Making More Sense of the Human Capital Industry

One of our previous blog postings entitled Making Sense of the Human Capital Industry provided an overview on how the HR marketplace is segmented. If you sell a product or service to HR, we highly recommend you read this posting. It should be in every HR vendor’s training packet for new marketing hires.

This is a follow-up posting that was inspired by a question someone recently asked me about the market potential of our service, HRmarketer.com. HRmarketer is sold to HR vendors/suppliers who we define as any company selling something to HR, from recruitment and staffing services to employee benefits. We both agreed that conservatively, about 40,000 companies fit into this category. Granted, most of these companies are small sole proprietorships (i.e., consultants) doing business on a regional or local basis but we concluded that an attainable market penetration for HRmarketer was about 3,000 HR suppliers in the USA.

This question motivated me to look at the number of HR suppliers (in the USA) that are publicly traded companies – not an easy exercise by any means. If we stick to our original definition and include any company selling any product or service to the HR department of a company, the list is quite large – too large to reproduce in this blog. For example, there are hundreds of insurance companies that generate revenue from selling product to HR, but this revenue is often under 15% of the company’s gross revenue.

However, when we further segment the list to only include companies who generate at least 50% of their revenue from selling to HR, the list becomes quite manageable – about 50 companies. When we further segment the list to include only those companies who generate 90% or more of their revenue from selling product direct to HR (pure-play HR companies), the list falls to 11 companies. These include (in order of market cap – only ADP, Paychex and Hewitt have market caps above one billion dollars):
  1. Automatic Data Processing (ADP)
  2. Paychex
  3. Hewitt
  4. Kronos
  5. TALX
  6. Gevity HR
  7. Administaff
  8. Ultimate Software
  9. Workstream
  10. Webhire
  11. Workbrain
Why didn’t we include companies like Ceridian, Oracle, or SAP, Watson Wyatt or Aon in this list? Because 90% of their revenue does not come from selling product to HR. Take for example Ceridian. While Ceridian is a dominant player in HR, their revenue from HR is about 75% of their gross revenue, so we wouldn’t include them as a pure HR player. Same goes for a lot of large multibillion dollar companies like Cigna and Aetna (and a lot of other employee benefit firms).

You may also ask why we do not include staffing firms like Monster Worldwide, Adecco or Korn Ferry. While these firms generate close to 100% of their revenue from “staffing” and related operations, most of their revenue comes from selling product to departments other than HR. For example, when a company engages Korn Ferry to locate a new CEO, HR is often times not the driver of the initiative and may not even be involved in the purchasing process until the search is well under way.

So what’s the point of all this? Well, it’s obvious that the human capital marketplace is as expansive as it is diverse – and growing rapidly – even if there are very few pure-play publicly traded HR vendors. In fact, Piper Jaffray recently released a human resources outlook survey that included more than 320 human resource professionals and was “designed to provide insight into key trends and spending plans across the U.S.-based human resources community.” According the survey results, spending will increase across the board in HR – from recruitment and staffing to pre-employment background screening to HR outsourcing to enterprise software to benefits administration to learning services – you name it, HR is buying.

So let’s get to selling!