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These slides use concepts from my (Jeff Funk) course entitled Biz Models for Hi-Tech Products to analyze the business model for Zenefits, a supplier of cloud-based human resource (HR) software. Traditionally, HR departments have dealt with benefits brokers, who act as intermediaries between HR departments and insurance companies. Zenefits offer HR software that replaces these benefits brokers thus enabling HR departments to deal with insurance companies through the software. Zenefits offers its software for free to HR departments and takes a commission from insurance that is purchased through its software. This commission is much lower than that taken by traditional benefits brokers because Zenefits has simplified the process of purchasing the insurance. These slides describe the value proposition, customers, scope of activities, method of value capture, and method of strategic control for Zenefits.

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  1. 1. MT5016 Business Models For Hi-Tech Products Diego Indrabangsawan Abas (A0133788R) Lin Mu (A0092172J) Muhammad Tomi Haetami (A0133454L) Tan Feng Ying (A0129092E) A P R E S E N T A T I O N B Y Cloud-Based Human Resource Software
  2. 2. Agenda Cloud Computing and Software as a Service (SaaS) Introduction to Zenefits Value Proposition Customer Segmentation and Selection Scope of Activities Value Capture and Revenue Model Competitors Market Analysis Strategic Control Conclusion and Future Developments for Zenefits Zenefits HRMS / HRIS Model
  3. 3. 3 The Emerge of Cloud Computing and Software as a Service (SaaS) Mainframes • Start of Automation Phase • Localized Infrastructure 1950s Rise of the PCs • Rise in demand of personal computer • Decentralize computing • Birth of IT Service industries 1970s Client-Server Architecture • Demand of high bandwidth • Virtual Private Network offered • Dot Com revolution 1990s Hosted Environment • IT infra structure management outsourcing • Increase of use of virtualization 2000s • Emergence of “as-a- service” • Delivery of IaaS, PaaS, SaaS, BaaS • Collaborative Computing • Utility computing Model Cloud Computing Beyond 2010
  4. 4. 4 CLOUD BASED SERVICES Traditional vs Cloud Service Model Data Application Networking Storages Servers Virtualization O/S Middleware Runtime Platform as a Service (PaaS) Networking Storages Servers Virtualization O/S Middleware Runtime Data Application Software as a Service (SaaS) O/S Middleware Runtime Data Application Networking Storages Servers Virtualization Infrastructure as a Service (IaaS) Owned and managed by service provider / outsourced Networking Storages Servers Virtualization O/S Middleware Runtime Data Application Packaged Software Owned and managed by user TRADITIONAL ERP
  5. 5. 5 SaaS Advantages and Concerns for Users Advantages • No or minimal upfront capital cost on hardware infrastructure and software ownership and licensing • No or minimal operating cost on hardware and software maintenance and upgrades • Relatively low subscription-based fee, sometimes free Concerns • Security issues, as data is stored in cloud • Dependency on internet connectivity, where network availability and latency may become issues as the quality of internet connections can vary between places • High switching cost between SaaS providers
  6. 6. 6 Cloud Service Model and Providers Infrastructure-as-a-Service (IaaS) Platform-as-a-Service (PaaS) Software -as-a-Service (SaaS)
  7. 7. 7 Introduction to Zenefits Zenefits is a Software as a Service (SaaS) company that offers cloud-based platform to businesses, both big and small, for managing multiple HR services such as health insurance, payroll, compliance, paid time off, benefits, employee onboarding, stock option management, and more.
  8. 8. 8 Introduction to Zenefits
  9. 9. 9 Introduction to Zenefits One-stop, free cloud-based HR software catering for benefits, compliance, payroll and other HR functions Provides compliance management software to facilitate the automation of compliance First modern insurance broker in US which liaise with companies of every size, in every state, and every industry Connects and integrates multiple HR solutions into a single dashboard Provides access to service providers and subject matter experts Eases the access to reports and analytics as HR information is available and maintained
  10. 10. 10 Introduction to Zenefits
  11. 11. 11 Expertise on multiple HR functions; Shift from transactional HR to Strategic HR; and Always comply with the legislation Minimise repetitive administration; and Lower administration cost and manpower needs Transition cost; Training for employees; Adaptation and transfer of information; and Survivability of the service provider Value Proposition – Customers’ Needs, Wants and Fears Customers' Wants Customers' Fears Customers' Needs
  12. 12. 12 Value Proposition – Customers’ Substitutes Customers’ Substitutes Multiple service providers Engage HR consultancy or advisory firms In-house HR operations and advisory team In-house HRIS/HRMS team and system
  13. 13. 13 Value Proposition – Features and Benefits HR Services Payroll & Taxes Benefits & Insurance Compliance Outsourcing What is offered? Capture addition or removal of employees Automate payroll tasks and tax related computations Provide instantaneous and affordable quotes for health, dental or life insurance through collaborative efforts of experts and technology Streamline benefits administration and management Provide convenience and readily available advice as there are in-house experts for payroll, benefits, insurance and compliance matters; collaboration with top payrolls providers Provide automated updates on compliance and regulations matters pertaining to taxation and other HR matters to ensure error-free compliance
  14. 14. 14 HR Software HR Cloud Platform Reports & Analytics Onboarding & Exit Benefits Administration Time & Attendance Stock Options What is offered? Centralized platform for all HR documents and information Provide convenient access as information is placed in the cloud Obtain up-to-date data and reports Ease the administration for onboarding as information is captured and updated seamlessly in all systems Empower employees with own HR portal for benefits and insurance administration Track attendance based on any electronic work devices and it will be synchronised with payroll Charge a low fee for stock options administration Value Proposition – Features and Benefits
  15. 15. 15 Value Proposition – Features, Benefits and Experience Experience Convenient and readily accessible; Hassle free and easy to setup and use; Stable and robust system; Employees can focus on strategic or core business issues; Outstanding partnership and advisory support; and Massive savings Highlights of Features and Benefits A user friendly and modernised online HR software which covers majority of the HR matters at almost no cost; A platform to integrate and synchronise all HR information to avoid multiple administration; A team of readily available subject matter experts to provide advice for cumbersome matters such as insurance or compliance; Minimise efforts, cost and manpower on HR administration; and Useful analytics for business development and manpower planning
  16. 16. 16 Value Proposition – Experience and Testimonials
  17. 17. 17 Customer Segmentation and Selection Entrepreneurship/new start-up business, as well as established business which are based in US with 2 to 1000 employees and have limited resources to handle HR related matters
  18. 18. 18 • A modern HR system is an integrated IT-based system for HR management • Designed to increase the efficiency of HR dministration and management tasks, such as payroll and benefits activities • Provide information used in HR decision making. Modern HR System HRIS = Human Resource Information System HRMS = Human Resource Management System HRIS/ HRMS Recruitment Training and Development Personal Self Service Leave & Absence Payroll People Administration Compensation and Benefits Performance Evaluation
  19. 19. 19 Zenefits HRM Core Activities Benefits Administration & Enrollment Software Business Intelligence & Reporting Contractor Management & 1099 Filing Compliance Automation Document Storage &Management Employee Concierge Employee & Manager SelfService Portals Email Provisioning Onboarding Automation Software Offboarding Automation Software Online W2's & I-9's Org Chart & Employee Directory Payroll Automation Paid Time Off & Vacation Tracking Workflow Approval Management Zenefits is a cloud-based HRIS and HRMS Personal Self Service Leave & Absence Payroll People Administration Compensation and Benefits
  21. 21. 21 Traditional HRM and Benefits Model Employers •Use HRIS/HRMS (commercial software) for internal HRM •Dedicated HR staffs to cover whole HR activities •Deal with Brokers to obtain the most suitable and best priced group benefits policy from Insurance Carrier •In general, pay the brokers for the services Brokers •Professionals in insurance, benefits, risk assessment, and may require license form authority •Not an agent of Insurance Carrier, but receive commission on the policy sales. •Provide assessment, consultancy, and brokerage services to Employers to obtain the best policy •Negotiate with the Insurance Carrier on the policy package •Generally, should work for the interest of the client (Employers) rather than for the Insurance Carriers, and may collect fee for brokerage or consultancy services from the client. •Provide personalized consultancy and support to the Employers. Insurance Carrier •Underwrite and sell group insurance and employee benefit policies for employers •Form network with Healthcare providers to serve the policy holders •Can either sell policies direct to employers or through brokers •Can offer better pricing to brokers because brokers usually have more detailed risk assessment for their client Benefits Providers •Network of hospitals, clinics, doctors, dentists •Participate into the Insurance Carrier network and provide healthcare benefit service to its policy holders
  23. 23. 23 Zenefits Cloud Based HRM Model Employers •Use free cloud-based software from Zenefits to manage the HR services •Number of HR staffs could be reduced as the Zenefits HR platform can provide most of the HR services with less user intervention, including insurance and benefits brokerage service •No longer have to pay for the software and for the brokers •Eliminate capital and operational cost of implementing HRMS/HRIS Zenefits •Essentially is a cloud-based software-as-a-service developer and provider, designed for HRIS and HRMS. •Offer one stop services for most HR management, including health insurance, other benefits, and payroll •Get revenue from brokerage activities, i.e. commission from insurance carrier, and also from other third part HR service company, e.g. payroll company Brokers Zenefits disrupt the traditional model and is taking over the Broker’s role (and market share)
  24. 24. 24 Zenefits Scope of Activities (Value Chain) Cloud Infrastructure Development Activities Software Development Activities Sales, Marketing and Partnering Activities Brokerage Operations Activities Customer Support and Service Activities Procurement Management Firm Infrastructure Human Resource Management R&D and Technology Management Value Capture PRIMARY ACTIVITIES SUPPORTING ACTIVITIES
  25. 25. 25 Zenefits In-house and Outsourced Primary Activities In-house Primary Activities • Software Development • Marketing and Partnering • Brokerage Operations • Customer Support (Possible) Out-sourced Primary Activities • Cloud Infrastructure Provisioning, Operations and Management (from IaaS supplier)
  26. 26. 26 Zenefits Value Capture Method • From Insurance Carriers • From Payroll Companies • From Other Benefits Providers Commission • From Users using Stock Option Administration (Optional) Fee for Services
  27. 27. 27 Zenefits Value Capture Method (Commission) Zenefits offers free HR software to companies Zenefits offer free publicity to insurance companies (through the HR software) When a company finds the right insurance plan, they pay to the insurance company The insurance company pays Zenefits commission Source: http://www.boardofinnovation.com/2015/05/21/how-last-years-hottest-startup-is-making-money-from-their-free-hr-software/
  28. 28. 28 Zenefits Revenue Model Adopted from: http://www.boardofinnovation.com/2015/05/21/how-last-years-hottest-startup-is-making-money-from-their-free-hr-software/ INSURANCE CARRIER COMPANY / EMPLOYERS ZENEFITS Insurance Benefits chosen through Zenefits Insurance Premium Commission Fee on Premium Exposure to Companies / Employers Free HRM Software (SaaS) Fee for Stock Option administration (OPTIONAL)
  29. 29. 29 Competitors Traditional Employee Benefits Brokers Traditional Integrated ERP Package Traditional Comprehensive HR Software Cloud-based SaaS HRMS and/or Employee Benefits Brokers
  30. 30. 30 Zenefits vs. Other Cloud-based Benefits Brokers •The software is completely free to use; they charge commissions from insurance providers. Free of charge •In addition to employee benefits services, Zenefits also provide on-boarding, compliance, payroll services. Wide range of services •The onboarding process to Zenefits is very easy; and users may not be willing to switch considering Zenefits’ free services High switching costs •Zenefits responded quickly to policy or regulation changes. E.g. Launching free ACA compliance systems in response to Obamacare policy Active response to policy change
  31. 31. 31 Zenefits vs Other HR Solution Software ( I n t e g r a t e d E R M a n d H R C o m p r e he n s ive ) Zenefits Comprehensive HR solution software Traditional Integrated ERM Software Free of charge Ease of use Benefit broker services Basic HR management solutions Strategic HR (performance tracking etc.) Compliance management and expert support Product variety Enterprise management
  32. 32. 32 Zenefits Main Advantages for Users Combine comprehensive HR software platform and the benefits broker services in a single cloud-based platform Manage all employees HR administration from a single HRIS/HRMS software Easy implementation and intuitive self-service tools Run real-time reports on your entire workforce, across all HR systems, in just a few clicks Integration with other major payroll and health insurance provider platform Reduce capital and operating cost of the employer No capital and operating cost needed for the HR software Less HR staff required Compliance Management and Subject Matter Expert Support (in U.S) No need to engage specialized HR consultant Fit into the current Obamacare policy
  33. 33. 33 Market Analysis Industry Description Market potentials Competitive Analysis SWOT Analysis
  34. 34. 34 Industry Description • More than 300 HR software systems • Large companies as well as start-ups • No single product is dominating the market
  35. 35. 35 Zenefits Market Projections • Valuation: $4.5 billion • Signed up more than 10,000 small to medium size companies • Revenue x 20 in 2014 compared to 2013; expecting 100 million by 2015. • Manages over $700 million in health insurance premiums
  36. 36. 36 Market Potentials • 48.5% of companies lack sophisticated HR technology that meets their business needs • only 19% are currently using a fully integrated HR software • Too much manual manipulation and lack of necessary HR analytical systems are main obstacles to achieving HR better performance
  37. 37. 37 Market Potentials 1st half of 2015, there was $812 million venture capital investment pumped into HR and recruiting tech in US.
  38. 38. 38 Benefit Brokerage Market Source: Employee Benefit Adviser (December 2014 issue) THE TOP 50 LARGE-GROUP BROKERAGES IN THE U.S. (2014) TOTAL REVENUE = $1,699,056,059
  39. 39. 39 Threat of Potential Entrants Bargaining Power of Buyers Threat of Substitutes Bargaining Power of Suppliers/coll aborators Competitive Analysis •Large number of competitors •Big competitors exist such as Oracle, Sage, ADP •Increasing market demand Degree of Rivalry •Low bargaining power on supplier side •Vertical integration can be a threat •Attractive to new entrants •Low entry barriers •High switching cost •Not highly differentiated services •One-stop service •HR professionals •HR consultancy firm
  40. 40. 40 SWOT Analysis Strength Weakness ThreatOpportunity • In-house expertise • Free of charge software • Cloud-based service • Easy to install and use • Large, active, knowledgeable sales team • May not be able to enter market which are using integrated ERM software • Increasing local and overseas market demand • Cater for > 1000 employee • More HR related functions • Government regulations • New entrants from local and overseas market • Current market player • Current partners' vertical integration • Government regulations • May be posed to security issues
  41. 41. 41 Strategic Control • Creates entry barriers for switching and mass adoption – Automates HR core processes – Quick and easy – Free, without any contracts or disruption of service – Supports more than 10,000 companies across 48 states, serving over 100,000 employees • Continuously delivers new, enhanced, and integrated HR features – Delivering good features and products – Innovating faster
  42. 42. 42 Strategic Control • Weak appropriability regime – Nature of the technology – Weak ironclad IP protection – Continually augment the value of the product to achieve scale • Focus on building in network effects • Insurance • Payroll Service Providers Zenefits Customers
  43. 43. 43 Strategic Control • Provides a single interface that plugs in to the existing providers • Leverages complementary assets – Cloud platform – Very large and active sales team – Customer Service – Continuously develops strong branding and reputation
  44. 44. 44 Summary – What Make Zenefits Successful The software is free, eliminate user’s capital and operational cost for HRIS/HRMS software Easy to learn for users to gain the most effective way to provide health insurance and other benefits for its employees The software provides a lot of value for users The software has high switching cost (very sticky) Zenefits has a very large, active, and knowledgeable sales team Able to take the opportunity of Obamacare’s complex new health care policy High potential revenues from benefit brokerage market
  45. 45. 45 Future Development for Zenefits • Performance and training features • Recruitment process • Additional analytics • Mobile apps (mobility) • Integrated cloud-based email services • Multi languages • Currency translation Recruitment Training and Development Performance Evaluation Personal Self Service Leave & Absence Payroll People Administration Compensation and Benefits Analytics Mobility Multi Languages Enterprise Cloud Based Email Currency Translation
  46. 46. Thank You