Disrupt Thee but Not Me
Listen to any funding pitch or read a current book on marketing and you might come away with the impression that “Disruption” is the new shiny object to chase. But, disruption has been an inextricable part of the free market for as long as we’ve had free markets. We can easily recognize the benefit of disruptive solutions in the consumer marketplace. Recent examples include the iTunes store which gave us a new way to buy music; Netflix a new way to see movies; and the emerging driverless car a new way to speed up our commute. Not all disruption is so obvious. For example, behind the scenes, integrated sensor technology is dramatically lowering the cost and improving the reliability of supply chains throughout industry.
One behind-the-scenes area that has been resistant to disruption is corporate organization. Full-time employees working in close proximity to the CEO fill the same staff functions that existed in the days of Alfred Sloan: finance, marketing, sales, human resources, and legal. In creating Cannae Solutions, my partners and I looked at the corporate landscape and identified an opportunity to create value by disrupting the Human Resource function.
The two prevailing approaches for obtaining HR services fall short for most companies. The standard approach – hiring experienced full-time staff with specialized knowledge around pay, benefits, recruiting, etc., is too expensive for companies under 500 or so employees. A professional Employer Organization (“PEO”) offers an alternative for smaller companies. PEOs co-employ with their customers and provide a big-company benefit package at a reasonable cost and some offsite HR support. The downsides to PEOs are that they require companies to switch to their vendors and processes, do not materially reduce the cost of HR staff (who are still needed to manage the PEO processes), and are not set up to deal with the existing complexity of companies with more than 25 or so employees.
The sweet spot ripe for disruption is growing companies that are too complex for a PEO but not big enough to cost-effectively hire experienced HR staff. This is the area where Cannae sees an opportunity. By leveraging experienced HR talent, best practices, technology integration and process improvement across many customers each benefits from high-quality, low-cost HR services. This is a simple approach in concept but difficult to execute.
Of course, the flip side to Disruption is that it is, well, disruptive. We appreciate it’s benefits until we are the ones disrupted. The traditional record label and blockbuster were decimated by iTunes and Netflix. Cannae’s approach provides a cost-effective, first-rate HR function for our target customer at the expense of PEOs and traditional human resource professionals who are unable to adjust to a new paradigm.