A Step-by-Step Guide to Buying HR Software, From Building the Business Case to Maximizing ROI

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Any business leader, regardless of function, has to be able to select and implement the right tools to accomplish their personal and organizational goals. However, buying HR technology (or “WorkTech,” people tech, talent acquisition (TA) tech — whatever you want to call it) can be particularly difficult. There are many vendors, internal stakeholders, and general pitfalls you need to consider.

Below, you’ll find a comprehensive HR tech buying guide that covers the process from start to finish — from building an initial business case to selecting a vendor and maximizing ROI.

The Business Case

Goal: Define the pain point you will address and articulate how solving this problem will help the business in terms your CFO will appreciate.

At its core, a business case is an explanation of why a particular piece of technology is worth the time, money, and social capital needed to buy and implement it. Purchasing any new HR tech tool starts with constructing a business case explaining why it is important to the organization and the value it will deliver. Business cases typically rest on some problem that needs solving. These problems can range from broad, high-level issues (like a stagnant culture) to very specific challenges (like the number of hours recruiters spend on phone screens for entry-level candidates).

The Process:

  1. Define the problem your organization is facing in as much detail as you can.
  2. Articulate this problem in a concise statement, e.g., “Our organization has low retention due to a lack of employee engagement that is caused by a culture in which we do not collect or act on employee feedback.”
  3. Articulate how this problem is impacting your business, preferably with hard numbers and dollar amounts, e.g., “Our current retention rate of 68 percent leads to TA costs exceeding $XX million per year, training costs of $XX million, and lost productivity of $XX million. Additionally, high turnover leads to lower productivity, lower morale, and lost intellectual capital.”
  4. Create a list of potential solutions to the problem, e.g., “Implementing an employee rewards and recognition platform, implementing an employee engagement platform, investing in senior management training, and/or adopting objectives and key results (OKRs).”
  5. Create a hypothesis to explain how these proposed solutions will deliver value to your organization, e.g., “Allowing employees to give feedback to management on a regular basis, and then having management act on this feedback, will allow us to increase retention from 68 percent to 75 percent.”
  6. Calculate the potential ROI this initiative will bring to your business, e.g., “Increasing retention from 68 percent to 75 percent means will have to make 100 fewer new hires per year. Our cost per hire is $5,000, meaning we stand to save $500,000 on TA costs. In addition, numerous studies show each person who leaves the company hurts the business through lost knowledge, social capital, etc. Each of these people is worth $XX. Multiplying that by 100, we will save a total of $XX per year.”

Best Practices:

  1. Try to be as specific as possible when defining the problem. For example, it’s very hard to tackle “culture” as an issue. If you narrow the pain point down to its concrete causes, you can gain a better understanding of how to solve the issue.
  2. Always tie your pain point back to dollars and cents. If your efforts won’t produce an ROI the CFO will appreciate, it will be hard to get buy-in and budget. Use a spreadsheet to calculate the potential payoff of buying a new HR tool.
  3. Create a problem statement that acts as a north star for your project. This will help people stay on track throughout what can be a long initiative.

Internal Stakeholder Management

Goal: Get buy-in from the relevant parts of the organization to make purchasing and implementing your solution easier.

Gaining consensus from the rest of the organization is key to any successful initiative. The ultimate goal here is to get the organization to pull the solution, as opposed to you pushing it on the company. In addition, involving other business leaders in the discussion can yield valuable insights into the most effective way to solve the pain point at hand.

The Process:

  1. Make a list of the key stakeholders in your organization who will need to be engaged in your process. Determine at what point you want to engage these leaders.
  2. If this is a big enough initiative, form a cross-functional buying committee that brings together multiple functions in the organization. The buy-in and insights of the committee members will be invaluable when securing budget and implementing the solution you choose.
  3. Have an initial brainstorming meeting with your internal stakeholders to get their ideas about how to solve the pain point. Then, work to establish a consensus around a proposed solution (either one from your original plan or a better one that comes about as part of the brainstorming).
  4. Set reminders for when you need to ping various parts of the organization. For example, a month out, you might put “Ask security for new vendor checklist to send to employee engagement vendors” in your calendar.
  5. Establish a biweekly update cadence to keep stakeholders in the loop on your progress. These updates could be as simple as a brief email (“We’ve done demos with five vendors and narrowed our list down to three. Here they are and what the next steps are with each”). In a more formal organization, you may want to set up a recurring monthly meeting.

Best Practices:

  1. Try to involve leaders from each of the key functions in your organization that matter to your initiative. For example, if you’re building a new career site, you probably need to get marketing and IT involved.
  2. Don’t allow your cross-functional buying committee to go off track. Remember, you are the leader. You don’t want a “too many cooks in the kitchen” situation. The people on the committee should be advisors to your project, but they should not feel as though the project is their baby.
  3. Leverage the power of the people in your committee to get the right message in front of the person who controls budget early. Parts of the organization that aren’t viewed as cost centers usually have more sway when getting new budget.
  4. The ideas of many people are better than the ideas of one. A great way to start building internal stakeholder buy-in is to hold an initial brainstorming session centered on potential solutions to your pain point.
  5. Keeping people up to date and asking them for the occasional piece of advice keeps them engaged and on your side during the process.
  6. This is a great chance to network across the organization and work with people you would otherwise only pass in the hallways.

Vendor Discovery

Goal: Develop a list of 5-7 vendors who could potentially help solve your pain point.

Vendor discovery can be proactive (e.g., researching a specific category of tool), or it can happen more organically through recommendations, conferences, cold outreach from salespeople, etc. However you come across your vendors, the goal here is to build a list of target vendors you will approach for demos.

The Process:

  1. Start with your network. Who are the 2-3 smartest people you know in HR or TA? Ask what they’d do in your situation and why. Try to understand their biases so you can figure out whether their advice is truly relevant to you.
  2. Google is your friend. An appropriate search for “best XYZ software” will give you a few lists to start with. Just be careful, as these lists can be full of random vendors that don’t even do what you’re looking for. Usually, the top 2-3 vendors of a list are the ones worth looking at. Also, any vendor buying Google ads for your “XYZ” keyword is definitely doing well! After all, they have the budget to buy expensive keyword ads, which can cost $100 per click!
  3. Check out online HR and recruiting groups, but be intentional in how you use them. Asking an open-ended question like “What’s the best ATS?” can generate lots of bad advice. Try something more detailed instead: “I’m looking for a new ATS to replace XYZ. We’re a 400-person, fast-growing, distributed team that does a lot of sourcing to find new talent. We want something with a built-in CRM and a robust partner network, as we want to keep using point solutions for onboarding. Any recommendations?”
  4. Hopefully you’ve built relationships with a few people on the vendor or thought-leadership side of things. Ask them for advice. The sales rep at your favorite HRIS company may have some insights into great ATSs on the market.

Best Practices:

  1. Be wary of online vendor lists. Many are put together for specific commercial reasons. Sometimes, the vendors on the list are the people who wrote it!
  2. Online review sites can also be biased. Some are only trying to capture your data so they can sell it to vendors. Others are trying to drive you to a specific vendor paying them per lead.
  3. Generally speaking, you should be aware of the biases behind any information you’re consuming online. Almost all the top results in Google are there because someone put a lot of hard work into achieving that ranking — and that hard work was done in order to make money.

Additionally, here are some tips on how to do vendor discovery when you’re not searching for a specific need:

  1. Set aside 45 minutes every two weeks to do a demo with a new solution that seems interesting. Don’t let just anyone snag that time on your calendar, but do be open to new ideas and ways of doing things.
  2. Always respond to a salesperson’s first email. If you don’t, they will email you 10 times and leave you five voicemails. That’s just the way the sales world operates. Take a minute to see what they are selling, figure out whether it’s worth your time, and then either ask for a demo, turn them down, or ask them to hit you back in a few months.
  3. Be open to being convinced. You never know when you’ll run into an interesting technology. If you’re too skeptical, you’ll never get the chance to be an early adopter. Of course, if you have shiny object syndrome, you need to be sure to limit yourself to that 45 minutes every two weeks.
  4. Trust your gut on what is worth your time and what is not. That’s the most efficient and effective way to vet inbound recommendations, emails, etc.

Staying Organized While Vetting Vendors

Goal: Keep relevant notes on vendors that you can reference as needed.

Life is busy, and we all have plenty of priorities to juggle. As a result, it’s not uncommon to lose track of valuable information. That’s why staying organized is essential when it comes to vetting vendors. You can only streamline the process and pick the right solution if you have all the information you need readily available.

The Process:

  1. Create a spreadsheet. Column A should list all the criteria by which you are evaluating the software, with each row dedicated to a specific criterion Each of the other columns should contain your notes on a given vendor.
  2. Create a list of 5-7 must-have criteria, plus 10-15 nice-to-have criteria.
  3. Include rows for how much you like your rep at each vendor and the pricing scheme for each vendor.

Best Practices:

  1. You can download a sample spreadsheet here if you don’t want to start from scratch.
  2. Check in with relevant stakeholders to ensure you include all the must-have criteria in your spreadsheet. There is nothing worse than realizing at the last minute your preferred vendor does not meet the necessary security criteria. You’re not aiming for an exhaustive list here — just the absolute must-haves from each stakeholder. There’s only so much you can ask a vendor in a 45-minute demo.
  3. The strength of your sales rep reflects the strength of the company. Top salespeople want to work at companies that have easy-to-sell products, and easy-to-sell products are usually good products.
  4. Trust is also important. Your sales rep may be representing you down the line during a broader meeting with your colleagues. You want to be sure the rep is someone you can trust to do a good job.
  5. Just as important as how much something costs is how that cost gets billed to your company. This may greatly impact the way you negotiate or how the pricing will change for your organization in the future.
  6. Use the spreadsheet on every call. No matter what you think, you won’t be able to simply memorize all the important details. Take notes in real time and make sure to get all your questions answered.
  7. If a salesperson tells you a feature is “coming,” ask when it will be live and how they know that. Really push them. Don’t be afraid to ask for an email from a product person so that you have something in writing — especially for essential features.

Early Stages of Vendor Vetting

Goal: Whittle your list down before the demo stage so you don’t spend hours on the phone with the wrong vendors.

In addition to the new HR tech initiative you’re heading up, you probably have plenty of everyday fires to fight. Time is of the essence. You don’t have room in your schedule for vendors that aren’t going to meet your needs. Before you move into the demo stage, use a few tricks to qualify your vendors digitally.

The Process:

  1. Spend 10 minutes researching how each vendor is doing by looking at employee headcount growth on LinkedIn, stock prices (public companies), funding rounds (private companies), the pedigree of the company’s senior management, and traffic patterns on SimilarWeb.
  2. Ask for demos from the 5-7 companies you’re interested in. When the sales rep responds, send them an email asking whether they meet your must-have criteria. Ask them to be as specific as possible. Mention you are moving quickly to buy a new piece of software and don’t want to waste your time or theirs. If a vendor doesn’t have all your must-haves, you can safely remove them from your list of targets.

Best Practices:

  1. The signals listed in step one of the process above are indicators of a company’s health and success, but they don’t obviously tell the whole story. For example, there are lots of amazing solutions available from profitable, bootstrapped companies that aren’t public and haven’t raised money from venture capitalists. The signals should only be used to disqualify vendors about which you’re on the fence (maybe a friend told you to be wary or something about the company’s website is giving you pause).
  2. Glassdoor reviews can skew more negative or positive than reality, but they are usually decent indicators of where the business is going. Positive reviews that seem genuine are a good thing. When things go south, the reviews do, too.

Demos

Goal: Refine your list to the top 1-2 vendors you want to partner with.

Obviously, the best way to figure out whether a solution will be valuable to your company is to sit through a demo and get all of your burning questions answered.

The Process:

  1. Cluster all of the demos in the space of two weeks so that you can compare options while they are still fresh in your mind.
  2. Take control of the call. Set an agenda that ensures you get all of your questions answered. Maybe you start by going through your spreadsheet and asking all your questions. Maybe you let the rep go through the demo with the expectation that you will be interrupting occasionally.

Best Practices:

  1. Salespeople are protective of their time. Make sure they know you are worth their time by outlining the schedule you’re on and assuring them you have the power to make a purchase happen.
  2. Salespeople can be a tremendous resource when buying new HR tech. Treat them as partners, and they will usually do the same to help you understand the product, landscape, and buying process.
  3. Make sure to take notes and keep filling out your spreadsheet!

Internal Stakeholder Management, Part 2

Goal: Ensure that everything is in place internally to move forward with buying this new HR solution.

You don’t want any last-minute roadblocks to pop up when you are ready to select a vendor. It’s important to ensure all key stakeholders are on the same page and prepared to move forward.

The Process:

  1. Put together a presentation or document that outlines the problem you’re addressing, why this problem matters to the organization, the work you’ve done to research solutions, how you’re going to solve this problem through new HR tech, and how your solution will impact the business.
  2. Reassemble the cross-functional buying committee. This is a great time to reinvigorate those relationships so that you have the necessary firepower to win over skeptical stakeholders.
  3. Get oral or written confirmation from every stakeholder to ensure everyone is on the same page and excited to move forward.

Best Practices:

  1. Use as much data as possible to defend your position. Some of this will come from the vendor, from articles on various sites, and from your peer network of HR/TA practitioners.
  2. This is basically a sales process. You’re now selling the solution internally. Take on the persona of your sales rep. Get people excited about this initiative and motivate them to take action.

Contract Negotiation

Goal: Get the best price and terms you can without severely delaying the buying process.

You want to get the best price for your new software, and you also want to understand the key terms that may impact your relationship with this vendor. Be sure you fully understand how a contract can be cancelled, data-sharing agreements, data security, and other important factors you internal stakeholders care about.

The Process:

  1. Get an initial quote over the phone from the vendor. Ask them how they arrived at this quote. What is their pricing model (seats, employees, etc.)?
  2. Ask them how much wiggle room there is for negotiating straight up.
  3. Ask them what matters to them and where there is room to adjust. The goal is to identify the levers that can be pulled on both sides to make everyone happy.

Best Practices:

  1. Nearly every company that doesn’t list pricing on its website has room to negotiate.
  2. Start contract negotiations before a single vendor has totally won you over. If you are dead set on moving forward with a given solution, you are going to lose leverage.
  3. Most vendors will give discounts for things like multiyear deals, upfront payment, case study data, and offering to be a customer reference.
  4. Many HR software companies will also give discounts on one-time fees like implementation. In most cases, the board cares less about low margin one-time revenues than what you are paying each year for the software itself.
  5. Don’t allow your competitive streak to come out. You don’t want to get too contentious.
  6. Don’t allow negotiations to drag on for so long that you lose focus on the actual task at hand.
  7. Always act in good faith. This isn’t a game of poker.

Final Vendor Vetting

Goal: Select one vendor to move forward with.

This is it, the end of the line for buying your new HR tech. You have internal buy-in, you’ve done your homework on the space, and you’ve narrowed your options down to one vendor. It’s time for some confirmatory due diligence.

The Process:

  1. Ask to speak to one current customer that can act as a reference for the vendor.
  2. Try to find another customer through your network that isn’t recommended by the vendor. Talk to them as well.

Best Practices:

  1. Customer references can be anything from a few text messages to an in-person meeting, depending on the scope of the project.
  2. Be wary of software review websites. Because of the way these reviews are collected, they can be incredibly positively biased. Look up the reviews on 2-3 pieces of HR tech you know to be garbage to see what we mean.
  3. Any reference call with a vendor-recommended customer should be used to get a feel for how the customer uses the solution, their implementation process, and other fact-based questions. Subjective and open-ended questions like “How much do you like the product?” will yield biased, unhelpful results.

Capturing Value

Goal: Understand and communicate the value your new HR software has brought to the organization.

You bought your software. You went through the full implementation process. Now, people are using the tool and you can determine whether your initial ROI model was correct.

This is an amazing time to learn and gain credibility in the organization (even if the project was a failure). Looking back at our processes and outcomes allows us to be better managers, buyers of software, and colleagues. The focus of this part of the buying process should be on learning.

The Process:

  1. Revisit your original ROI model and any other materials you prepared to get internal buy-in for your initiative.
  2. Scrutinize what you were right about and what went wrong.
  3. Write up a postmortem on your learnings, including the business impact your initiative had in terms of ROI. Share your learnings with your colleagues in HR and any others who were involved in the buying process. Use whatever medium makes the most sense (a lunch-and-learn, a webinar, a blog post, etc.).
  4. Congratulate yourself on a job well done with a nice dinner!

Best Practices:

  1. Be as analytically rigorous as possible to determine why the assumptions you made in your initial model were right or wrong and what you learned from each scenario.
  2. Be proud of what you accomplished. Make sure that everyone in the organization knows how thoughtful you were and the impact your initiative made.

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There you have it: a comprehensive process for buying new HR tech. Hopefully, the next time you’re in the market for a new solution, this guide can help you navigate the complexities of tech buying.

A version of this article originally appeared on the SelectSoftware  blog.

Phil Strazzulla is the founder of SelectSoftware.

By Phil Strazzulla