about a year ago, and they were telling me what their tech stack looked like, and my mind was just blown. I couldn't believe how they could manage it internally, but their list was so long. They say, "We have another conundrum."

Then another customer said that to me and then another customer said that to me. The conundrum now is, they're paying an incredible amount of money for all this tech, but do you think this tech is truly unified together? No. It's patchworked and the employees are the ones that suffer because there's manual workarounds to try to make these products work. If an HCM company could come in and say, "Look, you don't have to do any integrations. There doesn't need to be anything that isn't going to break. It's all in one box, and there's enough complexity to handle their needs." I think that solution would rise to the top. I do think there's a scramble there because I think all the companies want to do that, and they're trying to figure it out. That's why some of these newer players in the market are so interesting because it's easier to build if you're new and you've got the money and you've got the talent and now you're embedding AI from day one vs the well-established companies like the ADPs and UKGs of the world that are trying to build it within already more archaic-type systems vs saying, "I'm just going to start from scratch."

00:48:26] UKG has Pro for enterprises and Ready for SMBs. It sounds as if the company is having some real challenges upmarket with enterprises, which I assume is related to the pressures that you talked about. It does seem that there's a fair amount of momentum with the Ready product. Are you suggesting that UKG might look to build up and build out Ready, perhaps de-emphasising or even sunsetting Pro?

JS [00:49:25]: If I were running UKG, I would absolutely be considering that. You can go out and read the reports on what the platform of the system of Pro is from a payroll perspective and realise that when you try to match it up to the historic Kronos time system, there's a mismatch and that the customers are the ones that end up suffering. Now, you can try to make up for it by doing lots of customisation, but you can't really support that type of customisation. I think if I was UKG, I'd be going away from that. That's absolutely what I would be doing because when you look at the Ready customers, they've been pretty vocal about being happy with their product. If you can add on solutions that handle more complex businesses, why wouldn't you? Why wouldn't you try that? That to me is a no-brainer. When you look at the change and the transformation that UKG, they've had a hard go. The merger was hard, and they did it right in the middle of when COVID started to do a merger, and then you've had different CEOs, which then bring in different strategies. I think their transformation effort has been admirable, but I still feel like they're in the thick of it and customers are feeling the brunt of that. The quicker that they can do that transformation, the better it will be for everybody.

00:51:02] I believe you characterised the mid-market as the sweet spot for HCM because there's still a lot of revenue to be had, perhaps in greenfield opportunities, with companies finally buying into an HCM vendor and platform. The margins are still good because those companies need a lot of assistance. Can we assume there are a lot of opportunities there? We talked about retention rates of 92-94% or so for enterprises. What do you think they look like in the mid-market right now?

JS [00:51:57]: I think it's the space that everyone is chasing because you've got companies like Workday, who really have a lion's share of some of the largest companies out there, but why wouldn't they want to go down market? They haven't been shy about and vocal about wanting to go down market. Then you've got other vendors out there like the Paylocities and the Gustos and the HiBobs and the Darwinboxes and all of that, you've got the Gustos and like the HiBobs who were traditionally wanting to focus on SMB, why wouldn't they want to go mid-market? I do think that the larger enterprise vendors want to go down market and then the smaller ones want to go upmarket, and they all meet at the mid-market. The challenge there is from a complexity perspective is depending on your industry, you've got healthcare who needs advanced scheduling. Okay, my payroll system might be strong and complex and can handle it, but what about my timekeeping? Can I handle the type of scheduling components that are needed based on certain industries? Where this might go is you have some of these vendors specialise, the government entities or the public sector space, they might specialise in certain areas rather than try to satisfy all industries. I can see that happening as a way for them to carve out their particular niche in a particular industry, or perhaps they partner.

When we talk about partnering, I think what's fascinating is the partnerships that are happening at a broker level because just like HCM vendors, the brokers are being asked, they're not just there now as they were 15 years ago to just show me a benefit plan and let me pick my benefit plan. These are trusted advisers who are being asked to help be a part of the vendor selection for their HCM vendor now. If you're a broker, how are you going to be an expert in the hundreds of HCM vendors that are out there, too? The mid-market space is definitely the one to watch, and I think it's the one that's the most fascinating because I do think that these HCM companies are going to have a very particular strategy, and they might want to go after everything and ADP is going to want to go after everything and they've got the solutions that can do it. These smaller ones, I think they're going to have to pick their horse. They're going to have to pick their industry. They're going to have to pick their broker. They're going to have to pick their area of expertise in order to continue to thrive.

00:54:36] How would you split up the HCM software industry into leaders and laggards? You can characterise it broadly across all the categories, focus more on enterprise or mid-market, highlight upstarts that are doing a good job of focusing on a niche – whatever works. Could you give me three in each category and the reasons why you cited them? Over the next 2-3 years, which companies would you think are going to be in these categories and why?

JS [00:55:29]: I'd love for everyone to read Stacy [Harris] [from] Sapients [Insights'] latest reports. I think she's been and her company has been really on point with who are the leaders and the laggards. I follow her and I think based on some of the reports I've seen, really, really interesting analytics coming out of it. From an SMB, from a small market perspective, there naturally is going to be a lot more movement there because it's easier to enter in the smaller market and with technology and AI, it's easier to build. I've been really intrigued and interested in some of the reporting that I'm seeing about the Ripplings, the HiBobs, the Gustos, one, their marketing is just really brilliant. The apps that are coming out are really user-friendly because, again, they're building it from scratch, and they're listening to what customers need. I really feel like those are really up-and-coming, but you know what, ADP has got the money. I think ADP just needs to decide and continue to decide where do they want to play because they're so dominant, and do they want to go after and continue going after the small market? I don't know. I don't know that they do, given the competition in the smaller space.

What's interesting, though, is we were saying this a long time ago, when you've got, say, the Cornerstones of the world who are really focused on the talent learning management side, not really so much the full suite HCM or HRIS with the payroll. When you look at how strong they are in that space, if Workday from an enterprise perspective, so jump into enterprise, put in USD 300m into the learning management HR space. You know what, I think they did. I don't know the exact number, but I think they're on to it. If they realise that they have a strong, say, payroll engine, and they've got a box approach, which seems to have worked pretty well for them in the enterprise space, but if they can bolster not just their AI strategy, which is all over the place, anywhere you look, they're writing about it, but if they could bolster the HR benefits performance management recruiting side of the industry, why wouldn't they dominate? Maybe they would offer up some more customisation, which I think is some of the criticism that they get. I know that they're pushing down market. They haven't been shy about that. Why wouldn't they dominate? I've been intrigued by Workday.

From a talent perspective, people want to work at Workday. It's very difficult to get into Workday. When you're also the employer of choice, that also creates an opportunity for you to become the dominant player and a dominant leader. I have such a love and affinity. I will admit that I'm completely biased with UKG just because of the culture. It was so unique and so different and so special that they were… People wanted to work at UKG. They wanted to work at Ultimate. They wanted to work at Kronos. It was a culture I had never experienced before in being in professional work for over 25 years, so special. They lost that with the merger and I hope that with the executives that are there now realise the dominant differentiator if they could bring that back because they would market the culture as wanting to be an alliance and an alignment with their customers' cultures. That became a real differentiator from a sales perspective. I will always root for UKG because they're going through it right now. But from an enterprise perspective and a mid-market, I do think UKG is probably a dominant player in mid-market now because of their products and solutions are really tailored to strong mid-market, maybe less so the big enterprise like the Workdays.

SK [00:59:54]: What about laggards?

JS [00:59:59]: I think the Ps. I think Paylocity does a very nice job from an AI perspective. I think they're really at the forefront. They've lost some key executives there who have moved to other smaller companies, which I find very interesting. I do think Paycom and the Paychex, I do think they're just going to struggle. I just don't even hear anything about them. I think their service is struggling. I think I see a lot of business moving from them. I would call them my laggards.

SK [01:00:38]: I think that was a good point to conclude with. I want to say thank you so much for joining me today, for sharing your input and your insights, and for participating in Third Bridge's Interview. Thanks so much.

JS [01:00:55]: Absolutely. My pleasure. Thank you.

Transcription ends at 01:01:01 of the recorded material