 |
 |
 |
 |
 |
 |
 |
 |
« Back to the May/June 2006 Explorer newsletter
FEATURE ARTICLE
Emerging Mergers – Acquisition Season
Consolidation of Pre-employment Assessment Market Continues
By Charles Handler, Ph.D.
Market consolidation is one of the trends I have identified and written about pretty regularly over the past 5 years. The hot off the presses announcement of PreVisor’s acquisition of Brainbench (May 31, 2006) serves to both reinforce the reality of this trend as well as demonstrate that the consolidation trend is a multifaceted one.
In this writing, I want to take a brief moment to discuss the consolidation we have been watching unfold over the past few years. In my mind this discussion boils down to two related issues, “What type(s) of consolidation are we seeing?” and “Why are each of these types of consolidation occurring?” Without further adieu here is my take on these issues:
Type 1: Aggregation within vendors of pre-employment assessment products
Over the years an increasing number of pre-employment assessment vendors have been joining forces. The reason for this is pretty obvious if you think about it. For the most part, each vendor in the marketplace offers a specific “secret sauce” in the form of a set of products and methodologies that are best suited for predicting applicant success at a specific type of job or within a specific industry. For the most part, each vendor has their own sweet spot and that effective use of assessment requires alignment of a vendor’s value proposition with the client’s needs. I feel pretty strongly about this. Strongly enough that I founded Rocket-Hire based on the need to help companies choose a vendor whose product offerings are most aligned with their specific needs.
The wide range of available products has been relatively siloed such that few companies are able to meet broad ranging client needs. Unfortunately, best practices in pre-employment assessment often call for more than one type of assessment tool to be used. While there are many types of assessments available, it has been difficult to choose one vendor to meet all of ones’ needs. This situation either leads to an attempt to force a round peg in a square hole by blindly charging ahead with just one vendor or a situation where one hiring process is complicated by the need to involve multiple vendors.
Vendors are keenly aware of this and the result has been the ongoing quest to try and offer a wider range of products enabling them to be versatile enough to provide many solutions. The reason this has manifested in acquisitions instead of the effort to develop more products in-house is that developing assessment products properly takes two valuable commodities, time and money. Doing it right requires a scientific process that involves the collection and analysis of mountains of data. It is often much simpler and easier to leverage someone else’s work (and their customer base too!).
So there you have the primary drivers for this type of consolidation, more options for the client means more business. The most cost effective way to get more options is to acquire them from someone else.
Type 2: Integration of ATS and pre-employment assessment vendors
A second type of integration involves the result of ATS vendors seeking to integrate assessment content into their own products. This type of integration is also not too surprising when one thinks about it. It is really a natural part of the evolution of the modern hiring process.
When job boards first became the rage it was all about advertising jobs and collecting resumes. It didn’t take long for most everyone involved to realize that, while job boards were useful, they created a host of new problems for those persons attempting to sort through all of the resumes they were bombarded with. This gave rise to the ATSs, which filled a very needed niche. However, it didn’t take long for consumers of ATS products to realize that, while these systems solved lots of problems, they really didn’t help ‘up the ante’ in terms of applicant quality. This feat is the job of our friend the pre-employment assessment. So, differentiation in the ATS space began to demand the addition of quality focused tools such as assessments.
While most every company solved the need for these tools via paying lip service to “partnerships”, many companies saw the writing on the wall and reached out to add the missing component needed to help sell based on quality and results. As a result we have seen several ATS companies begin to acquire assessment companies to help them get started in the game of offering pre-employment assessments as an integrated product. It is still quite possible to integrate a third party vendor’s assessment tools quite effectively; in fact this is still the norm.
Companies going after ownership of the entire hiring process and the ability to crow about value and results are realizing that it makes sense to begin developing assessment capabilities in house. This is somewhat of a difficult proposition as they generally have little experience with assessment but in my mind it is a good move as there is still time to learn. However it must be stated that to be successful ATS vendors must remain amenable to allowing clients to use the assessment vendor of their choice. This is due to the fact that most companies already have the ATS part of the equation solved before they begin hunting for assessment tools. I do believe this will eventually change as we gain more experience with both types of tools.
So, bottom line, ATS purchasing assessment vendors: very smart in the long run but will present some short term growing pains as the consumer gains the experience they need to begin taking advantage of an off the shelf integrated offering.
Type 3: Aggregation to bring together pre-employment assessment and training/learning/development
This trend is one I have been talking about for years but has proven very slow to develop. Perhaps this is because the areas of hiring and development seem to have walls between them in most organizations thus preventing consumer demand for this type of integration. This is a shame as there is much benefit in using pre-employment assessment data to assist in training and development.
While most assessment vendors have realized this and are starting to offer products that build bridges between the two areas, uptake has been slow. I believe this is because most companies still don’t have the vision and open lines of communication needed to make it happen. Still, the writing is on the wall and as consumer demand heats up we will definitely see an increase in development firms looking to add pre-employment assessment to their product offerings.
Most development-oriented firms already understand some of the key elements of good assessment such as competencies and statistical measurement of valued outcomes. This will certainly help them develop pre-employment assessment capabilities in-house, however I believe that there will still be movement in which some of the bigger players in e-learning and development seek to add content to their product offerings. This one makes sense folks and you’d better bet you are going to see it happen.
It will be interesting to see who acquires whom as this trend unfolds. It is entirely possible that this type of consolidation may see an assessment company acquiring an e-learning/development company to help them drive forward the value proposition of increased consolidation.
Bottom line is this one is kind of a sleeper not in theory but in action. However, within five years I expect to see companies that have tightly integrated offerings which span both assessment and training/development. I believe that integration will be a major force in helping companies to arrive in this regard.
Type 4: Aggregation to support outsourced hiring
Of the trends discussed so far, this one is one of the newest to emerge. The general trend of HR outsourcing is, of course, nothing new. Many companies have taken advantage of the ability to have some of the more mundane HR functions taken over by a 3rd party. . It is important to understand that I am not talking about 3rd party recruitment firms here but rather firms whose mission is to own the entire hiring process from recruitment, through screening and making hiring decisions.
Until recently, most of the focus in HR outsourcing has been on low hanging fruit such as benefits administration. However, this industry is getting bigger based on its successes and is now beginning to push into other areas where value can be created. Hiring is one of these areas. It is important to note that outsourcing all hiring is not for every company. Some folks feel a strong need to keep this in house to help make sure the quality control is there and because they feel it difficult for an outsider to “understand them” at a level that will enable staffing based on company values.
What I do know is that there are a handful of firms that are in the process of assembling the machinery required to source applicants, manage them effectively (say ATS platform) and evaluate candidate quality (say assessments). The assessment play is imperative for these companies because, being outsiders who are actually making decisions, they must be able to clearly demonstrate their value day in and day out. Again, in-house knowledge of assessment tools is pretty low in most of these companies so the easiest play is to seek out an existing company that can be drafted to help provide knowledge and service in these areas.
Outsourcing firms have several advantages over ATS companies and existing assessment firms that will surely aid them in their quest to leverage assessments. First of all, these companies are usually very big and have lots of capital to play with. This means acquiring an assessment firm is pretty easy for them. Secondly, these firms are already selling lots of services many times via a large, distributed sales force. This offers them an in because they already have relationships with key decision makers and they can win the numbers game because they have a sizeable sales force to use to move their products. While the examples of this type of integration are few at the present time, I expect to see lots of action here in the not too distant future.
Bottom line is that outsourcers are helping solve problems and create value in lots of areas within HR, why should hiring be any different? Outsourcers know that they will need assessments to do this well and, lacking in-house capabilities, are going to steadily begin to gobble up firms that can help them hit the ground running.
The increased integration via acquisition we have been seeing over the last 5 years is a trend, which makes lots of sense when one thinks about it. While acquisition of pre-employment assessment companies by other, similar companies and by ATS companies is accounting for most of the action in the present day, I expect to see this change a bit as the value proposition of assessment becomes necessary for other businesses as well. We may even see some higher order aggregation as outsourcers seek to acquire ATS companies who themselves were built off of the acquisition of assessment companies.
* * *