From the Shop Floor, the Field, the Office, and Beyond. Key Diligence Lessons From Across a Broadened Workforce Management Software Universe.

Workforce management (WFM) software offers a range of core capabilities (including, inter alia, employee scheduling & rostering, time, attendance & absence management, workforce planning, KPI reporting & analytics and task management) designed to help businesses manage the operational deployment of their workers [1]. A quick trip to your favourite search engine will reveal that the term ‘WFM software’ is conventionally used to refer to employee scheduling and time & attendance software focusing on industries with shift-based working patterns (e.g. retail, hospitality, manufacturing and healthcare). However, every business, regardless of its size or sector, is confronted by the fundamental challenge of managing its workforce. From the day-to-day operational deployment to the underlying administrative support of employees, managing a workforce is a complex and multifaceted challenge. It is no surprise, therefore, that a plethora of software solutions have emerged to aid businesses across a wide array of sectors in managing their workforces (see Figure 1). As a result, this article takes a broader view of WFM software, drawing on our wide-ranging commercial due diligence and growth strategy experience (outlined in Figure 2), to share four key diligence lessons for investors considering an entry into the WFM software space.

Fig. 1: Example WFM Software Market Segments

Non-Exhaustive; SOURCE: Fairgrove Research

Fig. 2: Select Fairgrove WFM Software Project Experience

Lesson 1: Be Crystal Clear on the Product’s Right-to-Win and How This Impacts Market Addressability

No Investment Memorandum would be complete without presenting a towering potential market size. In the WFM software space, it is easy enough to multiply the number of workers in a given sector (or several of them) by a recurring monthly license fee to generate a large theoretical market size. However, in our experience, it is rare for a product to be able to truly compete across multiple industries, company sizes and geographies. This is because the product requirements of WFM solutions vary significantly between segments to adhere to segment- and geography-specific working practices and legislation, a sample of which are outlined below.

Differences By Sector: Different working patterns across sectors present different challenges to workforce managers. From an employee scheduling point of view, for example, retail and hospitality businesses have to overcome the key challenges of shift-based scheduling by matching rotas to employees’ availabilities whilst remaining compliant with the (often complex) legislation governing shift workers’ hours. Conversely, at professional services firms with traditional working hours, the main challenges shift to maximising utilisation, managing burnout, optimising project profitability and matching employees’ skills and experiences to project needs. With workforce management challenges varying by sector, WFM software products targeting each sector need to develop different features to cater to the needs of their potential customers. As a result, a system designed for the retail industry is unlikely to be fit for purpose in a professional services environment, and vice versa.

Variations in product requirements do not only exist at the macro-sector level. Within the Field Service Management (FSM) space, for example, there are notable differences apparent at the sub-sector level which help to explain the competitive fragmentation in the market as different customer types value different features and functionality due to the way they operate. A soft facilities management (FM) company (e.g. a landscaping or cleaning business), for example, will likely value a solution which is designed to help it organise long-term service agreements, including recurring jobs and phased invoicing. A hard FM business (e.g. a building maintenance or plumbing company), however, is more likely to require functionality to help it reactively respond to emergency jobs. Differences between sub-sectors are further exaggerated by regulations as field service companies are required to fill out specific compliance documents for different jobs. As a result, many FSM software providers have focused on providing pre-built compliance documents and forms for specific sub-sectors (e.g. fire & security, electric installation, elevator servicing or lifting equipment inspections).

Differences By Size: Generally, the larger the target customer size, the greater the need for processes to be automated. This depends on the centralisation of workforce management, however. An international retail chain with thousands of employees, for example, may actually manage employee schedules at a store level, meaning that it has no greater need for automated scheduling than a local, single-store shop. However, as the number of employees being scheduled at once increases (i.e. in a large hotel or facilities management company), the need for automated batch or dynamic scheduling increases. In the FSM space, for example, once a company exceeds ~250 employees, it is likely to require dynamic scheduling, meaning that employee schedules are automatically updated to respond to live changes (e.g. if there is an emergency, an engineer’s less urgent jobs can be automatically moved to create room.) This functionality is critical for large field service businesses, however, would likely make products too expensive and complex for smaller customers. A more simple drag-and-drop calendar would probably be a more suitable solution for a 25-person plumbing company that previously used Excel, for example. Beyond automation, WFM software providers targeting larger customers would also need advanced KPI reporting and analytics features and the ability to integrate with a wide range of other relevant products across customers’ tech stacks. In the SME market, easy-to-use dashboards and basic integrations into core business systems are likely sufficient.

Differences By Geography: Regardless of sector, WFM solutions are closely linked to a series of laws and regulations, which often vary by country. The laws governing maximum shift lengths, total weekly working hours, the regularity of breaks, and overtime qualification differ across European countries (being notably complex and strict in Germany) meaning that scheduling engines and payroll calculations need to be localised to each country to serve retail and hospitality businesses across the continent. On top of ensuring systems are compliant with each country’s specific laws and regulations, selling WFM software across different geographies comes with a range of other challenges. Sales and onboarding processes, for example, are generally long and iterative, featuring product demos, sandbox environments, free trials and proof-of-concepts. As a result, having an established in-country presence with local language capabilities is often table stakes for entering a new geography, and remains critical to providing ongoing product support once customers have been won. 

As a result, we recommend investors and management teams take the time to clearly understand customers’ requirements in core and target sectors. When compared to the product’s capabilities, this should help to reveal a more targeted understanding of the immediate market opportunity. Whilst this may be smaller than first thought, it should uncover what the product’s right to win is, where it is most likely to be successful and what changes are required to address other market segments. 

Lesson 2: Penetration of WFM Solutions Remains Low Amongst SMEs. Companies Targeting SMEs Should Focus on Making First-Time Adoption as Easy as Possible.

Fig. 3: Customers’ Previous Solutions

Percentage of Respondents; SOURCE: Fairgrove Long-tail Customer Surveys (N=204; N=135)

There are over a quarter of a million businesses in the UK with between 10 and 249 employees, nearly 30% more than in 2010 [2]. It comes as no surprise, therefore, that there are lots of WFM software solutions in the UK targeting the SME market. Indeed, during long-tail customer surveys of an SME-focused retail and hospitality-focused WFM solution and an SME-focused Field Service Management solution (with the vast majority of respondents having fewer than 250 employees) conducted as part of previous Fairgrove projects, over 50 possible competitors were mentioned in both instances. However, despite the availability of such a wide array of specialist WFM solutions, Excel and paper-based solutions remain the dominant players in the SME markets. As shown in Figure 3, the same customer surveys mentioned above revealed that 69% and 65% of customers previously used Excel or a paper-based system. Market interviews with sales executives at WFM software providers across Europe also suggest that, in the SME space, the leading reason for failing to convert pipeline opportunities (accounting for c.50% of losses) is that prospective customers stick with manual solutions. In this market segment, Excel and paper-based checklists are almost certainly fiercer competitors than any other WFM specialists.

This suggests that new company formations and a lack of exposure to WFM solutions are not the only reasons that SME WFM penetration remains low. Many small businesses still remain unconvinced that specialist WFM solutions offer enough value compared with ‘free’ alternatives to warrant the license fees and the perceived challenges of implementing a new system. The key objectives for SME-focused providers need, therefore, to be clearly articulating how they add value compared to manual solutions and demonstrating the ROI of paid solutions. On top of this, successful players will be working hard to make the onboarding and implementation process as frictionless as possible. Several market leaders identified in prior research have found success by focusing on building out-of-box, modularised products for SMEs and more configurable and complex solutions for larger customers. Ultimately, it is a positive for investors and management teams that penetration remains low amongst SMEs as it means that there is sufficient whitespace to provide headroom for continued growth in the market. However, in the midmarket and enterprise segments of the market, the story is quite different, as we are about to touch on…

Lesson 3: Catch the Liquid Market Wave – the Transition From On-Premise Legacy Solutions to Cloud-Based Alternatives

WFM software is sticky. Super sticky. It is core to business-critical operational processes and (usually) tightly integrated with other central software systems such as core HR, finance, ERP and payroll systems. Switching requires user retraining, data migrations and often the reorganisation of internal processes. As a result, companies are rarely willing to replace their current systems, even when there are issues or superior products available in the market. Opportunities for share gain (especially in the higher-penetrated midmarket and enterprise segments) are, therefore, hard to come by. As a result, any trends resulting in periods of accelerated customer switching are gold dust in the WFM software market.

One such trend is the wave of companies transitioning from legacy, on-premise WFM solutions to cloud-based alternatives as on-premise systems are increasingly becoming outdated (and in many instances retired or phased out). UKG, for example, one of the largest providers of WFM software in the retail, hospitality, manufacturing and distribution sectors, has recently announced it is phasing out two of its older WFM solutions Kronos Cloud (KPC) and On-Premise Workforce Central (WFC) by the end of 2025 and 2027 respectively. This will force customers to market to consider the solution with which they would like to replace their retiring system. It is important for management teams and prospective investors in WFM solutions to unpick the potential size, shape and maturity of cloud transitions in their segment of the market so that they can figure out how to catch the wave, whether it is time to start paddling or if the wave is already tearing towards the shore ridden by their competitors. Unlike a surfer, who may have to wait a matter of moments for the next wave, WFM software providers might have to wait a little longer as it is not uncommon that customers stick with the same solution for a decade.

Below are a few key considerations we recommend investors and management teams think about when considering how best to navigate catching the liquid market wave:

1. Are there any competitors with particularly large legacy customer bases? Are you aware of what their product roadmap and EOL plans look like?
2. Are there any suitable legacy providers you could acquire to access their customer base?
3. Have you got a clearly defined and targeted sales pitch and implementation & onboarding process to convince legacy customers to transition to your solution?

Lesson 4: Product Expansion is an Interesting Option for Growth, but Specialists Need to be Careful not to Undermine their Value Propositions

As shown in Figure 4, across all of the markets we have assessed in the WFM space, a competitive distinction between WFM specialists and HCM or integrated business software suites is identifiable. Whilst these competitive groups often compete for the same customers, they have contrasting value propositions.

Fig. 4: WFM Software Market Map

Illustrative & Non-Exhaustive; SOURCE: Fairgrove Research

Specialists are generally successful because they offer either i) a best-of-breed product or ii) a lightweight, targeted WFM product.

i) By solely focusing on WFM software, specialists can dedicate more resources towards developing market-leading capabilities, remaining agile and quickly keeping up with the latest product advancements and innovations.

ii) Not every customer, particularly SMEs, wants a product that can do everything. A full HCM suite with all of the recruitment, learning & development and employee engagement bells and whistles might be more than some customers require. By offering a targeted WFM product, specialist solutions can be a good fit (and more affordable) for customers beginning their HCM digitisation journeys.

Suite solutions, on the other hand, can offer a unified experience by providing a single platform with integrated functionalities (scheduling, HR, payroll, etc.), reducing the need to connect multiple systems together via integrations. They benefit from centralised data storage and seamless communication between critical systems.

As previously noted, in the midmarket and enterprise segments of WFM software markets, penetration is notably higher and customers can be hesitant to switch solutions. As a result, a potential strategy for growth for WFM providers is to expand their product offerings and capture a greater share of existing customers’ spend. With growing demand for software solutions to help businesses manage a wider range of HCM processes, there is definitely an opportunity for WFM specialists to consider how they can broaden their product offering, but we advise that they take caution to properly consider if, and how, they do this to avoid undermining their existing value proposition.

WFM specialists can broaden their product offering in two primary ways: building the functionality themselves, or acquiring another provider with a pre-built solution. Whilst building it comes with the benefit of being able to ensure it integrates properly into your existing product (and saves some pennies in acquisition costs), if the additional functionality is not modularised, it risks undermining the targeted nature of the product, and could offer too much functionality for some smaller customers. Furthermore, building new features in an area in which the company is not specialised is not easy and risks undermining the best-of-breed status of the product. Acquiring a specialist in a different product area can help mitigate this risk, although is often expensive and can require integration of the products into a single product.

The alternative to product expansion is to integrate (or even better partner) with specialist providers in tangential areas. Whilst this doesn’t necessarily lead to the opportunity to increase the share of customers’ total spend WFM specialists are receiving, it may help to generate new leads if partners can cross-refer one another into joint opportunities. Furthermore, it avoids the risk of being seen to be diluting your best-of-breed focus or becoming a larger, clunkier system.

Ultimately, product expansion is an interesting option for growth (especially in more saturated segments of the market), however careful consideration of the impacts of expansion strategies on specialists’ existing value proposition is required.

Our Experience

If you would like to discuss this article or are considering investing in the workforce management software market or any other areas in which Fairgrove has experience, please contact Paddy Woods Ballard, Patrick Woodrow or Bhavna Dewan.

Sources:

• [1] Gartner, Market Guide for Workforce Management Applications, 2023
• [2] Department for Business & Trade, Business Population Estimates for the UK And Regions, 2023