An expensive one-stop end-to-end technological tool, or a leaner, cheaper, single-target software solution with great functionality?

Which do I pick for my business?

This question haunts the nights of any new entrepreneur or young CEO.

What if I try to save money, face a problem not covered by the software I use, and end up having to spend more anyway?

Can I justify spending more on a one-stop Information and Communication Technology (ICT) solution at this stage of my business?

What if I need that money to extend my runway by a few months soon enough?

Will my business suffer if I invest in an all-purpose software suite to handle my workforce at this juncture?

What if I make the wrong choice?

Most entrepreneurs face several sleepless nights

The only disadvantage of sitting at the top of your own company is that you have no one else to safeguard you from the consequences of a choice that didn’t pan out as you’d hoped.

Most entrepreneurs handling workforces of 15 employees or more face several sleepless nights trying to figure out a satisfactory solution to the conundrum of choosing the right advanced HR tools.

We understand that disquietude well, since this question was part of the motivation which drove us to develop our own globally top-ranked human resource management tool, CakeHR, to begin with.

In our previous articles of this series, we explored how the lack of an advanced ICT tool in your business costs you 750% expected growth, discussed the various pros and cons of differing HR management tools, and expounded upon the benefits of automation in a business.

In this post, let us help you figure out an answer to the question: Cheap or Expensive – Which HR software better suits my needs?

This article will address:

• Pros & Cons of cheaper and expensive HR software solutions;
• The concept of right expenses;
• Market trends on cheaper & expensive HR software solutions.

The Contradicting Truths About Software Solutions

For starters, let’s get the bitter truth out of the way. In our years of hard-wrought R&D, here’s what we’ve learned about purchasing effective business tools:

A] Uber-expensive all-purpose software suites will probably solve most problems you’re likely to face to some degree, right off the bat.

B] There is no single-size-fits-all answer here, even if logic dictates that spending larger amounts on a one-stop software suite at the beginning may save time and money in the long run.

Now, we’re sure that many of CakeHR blog readers sense a contradiction between points A & B.

But, consider this. Just because an expensive software suite containing every feature you can think of addresses your business problems to some degree, it does not mean that it solves these problems well.

Since profitability and sustainability in business are decided by the degree of efficiency with which the business is run at a longer stretch, you could easily blow a small fortune on a one-stop software which barely addresses some key problems and throws you far behind competitors in the long run.

After all, sustained growth in a business is a marathon, not a sprint.

Many features in one-stop expensive software do not apply to your needs

Even if you end up spending a little more on a bunch of cheaper software tools in the longer run, the advantages of that situation are:

• The expense is distributed over a longer period, and so causes less acute damage to your working capital in the midst of an expansion phase;

• Many features in one-stop expensive software suites are geared towards problems in workforce management which do not necessarily apply to your needs for a while to come. Yet, you’re still spending on them today;
• Cheaper and smaller software solutions have fewer features to offer. Yet, because they have less to offer in a package, they usually perform these functions far better than larger software suites. As such, a bunch of cheaper and targeted software solutions may manage your business much better than a single software suite in the longer run, if chosen well.

Yet, this generalization may be untrue for a plethora of sub-standard, cheaper software solutions out there as well.

Thus, we re-iterate – there is no single-size-fits-all answer to this problem. So, how do we resolve this?

Is This The Right Solution For Me At This Stage?

It all comes down to this – is this the right solution for you and your business at this point in time?

This question allows you to unlock the concept of the right expense. Now, as we’re sure you all know, business requires a careful balance between spending and saving.

You need enough reserves to allow for some opportunistic growth when the time comes, or even just to keep sailing smoothly during dark periods.

Yet, you also need to keep constantly working on aspects of your business and segments of your organization to allow for incremental improvement.

This question allows you to unlock the concept of the right expense

This means that growing a business across this tightrope act that every entrepreneur must balance is just as much about cutting unnecessary costs, as it is about selecting the right improvements at the right time which will open ways for growth or greater profitability.

This is known as choosing the right expenses, and it requires entrepreneurs to be incredibly objective about their business choices.

Unfortunately, certain mindsets always get in the way when determining the objective answers to such crucial queries.

Marketplace Haggling

One unfortunate approach which many new entrepreneurs bring to their workplace purchases is the marketplace haggle.

Ever seen one of those thrift store interactions where people who want to buy a $15 clock for $10 end up paying $16 because the storekeeper threw a $3 pack of novelty toothpicks and a $2 pack of kids stickers in the deal?

It doesn’t matter if they needed those toothpicks or even if they had children to begin with – customers like receiving something for (what they assume to be) nothing, and consider it their win nonetheless.

That’s how several new entrepreneurs approach their choice of advanced technological business solutions as well.

Awesome! This new payroll management tool comes bundled with a training module creation kit and a business intelligence analytics pack for $300/month? I get so much more from it than the other payroll software I was looking at for $250/month!

Never mind that the second payroll tool is much higher ranked on global markets, that your employees would be better trained by professionally made or conducted modules or that the user interface of the bundle is so badly optimized for intuitive use that your employees can’t understand how to use some of the features, the fact that you’re getting a 3-for-1 package makes such sub-standard products so much more irresistible because you think you’re saving in the long run.

As a point of fact, you’re paying $50/month more in this example on one tool which you will never use, one which your staff can’t figure out how to use properly because its layout is difficult to comprehend, and one which just manages to perform over the bare minimum.

This mind-set needs to be discarded if you wish to do right by your business.

People who want to buy a $15 clock for $10 end up paying $16

To be fair, even if the payroll tool works well, you’d still be paying extra each month for tools which you wouldn’t use, or which would cost you more in the end due to higher turnover arising from substandard training – one of the top reasons for voluntary turnover in today’s workforce.

Determining The Right Solution

As we posed at the start of this section, the important qualifier is whether it’s the right solution for your business at this point in time. 

This means that you need to keep two factors in mind at all times when deciding upon software tools for your business:

• This is not the last time you’ll select a tool for this purpose. As your company grows, and more cutting-edge solutions enter the market, you’ll likely have to change your choice of software a few times;
• Business sustainability is just as much about saving up on unnecessary costs as it is about choosing the right expenses.

So, how do you determine how to choose the right expenses? 

As I’m sure you realize, cost as a stand-alone variable hardly suffices to allow for an informed decision in such matters, since $1000/month for 10 features is not necessarily better for your business in particular than $800/month for 4 features which address immediate pain points in your management strategy.

Therefore, the determination of whether cheaper or more expensive software solutions are right for you needs to be studied as cost over time versus functionality from the get-go.

Essentially, you need to determine whether you can sustain the cost over an extended period of time without eating a big hole in your working capital, and whether the functions of that product are important enough to allow for that expenditure to be eventually mitigated through an increase in productivity, efficiency, etc.

Get what you need, not what you want!

When ascertaining functionality, keep in mind – get what you need, not what you want.

It’s easy to get swayed by price tags on all-purpose software suites because we either think that we’re getting a bargain, or we don’t wish to go through the hassle of hunting effective solutions when problems crop up on the horizon.

Once you’re mentally prepared to put in the effort whenever necessary for the sake of improving your business, choosing the right expenses becomes a piece of cake.

Cheap & Simple or Expensive & End-To-End: Shifting Market Trends

Any executive following the illustrious Josh Bersin’s latest posts on HR spending is indubitably aware that companies with integrated HR strategies which further business goals, as opposed to simply managing personnel as and when the need arises, accrue almost double the HR expenses per employee as enterprises with a basic approach to the process ($4,434 vs. $2,112 per employee).

Among them, large companies spend almost 10% of their HR budgets on software alone.

Such executives are also aware that, estimated at $10.96 Billion in 2014 and expected to grow to $17.49 Billion by 2019, the HR software market is booming and expanding to meet its end-users’ needs by leaps and bounds.

This means, there are hundreds of new products added to the ever-growing list of HR tools every year which are specifically made to respond to the challenges faced by distinct and particular subsets of the global market differentiated across size, nature of business, make-up and character of their workforce, technological and strategic business integration, etc.

Add to this the latest findings in Deloitte’s Global Human Capital Trends 2015 that “HR software buyers today want systems with fewer features and less complexity, not more”, and a clear picture starts to emerge.

While HR spending is on the rise year-on-year, the targets of spending among software solutions are no longer one-stop all-purpose suites – but rather smaller and more customizable advanced tools which are more targeted towards resolving smaller sets of problems with greater efficiency.

HR spending is on the rise year-on-year

Although this information may be counter-intuitive in an age where larger HR software providers are rapidly overtaking and integrating the products of several smaller companies into their fold, in a bid to offer products which fulfill every aspect of advanced HR tools, consider the following difference: A single, rigid, one-stop, lump of a product is not the same as either a customizable collection of several products, each of which fulfill very few but intensely targeted functions, or a single, heavily customizable product which offers a diverse choice of features  from which the perfect HR solution can be tailor-made and charged accordingly.

Since the latter does not yet exist, the closest we can have to perfect customization is a collection of smaller software solutions, individual tools like CakeHR, each of which caters to differing aspects of a company’s HR needs, yet with few enough features to keep prices low and its onboarding relatively simple.

What Type of HR Software Better Suits Me: In Closing

• Though the idea of a single software which matches toes with the best in its class in payroll management as it does in learning or talent management is tantalizing, it is also inaccurate. The truth is that every software has one or two areas in which it excels, with several other mediocre performers bundled in to increase appeal in the eyes of the end-user. The same one-stop software can possibly be replaced by several cheaper stand-alone software solutions for greater efficiency and functionality, if you choose to put in the time. It’s similar to the concept of buying a laptop versus a custom-built PC, when mobility isn’t a criteria.
• If you want a good performer, irrespective of some extra cost, you walk into a store and buy an Alienware gaming laptop with minimal effort on your part. If you want the best value for your money, however, while putting in some extra effort to ensure top-of-the-line configurations for a cheaper price, you do the research and custom-build your own PC.

In the end, remember that choosing the perfect HR software for your needs isn’t about whether it’s cheaper or expensive – it’s about choosing the right expense.

But then, we at CakeHR are but a single voice among many. To better understand your needs to be met by an HR software, we would love to hear back from you in the comments section below.

Please let us know: What other criteria influence your take on the price tag when deciding upon a software solution for your company’s HR needs?

Kaspars.