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SAAS Firms See Highest Revenue Gains in Six Years
More implementing integrated, cloud-based talent and HR systems

By Aliah D. Wright  7/31/2014

It’s not news that spending on HR technology is on the rise, as the Society for Human Resource Management (SHRM) reported last month, but according to a new report, software-as-a-service (SAAS) companies are seeing their largest revenue gains since 2008.

There may be more to come: according to the 2014 Software & SaaS Financial Benchmarking Report from the Software & Information Industry Association, public and private organizations are focusing on investment in order to prepare for further growth.

“This year’s benchmarking report of small to midsized software companies shows a significant shift in focus from profits to investment,” said Rhianna Collier, vice president of the association’s software division, in a news release. “While most firms were cutting back and hyper-focused on profitability in the wake of the recession, they have clearly shifted to focusing on growth. Not only are companies experiencing strong revenue gains—they are pouring investment back into their firms and setting the stage for further growth and job creation.”

So what types of SAAS tools are human resource information system managers spending money on?

“Talent management applications, such as recruiting, learning and performance, show the strongest growth in SAAS sales,” said Debora Card, a partner with Information Services Group HR/benefits practice, a technology insights, market intelligence and advisory services company. “These involve less cost and risk than full HCM [human capital management] suites. However, our research shows that where companies are looking to upgrade or change their HCM platform, they are now equally as likely to invest in a SAAS-based HCM platform as a traditional ERP [enterprise resource planning] platform; we have reached the tipping point.”

Deloitte reports in its Global Human Capital Trends 2014 report that “companies are rapidly moving away from legacy systems to implement a new breed of highly integrated, cloud-based talent and HR systems.”

SAAS—software that is managed, delivered, and owned remotely by one or more providers—has been around for more than 15 years, Card said in an interview with SHRM Online. “HR SAAS followed closely behind, with companies such as Success Factors, Taleo and Cornerstone OnDemand” later offering SAAS for HR purposes. “We have seen growth accelerate in the last 10 years, since the IPO [initial public offering] of Salesforce and the founding of Workday drove SAAS into the mainstream.”

And business is booming.

Because SAAS doesn’t require major capital investment and often reduces costs, experts say, it makes buying decisions much easier.

Often HR and IT managers are hoping to integrate what they have with something newer.

“I would say that it’s a general truism that organizations that are either looking to replace older HR technology or are trying to reposition the HR function to be more value-adding would be considering SAAS or hosted solutions as possibilities,” wrote Robb Scott, head of HR Strategy and Innovation at Presence of IT, in Sydney, Australia, to SHRM Online during a discussion about the topic on LinkedIn.

“In my experience here in Australia, we are finding the so-called ‘hybrid model’ to be the most likely outcome,” he said. That means companies are blending “existing on-premise solutions (often an ERP solution like SAP or Oracle) and interfacing this with a SAAS product. This is particularly true when organizations are still running large ERP back end systems and also when payroll solutions are still run in-house,” Scott said.

As for integration, it’s “very important, but there are many organizations that are quite happy to buy a variety of SAAS tools and integrate them through an IPAAS [integration platform as a service] or through middleware solutions,” Scott said. “Not all the vendors have mature solutions to cover all HR needs, so in some cases it makes sense to integrate different and best-in-class SAAS tools.”

Gartner predicts that by the end of 2014, the sale of SAAS core HR management systems will outpace new ERP-based purchases in the world’s top publically ranked companies, as designated by Forbes magazine.

SAAS by the Numbers

The Software & Information Industry Association, the principal trade association for the software and digital content industries, produced its eighth annual report in collaboration with OPEXEngine, which aggregates financial and operating benchmarks for small and midsized software companies.

OPEXEngine surveyed “several hundred private and public U.S. firms with revenues between $1 million and $450 million, with a focus on SAAS metrics,” according to a release.

Median revenue for private software firms rose almost 42 percent year over year—the highest percentage increase since the 2008 recession, and almost 40 percent higher than last year’s revenue growth rate of 30.5 percent, according to a release. “Revenue for all public companies included in the survey rose an average of 18 percent in 2013, while revenue growth for public SaaS companies averaged almost 30 percent.”

According to CIO Magazine, 90 percent of Fortune 1000 companies plan to replace their HR management software by 2017, “illuminating the cases of a few businesses that have already seen the benefits.”

Aliah D. Wright is an online editor/manager for SHRM.

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