O.C. Tanner and The Long Shift

O.C. Tanner, one of the oldest HR providers, invited me to their first ever analyst day and told me I would have fun and maybe learn something. They were mostly right.

First, let’s back up a bit. Imagine being Microsoft over the last five years.

Incremental revenue from new computer sales continues to drop. Your popular Office productivity suite isn’t getting bought at the rate it used to and is facing stiffer competition.

Microsoft’s cash cow was slowly going away. What they ultimately need is a recurring revenue model that expands beyond the realm of consumer and business personal computers. And for the last few years, they’ve been the subject of ridicule for not being able to figure out “what’s next.”

It’s not like they’re the only ones. IBM continues to try to figure out a way forward, while casting out tens of thousands of people. Innovating is tough, especially when you’ve made so much money, for so long, doing what you do and become so good at it.

The point here for those companies still firmly entrenched in rewards and recognition is that there is a shift happening. Based on what I saw at the analyst day at O.C. Tanner’s headquarters, there seems to be a strong recognition of this reality but some trepidation about how to move forward.

Here’s what you need to know:

• When it comes to revenue, O.C. Tanner believes they are the top dog in the rewards and recognition space. Other companies may have more revenue — like BI Worldwide or Maritz, but they only derive a small portion of their overall revenue from employee recognition.
• They are putting that revenue back into innovating. We saw some interesting previews, especially on the wellness side of the equation. There’s uncertainty about how much they are funding the Tanner Labs portion of their business, though.
• They’ve clearly invested in supply chain management and lean manufacturing, though. Their operation, located just south of downtown Salt Lake City, is something that was a big surprise to me. It shouldn’t have been, given Tanner’s legacy business.
• They talked a lot about disrupting themselves, and I have no doubt they can, but there is a level of speed and agility that needs to be achieved in order to innovate in a way that isn’t disruptive to the long-term vision of their organization. I don’t think they are there quite yet.

Other analysts seemed baffled by the revenue numbers given by the folks at O.C. Tanner — as well as where exactly they fit in the scheme of HR technology. To be fair though, most tech analysts haven’t been following this space as closely as we have. There is still growth to be had, but the nature of that growth is changing.

The focus is really on engagement and turning employee engagement into serviceable business outcomes — performance, profitability, retention, etc… While trying to hit that target, they are also trying to hit a moving target of employee preferences.

The real question that needs to be answered is this: Can the same skills that drive the obviously great attention to supply chain and manufacturing management also drive a company where that advantage could slowly erode in favor of alternative rewards and a technology-driven recognition and engagement platform? If the backbone of the industry becomes that recognition and engagement component rather than reward fulfillment — which is where a vast majority of these companies pick up their revenue — what happens to O.C. Tanner?

The advantages for Tanner are also what might hold it back: Their legacy. A parade of decade-plus employees presented to us. Their strength and desire to keep fighting and be top dog in this space is clear, but they may need an infusion of new blood as well to challenge long-held assumptions and market behaviors.

Other quick notes:

• They are going through a gigantic refresh of their facilities.
• Their internal creative agency does some amazing work.
• Their supply chain management beats most retailers.
• The lean manufacturing capabilities really can’t be overstated. It is a pretty incredible site to see it integrated in with a white collar workforce.
• Salt Lake City was actually pretty nice, and I ended the evening with some nice bourbon.