Author: Rhonda Marcucci
Google “HR technology vendors” and you'll get some 234 million hits! Clearly, not an efficient approach for compiling names for sending a request for a proposal (RFP). And yet, lots of employers do just that when preparing to run their own RFPs. The outcome is a too-long list of companies that are good at digital marketing, but which may or may not be a good fit for the employer.
We often say that there is no bad technology—only bad technology fits. As HR and benefits technology consultants, it won't come as a surprise that we believe the best option is to hire an experienced HR and benefits technology consultant to help you define your requirements and identify best-fit prospects. We understand, however, that employers manage RFPs on their own for a variety of reasons and we’re happy to offer some guidance. This is a complex process that, without expertise, can easily go badly. Changing providers is a big investment—both in time and money—so you want to get it right the first time. Industry research shows that employers planning to change technology platforms in the next 12 to 24 months expect to use the platform an average of 7.5 years.
Many employers (and some benefit advisors) believe the best strategy is to send an RFP to a dozen or more providers, assuming a good option will emerge. Be assured, this will be a huge waste of a lot of peoples' time, including internal stakeholders (from whom you need buy-in) and members of your own team. It's also worth noting that responding to an RFP has a real cost associated with it for the provider. If you send an RFP to a provider and they discover that you haven't done your homework to recognize they are a poor fit, they may not respond the next time when, in fact, they might be a very good fit.
With all this as a background (and with an invitation to contact us if we can assist you with running an RFP), the following is information to help you avoid making big and costly mistakes when identifying qualified prospects for an HR and benefit technology software and service RFP.
Know your HR & benefits technology needs
The first step is to define your requirements. We can't stress this enough. Shopping for HR and benefits technology without knowing what you need is a recipe for disaster. You don't have to understand the specifics of your technical requirements, but you should have a good understanding of what the technology should do (how it will support organizational goals) and the level of service you expect. Some providers offer tech-only options (bringing the price down), but our experience is that most employers need/want some level of service support.
Shopping without knowing your software requirements also makes it easy to get distracted by cool features and associated bells and whistles. These software features are fun to have, but your list should include only those HR and benefits technology providers that can support your core needs. Everything else is icing on the cake. Learn more in my article, “Don't fall under the spell of the bright shiny ball.” Related, remember that you're not buying the salesperson, so don't get caught up by a great pitch or the person giving the pitch, who won't be around after the sale.
Plan for a two-phase approach for your HR & benefits technology search
As it is not practical to explore the hundreds of market options, we advise breaking the HR and benefits technology search process into two phases. Phase I is to generate a list of reputable software providers that warrant a closer look. This is an informal process that can be accomplished by the following:
- Ask colleagues in like-size organizations and industries about their HR and benefits technology software providers and who else they might recommend.
- Take those sales calls and spend a few minutes to get a sense of a provider. Talk about your organization and HR tech needs. A good provider that knows they are a poor fit will let you know so you can move on.
- Reach out to your benefits advisor for recommendations. Ask if they have an existing business relationship with a recommended provider and stand to benefit from your business. This is not uncommon and not necessarily a bad thing—especially if they have relationships with multiple providers. Your advisor may have a good grasp of your needs and, therefore, is well-positioned to recommend a provider but get all the facts before pursuing the recommendation.
Once you have a good list of prospects (try to keep it to less than 10), you're ready for Phase II—taking a closer look at the HR and benefits technology providers on your list with the goal of narrowing it down to three companies to send an RFP. Tackle this phase by doing the following:
- Spend time on the HR and benefits technology provider's website to learn about their product offerings. It may be hard to understand their service model, so be prepared to talk to a sales rep about service options and costs.
- Read third-party reviews from software analysts but understand that, in most cases, the providers paid to be included in the review, so take what you read with a grain of salt. Paid reviews are good for gathering data but not for decision making.
- Shop around to learn what's out there, including the latest software innovations. This might include asking for a demo. Get a sense of the price range so you can eliminate those clearly outside your budget. Look for HR and benefits technology providers that specialize in your industry and/or group size. The latter is critical as most providers focus on a specific market size. If you don't fit into their target group size range, it's less likely they will be competitive, and/or you may find the service model is a poor fit.
- Attend an HR technology event to talk to a lot of providers in one space. For a variety of reasons, this may not be an option, but a growing number of groups offer virtual events.
- Review the provider's 10-K report, an SEC-required financial performance report filed annually by publicly traded companies. Things to look for include sources of funding, profitability, ownership and insider deals, debt covenants, areas of risk and average client size. Ask your finance team for help reviewing and understanding these reports. If the company is not publicly traded, tap into your network to get at this information. A provider's sales rep should be able to talk about company ownership, sources of funding, profitability and typical client size.
Evaluating RFPs for your next HR & benefits technology provider
Using the information from Phase II should help you narrow your list to three HR and benefits technology providers to send an RFP. Analyzing and comparing RFP responses warrants a whole separate commentary, but here are a few basic tips related to your efforts to narrow the list of likely best-fit software providers.
- Ask about uniquely high or low bids. If you automatically opt for an outlying low offer, there's likely something you're not going to get compared to other offers. Similarly, an unusually high bid often means the provider has quoted on a functionality or service that the others did not. Identify what the additional cost represents and, if you don't need it, have the quote adjusted to help you compare apples to apples—which is the goal for any RFP analysis.
- Assess risk associated with a software provider. There's inherent risk associated with outsourcing—financial, operational, security, business and more. It's not a matter of eliminating risk, it's about understanding the risk to make an informed decision on what's acceptable and possible steps to mitigate risk. Read more in my recent article, “Seven points to less risk and more satisfaction.”
- Know that you're buying much more than HR technology. When you buy HR technology, you're also buying change, a workforce culture, third-party integrations, data security and—perhaps most important—the provider's point of view as it pertains to the function(s) that will support your operation. All of these elements should all be factored into the decision-making process. Get more information in my article, “What you're 'really buying when you buy HR technology and support.”
If hiring a HR and benefits technology consultant to help identify best-fit recipients of an RFP (as well as the actual running of the RFP selection process) seems like an unnecessary added expense, consider that this cost will likely be more than offset by the savings in time and other resources, as compared to doing it on your own. This, coupled with the value-add of expertise to guide you through a highly complex process, will give you the confidence associated with knowing you're prepared to make a fully informed and well-researched decision. For those who opt to go it alone, we encourage adherence to the guidance provided here—all proven industry best practices based on our team’s more than 20 years in the benefits and HR technology business.