Building a Better ATS, Part 4: Vendor Differentiation

Applicant tracking systems have, since their inception, followed a one-size-fits-all model. Originally this was a sensible strategy, since the market was small and the primary need was support for compliance. But the needs of the market have matured far beyond what was required to avoid being fined following an audit, and despite the fact that users are increasingly sophisticated, vendors, with a few exceptions, continue to produce products for the mass market. This situation has produced the anomaly of dozens of applicant tracking systems with identical functionality offered at widely differing prices. There is also an increasing disconnect between cost and value the larger the organization a product is targeted at. I emphasize targeting, since differentiation between applicant tracking systems is now largely based on marketing and little else. To state the obvious, it’s no coincidence that the best known vendors are the ones that have spent the most on marketing. The achievement isn’t simply that they’re best known, but they’re perceived as “top tier” as a result of their spending. This point was driven home recently when a company I know of chose to replace a “high-end” ATS with a product generally considered as being from the low end ó that is, a second or third tier ATS. The company found that the low-end ATS had identical, if not somewhat better, functionality and was available for literally a fraction of the price of the high-end ATS. Once case should not be considered representative, but this is not an isolated example. A comparison of functionality across vendors generally demonstrates that there are few differences of consequence between products from different tiers. With the exception of functionality that supports global needs (languages, date formats, currency, etc.) it’s very hard to discern the value provided by a “high-end” ATS that justifies the difference in price. The usual bases for explaining the difference include 1) that these are “enterprise” systems, and 2) they are supported by domain expertise. Let’s examine each of these. Enterprise Systems Any product categorized as an enterprise system is generally considered as being suited for large organizations. The term derives from enterprise resource planning products such as PeopleSoft or SAP ó the assumption being that lower-end products cannot meet the needs of a large organization or enterprise. But what exactly is an enterprise system? The word is in the same league as “paradigm shift,” “mission critical,” and “empowerment.” Bullfighter (the application from Deloitte that eliminates jargon) describes it as “often overused: a grandiose word that isn’t very specific.” A kinder definition in a white paper from Parente Technology defines an enterprise system as, “a company-wide software program, which brings together the key functional areas of your business into one system.” So “enterprise system” has nothing to do with organizational size or functional complexity. For a large organization there are usually no viable alternatives to an ERP for effectively managing financials and business processes. But this is simply not true for an ATS. An ERP supports highly complex business and manufacturing processes as well as financial and accounting practices. In a large organization this can translate into literally millions of transactions subject to tens of thousands of rules and requirements on a daily basis. An applicant tracking system, on the other hand, supports the intake of resumes and hiring workflows. Admittedly, recruiting needs vary based on geography, job type, etc. But the differences are not of the magnitude of accounting practices or manufacturing processes. The fact is, a low-end product is perfectly capable of meeting the needs of most organizations. Domain Expertise I would think that any company that has produced a software application has some domain expertise. So it seems strange that domain expertise is touted as a differentiator. Margaret Thatcher once made the comment, “Being powerful is like being a lady. If you have to tell people you are, you aren’t.” Well, the same can be said of expertise. If you have to tell people about it, you obviously don’t have much. Then again, what does having domain expertise really mean? All the claims of expertise seem unable to produce anything truly innovative. Any expertise, such as it may be, doesn’t seem to do much for crafting solutions that can supercharge any client’s recruiting strategy. This should not be a surprise, since the “expertise” is directed at developing the product. Vendors either allow no customizations in the name of efficiency and ease of upgrades or else allow clients to dictate what customizations they need. The vendor’s own expertise rarely enters the picture. One gets the impression that claims of domain expertise are just so much marketing spin ó a modern take on the salesperson that put “honest” before his name. The current state of affairs can partly be attributed to an attitude towards customers that is born of arrogance, an attitude that assumes customers are not savvy enough to discern their own needs but rather take their cues from marketing. Allowing this situation to continue is not in the best interests of either the industry or their customers. Consider what is happening in the light of Michael Porter’s Competitive Strategy Model. Briefly, Porter’s model posits that a company can only succeed through a strategy of either cost leadership (being the low-cost producer in the industry) or a strategy of differentiation (unique on some aspect that is valued by others, i.e., can command a premium price). Anything else results in being “stuck in the middle” with low profits and a shaky grasp of market share. A few vendors grasp the significance of this approach. They have either chosen to offer very low priced products or else differentiated themselves by products that are created for very specific needs (hourly staffing) or industry groups (staffing agencies). Others are very much stuck in the middle. The high-end of the market is being rapidly dominated by ERP vendors. Their applicant tracking systems, after some bungled starts and missteps, are increasingly getting better. ERP vendors will continue to stumble along to near total domination of the high end. This is inevitable given that they already dominate the high end of the market for business process management. There will be a market for generic applicant tracking systems, but this is a swamp of low profits and customers that will gravitate to the low-cost providers, as they should. Instead of trying to win a race to the bottom, the smarter vendors should focus on differentiating their products. There are plenty of unique needs in industries such as healthcare or other specialized industries that a generic ATS does not serve. Other niches to be served (or better served) include hiring college graduates, just-in-time hiring, maintaining specific candidate pools, government needs, outsourcing, high growth, downsizing, etc. Some of this will require building genuine expertise to provide the necessary consulting. Expertise will be required if these needs are to be successfully served, instead of continuing the fallacy that the software will solve all problems. The opportunity is like buying toothpaste from Proctor & Gamble instead of Microsoft. It suggests expertise beyond software, an expertise that might be integral to a company’s business and could be extended to management styles to include learning platforms, performance management platforms, etc. There’s also the global aspect. Support for multiple languages and currencies are just the beginning. Developing specialized versions of applicant tracking systems that can span different compliance requirements, cultural norms, and business processes will not be easy ó but it needs to happen. If the approach continues to be that of building generic products, then the industry will suffer the fate of automakers that have attempted to build a “world car.” Anyone remember the Ford Fiesta or Contour? The Fiesta was supposed to be the new beetle. It takes more than putting little flag colors on the logo.