An Important Metric For Evaluating HR Software

BY -

Phil Strazzulla

September 30, 2020

While working in venture capital, my job was to try and find the next big software company. One of the key frameworks we used to understand the potential trajectory of a business was the level of engagement people had with that product. This same framework should be applied to HR tools/software both for practitioners looking to invest in a vendor, as well as the vendors looking to understand how to make products better.

Here are two examples to articulate why this framework is so powerful:

  • In the early days, the first adopters of Uber would download the app on a friend's recommendation, use it once, and then it would fairly quickly become a part of their lives. It was very easy to see that the number of weekly and daily active users on Uber was a high percentage of the overall people who'd ever tried the app. 80% or more were using it weekly!
  • On the flip side was a company called BranchOut.  You may remember it as the "LinkedIn on Facebook" that grew really really fast! Even though they had an insane number of users, the problem was that no one came back. There was no user value after initial signup, which meant no engagement, and therefore no value to recruiters looking for talent on the service. After raising $50 million, it eventually closed up shop.

HR Tech Engagement

Over the last few months, I've found myself very often asking HR Tech vendors for some sort of engagement metric as a proxy for the value their offering brings. For employee recognition programs, I'm literally asking how often users login/recognize/reward. For video interviews, I'm asking how many interviews are done per month (and trying to understand what that is as a percentage of the interviews their customers do each month that would fit that format). In these examples, the higher the number, the better.

The bottom line is that if you for example find a sourcing tool that has recruiters hooked on it, the numbers will play that out. And, when you find a vendor like that, you can be very confident that you will get value from it as well.

Of course, on the flip side, there are many tools that just get lost in your tech stack. Old school rewards programs were just a check the box and used for work anniversaries, if that. EAPs have traditionally been something offered, but not in a way that meets employees where they work. A Recruitment CRM used to be a greatly under utilized asset.

A Few Nuances

Like any good metric, there are a few nuances to it. First, a lot of the engagement in a given product may come from a third party platform.  Maybe your sourcing tech integrates with Gmail for example, or your recognition is done mostly via a Slack app.  That's ok! The value is still accruing from the underlying platform and that's all that matters.

Another point is that some applications actually deliver more value when they aren't interacted with. HR spending a ton of time in their payroll software is a bad thing. And, maybe AI is handling screening of candidates and so the "engagement" metric isn't recruiter engagement, but number of screens performed.

At the end of the day, you want to tie these numbers to value. Messages from a bot need to lead to in person interviews and hires (along with a positive candidate experience). We can send 10k messages per month but if we are making our talent demographics hate our guts, it's probably a negative ROI investment :)

New Software Categories

This framework is really amazing to vet the newest categories of HR software (AI, chatbots, etc), along with the next generation rewards, EAPs, etc. If you find a chatbot that is sending thousands of messages/mo to candidates, you know it's being used. That is a huge piece of the puzzle when you are trying to figure out "is this worth the time and money?"

However, don't be surprised when a sales rep looks at you blankly over Zoom when you ask these types of questions. Even the heads of product/marketing that we get to talk to sometimes are at a loss. This shouldn't be a deal breaker if they can't get the data, just a yellow flag.

For the Vendors

Lastly, to the vendors that read our blog/newsletter, it's really important to track what is being used and what's not. If you have a really amazing product, but no one is using it, you're going to have massive churn. Measuring the key engagements with your users/buyers is key to product development.  Of course, it can also impress the heck out of a savvy buyer of HR tools as well!

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