The Middle Market Is Bipolar!

Metaphor For Complexity

We often do things in human resource management not because they’re important but because they’re needed and easy to do.  A glaring example is the way in which HRM software vendors and outsourcing providers describe their target markets — and the way, by reflection, in which those same organizations describe themselves.  The presumed similarity in HRM needs across organizations, including the need for HRM software and outsourcing, is most often defined in terms of employee headcount or organizational revenue ranges.  Depending on who’s doing the defining, what I like to call “the vast middle market” is variously described as between a feww hundred and a 1,000 FTEs/employees/headcount (often without further definition) at the lower end and between a few thousand up to 10-20,000 at the upper end.  There are no clear and consistent, industry-wide ranges, let alone definitions of which heads to count, but widely-used market research data forces software vendor attention to the particular ranges use by those firms while outsourcing providers, especially the larger ones, segment the market to reflect their own histories and service offerings.  

For very small (a hundred or less) or very large/global organizations (25,000 or more), almost any definition of headcount or revenue ranges can be a good way to group organizations in terms of their useful HRM similarities.  At the low end of the range, there are very few dimensions of complexity simply because there isn’t enough going on to create complexity.  And for large organizations and/or extensively global organizations, there’s so much going on that almost all the relevant dimensions of complexity put in an appearance.  But market segmentation/sizing by headcount or revenue ranges is a far less accurate predictor of similarities across organizations when you’re dealing with the vast majority of organizations in the middle ranges.  

For “the vast middle market,” useful similarities are more dependent on specific organizational complexity factors than on size, and to miss this distinction creates many misunderstandings about customer needs, buying behaviors, risk tolerances, and influences.  So, whether you’re an end-user doing some benchmarking and looking for a meaningful sample of similar organizations, or you’re an HRM software or outsourcing vendor trying to focus your efforts on the best target markets for your products or services, target market complexity analysis is a far more powerful and accurate approach than making simplistic assumptions about organizational HRM similarities on the basis of headcount or revenue.  

But what are these complexity factors?  I’ve been developing my working list of same over the last 20+ years, and they and their definitions really haven’t changed very much.  What has changed quite dramatically are the implications of these factors for how we segment markets, derive business requirements, design marketing and sales programs, design HRM software and outsourcing offerings, and really every aspect of our businesses.  Here’s a good chunk of my list to get you started thinking about how you might apply complexity analysis in your organization: 

• Size (not to be ignored, but not to be overused) — in terms of key entity occurrences (e.g. number of employees) and event volumes (e.g. number of yearly new hires, terminations), etc.;
• Industry — where specific industries, e.g. higher education, agriculture, construction or financial services, have common needs because of common regulation, similar workforce demographics, similar HRM practices, etc.; 
• Diversity of business operations — in terms of the number of truly different businesses operating under a corporate umbrella; 
• Complexity of business operations — where the number of different products, sales channels, supply chains, R&D requirements, raw material scarcity, and many other factors produce HRM complexity; 
• Diversity of business context — with respect to value chain, labor market factors, importance of branding, importance of capital, etc; 
• Organizational model — e.g. cohesive or conglomerate, centralized or decentralized, matrixed or hierarchical or team-based; 
• Methods of organizational growth — e.g. organic, M&A, regulated, legislated, and/or ramping up; 
• Rate of organizational growth — in revenues, profits, new product introduction, geographic expansion, and partnering — and in related head counts; 
• HR operating model and governance — including roles and reporting relationships of generalists and specialists, use of shared services and/or call centers, degree and integration of outsourcing, approach to “customer” inquiries, how budgeted and/or charged back, degree of strategic HRM really practiced, etc.; 
• IT operating model and governance — including roles and reporting relationships of generalists and specialists, use of common vs. local IT products/services, degree and integration of outsourcing, approach to “customer” relationship management, how budgeted and/or charged back, degree of strategic IT really practiced, etc.; 
• Geographic/geopolitical dispersion — extent to which the organization is highly centralized or dispersed geographically and/or geopolitically, as well as the specific geographies in which the organization conducts “business”; 
• IT dependence — extent to which the underlying business depends on IT for product creation, distribution, etc., e.g. financial services is heavily dependent while mining may be less so; 
• Regulatory complexity — extent to which the organization is affected by legislation, regulation, labor contracts and other external constraints on its HRM activities; 
• HRMDS’ IT maturity — degree of maturity in the understanding and use of IT within the HRM business, including its breadth of automated functionality, logical integration, user involvement, and leverage achieved; 
• Nature of the work — e.g. heavy industry, low-skilled services, production line, individual contribution, health care model, etc.; 
• Nature of the workforce — e.g. full-time regular, part-time regular or term, contingent, unionized, transient, highly mobile and educated, long service, etc.; 
• Value of HRM and IT — the value top management puts on HRM and IT, and how central they view these disciplines to the success of the organization; 
• Strategic HRM — degree to which the HRM business as well as the HRMDS have a strategic focus and capabilities versus a predominately administrative focus and capabilities; 
• HR/IT partnership — the quality of the partnership among HR and IT management and professionals with respect to the HRMDS; and 
• HRMDS pain — the level of need/pain and other incentives within the overall organization as well as within the HR community to warrant substantial attention to the HRMDS. 

 Just consider two, several thousand person organizations, one of which, what I call a “big little”, is a landscape maintenance firm covering several counties in Florida, with thousands of new immigrant hourly landscape workers.  The other is a “little big”, a benefits consultancy cum benefits administration outsourcing provider with a couple of thousand mostly salaried professionals in offices across eighteen countries and the rest of their workforce, mostly CSRs, in service centers located to span the globe as efficiently and cost-effectively as possible.   If you think about the HRM policy/practices/plan needs of these two firms, they are quite obviously different.  If you think about the HRM delivery system, HRM software and outsourcing requirements that they might have, again the differences are substantial and obvious.  But with roughy the same size workforce, both firms would be caught up in the same market segment in much of what passes for market research in our industry. 

These complexity factors and the cross-organizational similarities they reveal can be exploited by end-users for benchmarking, for understanding industry-specific requirements in HRM and the HRM delivery system, for determining which “best” practices can/should be adopted, and for considering which software vendors and/or outsourcing providers are really focused on them.  They can also be used by HRM software vendors and HRO providers to define their target market, design software/delivery systems which can work well across their target market, and focus their business development and sales activities.  When applied to the vast middle market, it becomes very obvious just how bipolar is this very large group of organizations.  Using complexity analysis, we can quickly determine which organizations are really big littles, i.e. not very complex, and which are little bigs, i.e. quite complex in spite of modest volumes.  And once you see these differences clearly, many relevant research, analyses, and business decision-making efforts become much easier and more likely to be successful.

Note: The wonderful graphic above was found at http://www.1000topics.com/metaphor-for-complexity/ whose author freely admits that he too just came across it but gives no citation, nor could I find one one my own.