The Rise of Hi-tech HR Start-ups

Gone are the days when the HR department had a software system to only manage attendance and payroll. Want someone to take care of online application tracking? Check. Need to outsource video interviewing? Not a problem. Require help with employee engagement during hiring? It can be taken care of. Today, there’s a SaaS (software-as-a-service) platform available for almost every conceivable people function—courtesy several start-ups trying to solve for all possible gaps in the hire-to-retire employee journey. “Organisations realise that people make a company. Raw materials or factory assets don’t—they are essential, but that’s the extent of it,” says salary-on-demand start-up Refyne’s Co-founder and CTO Apoorv Kumar, calling Covid-19 an inflection point in the journey of HR tech start-ups. Its flagship product of Earned Wage Access allows employees to withdraw from whatever salary they have earned till that date.

“Because of the pandemic, a lot of hiring went online, and there is more acceptance for digital tools. Hence, the adoption for a tool like mine has gone up and I see an increase in revenue,” says skill assessment platform DoSelect’s Co-founder Rohit Agarwal. The company was acquired by Naukri.com in 2021. Most of these start-ups are in their growth stage and claim manifold increase in their user base. Co-founder and CEO of BetterPlace, Pravin Agarwala, says the blue-collar HRMS (human resource management system) provider used to train 50,000 people through its mobile app two years ago. “Today, we do almost 400,000.”

Recruiting firm Careernet’s CEO and Co-founder Anshuman Das says Covid-19 showed companies that remote, online hiring could be efficient, cost-saving and done at scale. He gives the example of a leading IT major, which used to hire 18,000-20,000 freshers from 500 campuses over nine months. “In one project that we were working with them, we were able to hire 25,000 from 700 campuses in 25 days,” he says. Once that trust was earned, technology started getting built into other HR functions as well, he adds. “Overall cost of hiring goes down because of lack of travel, and companies are spending that money on these platforms.”

Business analytics platform CB Insights estimates that HR software is projected to become a $43-billion industry worldwide by 2026. India-specific data was not available, but people in the field say there is a huge opportunity as all organisations use some technology in their HR functions. Enterprise application software firm SAP’s Success Factors powers the HR functions of 13,000 customers globally across 25 industries. Sanket Deodhar, SAP Indian Subcontinent’s Vice President for Tata group & Unicorns, says, “The maturity of adoption of digitalisation in HR is comparable with other functions like finance, supply chain as well as manufacturing processes.”

With the pandemic shining a spotlight on the HR department and employee experience, several of these start-ups have been attracting investor bucks as well—more than $900 million between January 2021 and April 2022, according to Venture Intelligence. That’s only a fraction of the billions flowing into edtech and fintech, but two HR tech unicorns have come up so far, one of which is HRMS provider Darwinbox. The end-to-end-suite provider, which counts steel giant JSW and new-age firm bigbasket among its clients, says its mobile-first offering developed for the Asian market sets it apart from multi-billion-dollar MNCs like SAP and Oracle. “Culturally, the ability to marry (in your portfolio) up-and-coming e-commerce companies and huge promoter-driven business concentration meant there is a need for a lot of approvals, but with the need for a lot of customisation and individualisation,” says its Vice President and Global Head of Transformation, Vijayshankar Ananthanarayan.

“That’s how HR tech start-ups are: either they solve for problems for which there was no solution provider,” says Blume Ventures’ Director Sajith Pai, referring to its portfolio company—blue-collar workforce management firm Smartstaff—which also finds temporary workers for clients when there is a shortfall. “Or the solution provider existed but was not able to cater properly (at your scale or geography).” They typically fall into one of three buckets—HRMS providers, hiring and recruitment firms like Apna.co (which is the other HR Tech unicorn), and niche players such as tech assessment firm HackerRank, on-demand interview platform Monjin, or corporate health insurance start-ups such as Onsurity and Nova Benefits.

“SMEs have both white-collar and blue-collar employees. The latter category has high attrition due to tough competition from the app-based delivery companies, which are able to offer health benefits. SMEs are not able to do the same and are unable to retain that talent,” says Onsurity Co-founder Kulin Shah. Although more of a health tech start-up for SMEs, Onsurity offers employee health benefits and insurance, another crucial sub-sector after the pandemic. Now, the founders say, they are also getting requests from larger organisations.

Within the problems being solved, some have more popular use cases than others. Trident’s Group CHRO Pooja B. Luthra says, “I don’t know of one organisation that is not using HR tech in some way or the other, especially in recruitment. Definitely in learning management, too. That’s the second most commonly used [area], I find.” Pai is also betting on a pure-play learning and development (L&D) unicorn emerging. Again, with the pandemic exacerbating the need for skilling, upskilling and reskilling, L&D is certainly one of the crucial pieces in the lifecycle, say many. Darwinbox itself uses an external learning management system. “We’ve made a conscious choice not to develop one on our own because we believe it’s a specialised space and we are doing deep integrations on learning,” says Ananthanarayan. It’s quite common to find start-ups using each other’s offerings. Most of them, if not all, can be plugged into the existing HRMS of companies.

Meanwhile, a dozen and more start-ups are solving for the blue-collar space, which accounts for the lion’s share of the Indian workforce. Kunal Patil, CEO of blue- and grey-collar job search app WorkIndia, attributes it to the cheap data and smartphone revolution of 2017, which put internet into the palms of millions in the country, and the pandemic, which changed how people used their smartphones beyond just entertainment and for business and payments. “In India, there were 320 million smartphones in 2017 before Jio came in. Today, there are 720 million. Eighty per cent of this was driven by low-cost smartphones priced at Rs 8,000-10,000, which are used by blue-collar workers.” The firm enables job seekers to call the employers directly instead of waiting for them to call back after applying.

BetterPlace’s Agarwala says the models may be the same as the ones for the white-collar workforce, but the nuances differ and solutions can’t be copy-pasted. “In white-collar, onboarding is almost two months long. In blue-collar, it happens in two hours and in a distributed environment. For example, a security guards’ firm we work with, operates in 2,000 sites across country. It’s a decentralised on-the-fly onboarding process,” he says.

Careernet’s Das cautions that blue-collar solutions may be harder to monetise because companies won’t shell out much per worker. But he estimates that a company’s overall dependence on third-party HR vendors has gone up from 25-30 per cent to 50 per cent (of the total HR function). Refyne’s Kumar doesn’t have an exact number for how many HR tech tools an organisation may be using today, but he says there are a few key elements everyone has to deal with—HRMS solutions, employee insurance, employee engagement and rewarding solutions. Ananthanarayan says Darwinbox has replaced giants like SAP’s Success Factors, Oracle or Workday in 150 cases.

“While many start-ups are mushrooming in this space, they fix a tiny problem in the entire hire-to-retire cycle. We do understand that no single vendor can own and solve every issue that a customer can require for their HR transformation. So, we have a unique innovation programme to work with start-ups,” says SAP’s Deodhar about Success Factors. He says their appeal among clients—enterprises and start-ups—also lies in being able to manage the law beyond India. Rival Oracle launched a new employee experience platform, Oracle ME, in April. Asia Pacific Vice President (HCM) Deepa Param Singhal says, “Our differentiation factor has always been the kind of industry insights we procure and implement for our solutions,” adding that Airtel has transformed all its internal processes with Oracle’s portfolio.

Trident’s Luthra says the immediate problem start-ups are able to solve is making the processes seamlessly digital. “Take interviewing platforms. They are definitely fulfilling a gap without compromising on the candidate experience. Only research will tell us the validity and viability of some of their assessments, but it improves the experience for sure,” says Luthra. Besides, they are more flexible and agile than legacy firms, she adds. “When it’s time for objectives and key results (OKRs), they are quick to change the look and feel of the product. Something like Success Factors, which is a part of a larger organisation, tends to be slower in adapting and customisation. But the start-ups have to do everything from scratch.”

Their challenges are that of any start-up, Das says. “Will a big enterprise customer really believe them?” pointing out that a user company could struggle if it takes a solution from a start-up that then goes bust. But Luthra disagrees: “That may be true only for HRMS, which forms the base of everything being integrated into it, but not for other niche offerings where we are spoilt for choice,” she adds, highlighting another challenge for start-ups—differentiating themselves among a growing pool of big and small players, and finding the right pricing fit. But the biggest question remains, how they help companies attract and retain talent—the topmost workforce-related concern for any organisation. The start-ups claim to automate mundane tasks to free up time for an HR professional to implement better people policies and processes and, in turn, become more attractive to employees. “I may need 15 variations for onboarding, which has so far been a standard process. One for an intern, a returning mother, a gig worker, fresher from a tech campus versus a management campus and so on,” says Ananthanarayan of Darwinbox.

While employee experience is certainly crucial for organisations, the legacy players and the start-ups have different takes on solving for it. “The journey of digitisation in HR is moving from point solutions to end-to-end experience with a core foundation and integrated talent management on top of that. It is not just adoption of tools but looking at the employee lifecycle within the company without any broken pieces,” says SAP’s Deodhar. BetterPlace’s Agarwala, on the other hand, says more niche-play start-ups will start coming up focussed on solving one specific problem, for a specific vertical like manufacturing or retail or a specific audience like blue-collar/white-collar workers. “Now, the generic approach of HR has changed to newer models.”

But as of now, there is enough space for everyone to play as organisations are transforming their people processes, experts say. “HR tech is definitely a growing segment and the start-ups are not going anywhere anytime soon because there is a lot of creativity in this. They will run parallel to the giants,” says Luthra.

@SaysVidya