What is the impact of consolidation within the talent systems market on corporate strategies and supply-side options?
Taleo buys Learn.com. SuccessFactors buys Plateau. Lumesse buys Edvantage. SAP buys SuccessFactors. Oracle buys Taleo. Kenexa buys Outstart…What’s driving these big market changes and what do they mean for their customers? What’s the likely impact on the market, on competition between the vendors, and the supply side options available to corporates?
Within little more than 12 months the talent management market has changed beyond recognition, and that’s just looking at the bigger guys. Recruiting software companies and performance management companies acquire and merge to become talent management companies. Talent companies acquire to become bigger talent companies. And the 800 pound gorillas, the HRMS/ERP providers called SAP and Oracle, finally wade into the ring and take out two of the biggest talent management companies with one swing for a cool $3.4 billion and $1.9 billion respectively. Something is definitely up!
What’s driving these big market changes and what do they mean for their customers?
What’s the likely impact on the market, on competition between the vendors, and the supply options available to corporates? What will it mean for the specialist providers still standing in the market? What do you do if you’re a customer of one of the acquired companies, or have commited to products now owned by competing ERP vendors? How are these changes going to impact talent system decision making in the future?
Here’s our take.
This Core Insights paper is based on information and analysis gathered by Fosway Group throughout its research into the corporate learning and talent technology market. This includes input from:
- Conversations with many large corporate organisations in the UK, Europe and internationally
- Detailed advisory assignments with a range of major multinational organisations
- Independent briefing with the main learning and talent vendors
The content is split into the following main sections:
- Underlying Trends – focusing on five key trends underpinning the changes in the talent systems marketplace and the resultant acquisitions
- Analysing the key players – a walkthrough of some of the key acquisitions and a look at the impact they may have for customers and in the market place
- Conclusions and summary
The appendices include a glossary of the key terms used in this document, as well as references to related Fosway and third-party research.
Underlying drivers and trends
It’s easy to look at recent market changes and just see them as a one dimensional trend, but that’s rarely the case in software markets, and it’s the same here. Yes, clearly this is a vindication of the talent management ‘story’. But it’s also about the importance of Cloud solutions and Software-as-a-Service (SaaS). And not every acquisition is potentially as straight-forward as it has been positioned by the companies concerned. Often the motives are multi-layered and the realities even more complex.
The challenge for corporate observers is to be able to strip apart the layers of the acquisition stories so they can understand the underlying drivers. More importantly though, corporates need to understand the impacts of the acquisitions and the impact that the underlying drivers are likely to have on their own choices and future options.
So let’s start with some of the basics, and focus on the underlying drivers behind the acquisitions. We’ve grouped these into five core trends. These are:
- All things Cloud and SaaS
- Best of breed outguns ERP for talent
- From silo to hybrid to unified
- Core HR feels the heat!
- Widening the talent lens
Let’s start with technology, and with the Cloud.
1. All things Cloud and SaaS
If there’s one thing that’s clear from all of these acquisitions, and the marketing positioning/PR that’s accompanying them, it’s that the battle over the dominant, go-forward, deployment model for learning and talent systems is over. In fact, it’s not only over, it’s now old news! SaaS won, hands down.
Fosway produced a paper on the relevance of the SaaS/Cloud model to corporate learning and talent systems in early 2009. Our focus, slightly unusual and controversial at the time, was primarily on Enterprise-class organisations, not just the cost-driven mid-market. Many vendors, especially those with a strong on-premise legacy position, had started to produce their initial on-demand versions, but these were squarely aimed at the mid-market with its associated simplified configuration and deployment assumptions.
For some time, our view had been that SaaS/Cloud solutions was just as relevant to Enterprise organisations.
Three years on and we’ve clearly been proved right. Not only have the SaaS/Cloud learning and talent vendors been growing rapidly, they’ve also (cf. SuccessFactors and Taleo in particular) been the major acquirers in the market, broadening their own solutions into fully-fledged talent suites. Well at least they were the major acquirers until the ERP gorillas got involved! But those acquisitions by SAP and Oracle, are driven as much by the potential opportunities of Cloud, as they are by the importance of talent management itself.
The go-to model for talent
Cloud solutions have become the go-to model for most software these days. Cloud-based Human Capital Management (HCM), the overarching label used by the IT analysts to include HR, talent and learning systems, is one of the fastest growing sectors within the Enterprise software market. Couple that with the particular advantages the Cloud has for talent and learning; the autonomy from IT, the rapid innovation in process and capability, and self-controlled configuration for the talent function, and it’s a sure fire winner. There will always be some exceptions, but the war is over. The Cloud is driving the talent systems agenda. It’s driving it in terms of the customer proposition, the cost model, the innovation model and the increasingly, the integration and analytics model. Game over.
The acquisition of SuccessFactors by SAP is a specific case in point. SAP had invested lots in its business by design Cloud strategy, but had made little real progress in the market as a credible SaaS-led offering.
Maybe the single most tangible example of the growing impact of the Cloud to SAP was when Siemens, one of the big daddies of German industry, choose SuccessFactors rather than SAP for talent and performance management. This single event hugely validated the HR Cloud, both in SAP’s own German heartland and globally.
2. Best of breed outguns ERP for talent
The next most obvious fact underlying all of these market changes is that the historic, ‘grand vision’, of ERP/HRMS providing an end-to-end human capital management platform, is outdated and basically flawed.
OK. Some companies have stuck with their 10-year old view that the HRMS was the answer to all questions HR, learning and talent. That’s what the slide said when they bought it, and that’s what they are sticking with! And having spent so much money on buying, implementing and then upgrading their ERPs, there’s a lot at stake in perpetuating the myth.
Fortunately for most, they’ve realised that this a bad answer.
Best of breed solutions for learning and talent are much better. There are many reasons for this – all of which will still be valid in the brave new world, post-acquisition frenzy in the talent market.
Firstly, despite the end to end story of the core HRMS vendors, the reality was, and largely still is, they are not very good at most of the specific specialist functions under the ‘talent management’ umbrella. Yes, the ERPs have an offering. But, functionally it is weaker and the user experience is often unappealling.
This is not a good combination.
The rate of innovation
The ERPs are also hideously slow to enhance and innovate their products. Whilst SAP, Oracle and PeopleSoft have pushed this integrated HCM vision and have invested hugely in their products, they’ve seriously lagged behind the best of breed vendors in terms of product innovation.
Whilst the ERPs have been struggling to address basic functional gaps and basic process integration, the best of breed players have added complete new areas of functionality and radically transformed the user experience. And all that was true before Cloud became the dominant model.
Cloud magnifies the innovation challenge massively.
Cloud talent vendors deliver quarterly release after quarterly release into a rapidly growing customer base that’s live on the current platform.
ERP talent customers were waiting for their next three year update cycle to come round, driven by the needs of someone else in the organisation and with little ability to get resources to get their stuff improved.
Innovation is locked in concrete. Even worse, if you’re a talent leader, you’re not even the priority customer of the internal ERP project team.
Sorry. ERP talent has been a bad experience for the majority.
3. From silo’d to hybrid to unified
There’s another key reason why best of breed solutions outgun ERP for talent management. That’s the siloed nature of the decision process within customer organisations themselves.
The ERP vendors have talked about integrated human capital management for years, and the talent management vendors now talk about ‘integrated talent management’.
But, the reality in most organisations is that these are far from integrated. They may be a part of an HR function, but underneath the main talent processes are generally still individual silo functions. Each silo has their own team, their own processes, and most importantly, their own systems.
For example, when companies look for a performance management system, the decision makers, in the main, are the team that look after performance management. This team wants a system that reflects their desired processes. One they believe can be configured to meet their needs and deliver success. This is a silo decision.
The same is still largely true for recruitment, for learning and development, for succession management, and for compensation. All of the biggest blocks making up the end to end talent management superstructure. The talent silos prefer systems specific to their needs, and typically they get their way. Best of breed costs them less, and they get better results.
There is nearly always political pressure to adopt the ERP platform in these decisions. This can be paraphrased as: ‘Why are we buying a specialist solution when our strategic HRMS says it does that?’ Sometimes organisations try the ERP talent route first. But, rarely does this deliver good results, for either the talent silo, or for the business as a whole. Hence the winning model has nearly always been to buy best of breed.
Connecting the silos
Maybe this is now changing; not necessarily yet to the fully integrated view of talent management, but at least to some hybrid-silo view.
We call it the ‘hybridisation of talent management’. The entry point is still nearly always a silo initiative. But rather than staying purely in silo, the business pressure to address cross-silo priorities makes buyers more opportunistic. Straight-forward learning systems turn into learning and performance systems. Recruitment systems become recruitment and onboarding. Companies start by procuring one thing, and part way through the buying cycle, it morphs into two things. Hybrids are rarely a function of grand vision; they are a pragmatic evolution of tactical opportunity and operational need.
Will talent hybridisation turn into full blown integrated/unified talent management? Probably, but not definitely.
Organisations are now really starting to take a holistic view of their talent, and the need to manage it from cradle to grave. This really does make sense, as does the business case. The total cost of managing people talent is enormous: from the cost of bringing in new people, the costs of upskilling them and ensuring they are competent, the costs of keeping them motivated and productively working for you not your biggest competitor. The impact of more joined up thinking and more connected processes for talent management inevitably breaks down the historical silos.
But there is also a certain irony in the talent management vendors talking about an integrated end-to-end offering, when they themselves have been competing and winning against the same proposition from the ERP vendors. Ultimately the critical factors will be their ability to continue to deliver:
- Rapid time to value
- High customer satisfaction
- Great user experiences, and
- Continuous innovation
Cloud gives them a massive advantage over their legacy ERP competition, but it’s still hard to do that across a wide range of talent sub-solutions, and to compete against highly entrepreneurial best of breed competitors in each of those sub-solution areas.
The jury is still out on how well the talent vendors will handle this, or whether they are forced to slow down and become more ERP-like.
It is also likely that not everyone will want a unified solution. There will always be scenarios for silo-led specific needs or audiences, and organisations that are too small to take on the overheads of a unified end-to-end process. Overall, whilst silo-thinking is now on the wane, it still is significant. Hybrid approaches are now much more common, and likely to grow in dominance, and we expect the transition to fully unified talent to be slower than the vendors would like.
4. Core HR feels the heat!
Underlying all of the above is another important and (in our view) little discussed factor – glimmers of a shift in the corporate mindset towards the core HRMS itself.
Historically, the Enterprise HRMS market has been dominated by SAP and Oracle (and their acquired PeopleSoft business). Yes, there are many other providers, but SAP and Oracle have maybe controlled 70% of Enterprise HRMS choices.
The overwhelming majority of those implementations were on-premise systems, soaking up large capital investment and large amount of internal resources. This investment was driven by a vision of a single global platform for managing people data and its associated core processes; that included training, and many of the associated processes now coming under the talent management lens.
So what’s changed?
Firstly, the reality is that many Enterprise-class organisations have struggled to deploy these monolithic ERP systems, universally across the business. Whilst the intent for single global deployment is often still present, this problem has proved more intractable (and expensive) than envisaged.
Many organisations still have multiple HRMS platforms, or at least multiple disconnected instances of the HRMS, in different parts of their business. If the reality is challenging, generally the theory of unifying the HR system to create one single master people data source still makes sense.
We’ve also already discussed that the view of HRMS as the end-to-end human capital process including all of talent and learning is flawed. It’s not that it didn’t make sense, rather than that the sub-solutions offered for learning and talent come with too many disadvantages. This means the assumed strategy of the ERP HRMS as an end to end process solution has rather come apart at the seams as organisations chose best of breed platforms for individual talent silo solutions. As we have discussed, they are now even going for silo-hybrid or considering more unified talent solutions not those from their HRMS vendor.
Cost and impact
All of this has shaken the business case for the core HRMS itself. We already knew that some of the core processes (most particularly payroll) used external services in addition to the HRMS.
Is it really justified to be spending many tens of millions on a core HR database if it also doesn’t support the high value, high impact talent processes as well?
We don’t think so, and potentially, it’s the conclusion that some corporates have reached themselves.
The big disadvantage of the ERP model is the pure cost, time and effort to deliver it. In most cases, this is an order of magnitude higher (i.e. at least 10 times higher) than for individual talent solutions.
Given that in reality, an organisation still has to spend additional money on systems or outsourced agencies to run its payroll, and do other basic integrated HR services, that doesn’t look a great investment. This is especially true if the people data, is still inaccurate and lagging behind reality. Couple this with the lack of agility resulting from monolithic systems, and it’s not surprising that a number of braver souls have started to reverse their ERP-driven strategy. Some large companies have started to look for simpler ways of capturing and sharing the underlying HR data record, both with externalised HR processes, and with their talent systems.
Then, of course, there is SaaS-based HRMS. Gartner predicted in 2010 that SaaS Enterprise HR solutions, then still quite embryonic, would take approximately two years to move into an early majority market state. At the time that was quite a bold statement, especially given the dominance of on-premise ERP. But now in 2012, it’s looking a pretty good bet. With suppliers such as Workday (and maybe Ultimate Software) growing rapidly, the corporate duopoly of SAP and Oracle is now potentially under threat. A growing number of global enterprises are now considering a SaaS HRMS as a real option.
We’re particularly seeing this within historic PeopleSoft customers that are now on an outdated and sometimes unsupported platform.
They face some big decisions:
- Do they go through a major upgrade and stay on their PeopleSoft path?
- Do they look at Oracle’s new Fusion HCM offerings? Or do they look elsewhere?
Overall, the Core HRMS itself is starting to feel the heat. In the current business climate, large capital projects are very visible. Whilst reversing the historic ERP strategy for HR is still in the minority, it is now no longer unthinkable, and in our view this trend will only grow.
5. Widening the talent lens
Fifth, and finally, in our analysis, is the realisation that learning and talent is a much wider issue than ‘staff’. Corporate talent is broader than the internal employees typically captured in the HRMS.
Given the changes in business over the past 20 years, with increasing globalisation, outsourcing, offshoring, supply chain rationalisation, contingent workforce, it is amazing that few companies have recognised the important impact this needs to have on the learning and talent lens. The HRMS has largely been oblivious to changes in the organisational value chain; still focusing on the declining percentage of the total workforce/supply chain that is employed as permanent staff.
Not everyone has of course been ignorant of these changes. Many HR functions have started to manage contractors via their HRMS, although often only a limited subset of them. Outside HR, other functions have created parallel systems for managing and training parts of the wider value chain, including Sales teams training partner networks, with risk/compliance teams sometimes enforcing basic mandatory training into the supply chain. In both cases, the focus has primarily been on training – typically upskilling, compliance and certification, rather than the broader view of talent. This is because the parent enterprise doesn’t really have any clear remit, or responsibility, for talent in those organisations, but it does have a sense of ownership for training. This is particularly true in retailing and industries with channel-driven sales and service, or a franchise-based business approach.
The talent value chain
This is not a trivial issue. Many companies have at least as large a ‘non-staff’ audience as they do an internal staff audience. In some cases, non-staff significant out number staff. And that’s before we start thinking about the customers themselves. Parallel investment in externally focused systems has been a tactical necessity, but may be a poor strategic direction – particularly as corporate supply chains become more externalised. This also highlights a lack of strategic understanding within the HR and talent discussion itself. Subsuming the learning and talent discussion purely into HR might make sense at face value, but it doesn’t when you look at the whole value chain, and that has to change.
The impact of broadening the talent lens to be more externally focused challenges many assumptions. This includes not just the scope of the audience, but also the corporate’s relationship with them and its role and responsibility to them. The corporate’s role is likely to include hard (i.e. non-negotiable) requirements – ensuring they are ‘fit’ to provide services on behalf of the company, but also softer ones too such as developmental goals or the corporate and social responsibility agenda (CSR) too.
Being external does, however, simplify some other parts of the systems discussion – namely where does the system need to live. If you want to reach external audiences, hosting the system externally, or using a Cloud deployment model, is a lot easier. That’s where many of those existing externally focused systems are already and they don’t need your IT people to grant them access to your network. Organisations focusing more on their whole audience will only accelerate this trend further, as will the adoption of SaaS/Cloud internally.
Underlying trends – individually and together
Whilst each of these trends has been driving changes in both corporate (demand-side) and vendor (supply-side), it is the combination of them that has been so powerful. Some of the trends, such as the shift to Cloud and the rise of the talent agenda, are totally independent, others may inherently have a cross-causal relationship as new opportunities become possible.
Two of the trends are probably less tangible currently; namely the impact on core HR systems and the externalising of the talent lens. But ultimately they may have the biggest impact overall.
After all, the core HR systems market still dwarfs the talent systems market in size and the total audiences when we think full-value chain would massively increase the scope of the talent systems focus, for nearly all companies. If the latter is true, it also forces the decoupling of talent purely from HR, or changes the scope of HR focus to be the whole value chain rather than just employee base. Both would have massive impact long term both on an organisational and infrastructure level. So having analysed the key trends underlying the market, what is the likely outcome or impact of the individual market changes and acquisitions going to be.
Analysing the key players
The following is an initial high-level assessment from Fosway of some of the notable recent changes in the supply-side of the market. In particular, what is Fosway’s interpretation of the motives and realities behind these acquisitions and the likely impact they will have in the market as a whole.
In this analysis (and the following sections), we’ve tried to comment on each of the main talent-related acquisitions, some of which are very big and received a lot of media and analyst coverage. Others are less significant in overall market terms, but still relevant as both a reflection of our underlying drivers, and also of course, if you are a customer of one of the companies concerned!
Vendors included in this analysis include:
- SAP and SuccessFactors
- Oracle and Taleo
- Kenexa and OutStart
- Lumesse and Edvantage
We’ve also included a view on the implications for some of the other talent vendors, in particular:
- Ultimate Software
- Cornerstone OnDemand
- Saba Software
- SumTotal systems
And finally, some other vendors which could influence the future direction of the market but are less directly involved. This includes:
- The HR outsource companies
Our views might not line up with the views expressed by some of the US analysts, and certainly with the messaging from the companies themselves, but we’re sure this will be a moving target anyway. Time will ultimately tell!
SAP and SuccessFactors
Not by any means the first, but certainly the biggest acquisition of the recent batch, and maybe the one which others are being judged by.
At $3.4 billion, this is the largest of the acquisitions and not a small play. We believe SAP’s motive for acquiring SuccessFactors is as much their desire for a successful SaaS/Cloud model (and the failure of previous attempts!) as it was about the growing importance of the talent management capability as a driver for strategic HR. And ultimately, the success of this acquisition is more likely to be measured based on the former than the latter. (cf. previous comments about Siemens choosing SuccessFactors).
With Lars Dalgaard taking responsibility for SAP’s Cloud offering overall, this will probably lead to a fundamental shift in SAP’s whole Cloud strategy. Early indications are that SAP has shifted all its Cloud-related R&D resources under this division which is the ‘go forward’ unit for all things Cloud. But SAP is a super-tanker, and only time will tell whether SAP is sufficiently committed to the change to shift its overall course. SuccessFactors is a very big power boat zipping around it currently. True success in the Cloud will mean the powerboat pulling the super-tanker, not the other way round. There are lots of vested interests within core SAP and across the SAP ecosystem. That won’t be easy.
SuccessFactors itself had also made a number of significant acquisitions prior to its own acquisition. Not least Plateau and Jambok.
The Plateau acquisition was important as it brought with it, one of the leading Enterprise LMS platforms, significantly strengthening SuccessFactors’ own talent and performance offering with a truly world-class learning offering. Whilst the potential technology combination was very strong, culturally SuccessFactors and Plateau were very different.
Neither of them was like SAP. Keeping a strong independent identity for SuccessFactors is probably critical to keeping its own growth momentum, but this is not necessarily very aligned, or consistent, with driving forward the broader SAP Cloud offering.
Impact for customers
What does this mean to you as a customer?
If you are an SAP shop already, it means you now have some good talent management options available on a Cloud-shaped plate – including very strong performance and learning options. These are already integrated with SAP in many customers, so that’s not an issue, as long as you are happy with the Cloud deployment route.
Is it likely to change your thought processes on core HRMS? Probably not. You may be interested in SAP HR in the Cloud, but this is unlikely to be a real option short term, and depending on Lars Dalgaard’s internal challenges, shifting SAP to the Cloud may not happen at all.
If you are not an SAP customer, the impact of the acquisition may well be to marginalise SuccessFactors as a strong option in the talent space and overall be negative. This is certainly likely if you are an Oracle (or PeopleSoft) customer, but also likely if you are considering Workday, or using Northgate Arinso or Lumesse, or another of the independent HRMS platforms.
On the plus side, SuccessFactors now has as a much bigger pot of money and resources to call upon for investment, as well as larger sales and delivery channels. But it’s also now at least partially tied into SAP, and is likely to expend a lot of its resources integrating with the SAP business. Time will tell whether the acquisition also forces SuccessFactors to recalibrate itself to ERP-time, rather than Cloud-time (a recurring theme). This is particularly relevant for levels of ongoing innovation, time to delivery/value, and the level of professional services required for success.
Oracle and Taleo
Once SAP had acquired SuccessFactors, many believed it would only be a short amount of time before Oracle bought Taleo, and so it turned out. Taleo is a leading Cloud provider of talent management systems with special expertise and a market leading position in recruitment/talent acquisition systems. At $1.9 billion this is another huge acquisition (at least by talent standards), and a major market play by Oracle, expanding both its HCM/talent offering significantly and strengthening its Cloud credibility.
Unlike SAP’s acquisition of SuccessFactors, the addition of Taleo into Oracle’s portfolio of HCM and talent offerings is potentially very complex. Oracle already has multiple HCM product lines including Oracle e-Business and PeopleSoft, as well as its new Fusion applications. The Oracle picture was already pretty confused!
From a Cloud perspective, Oracle is already a major provider of underpinning technologies and heavily committed, both in its applications investment and its infrastructure capability. So similar to SAP and SuccessFactors, the Oracle acquisition of Taleo is about Cloud and about Talent. In Oracle’s case though, maybe it’s as much about talent as Cloud and the key drivers are equally spread across both areas.
Oracle’s challenge in the HCM market has been in delivering real innovation and accelerating time to market. Oracle Fusion has been a massive R&D undertaking, but is many years late in delivering real applications, and only at the beginning of its corporate adoption cycle, with much to prove. Taleo provides the foundation for an alternative attack point, building out from an impressive recruitment market share and a fairly rounded broader talent offering to go at the market from a pure-Cloud perspective.
Whilst Taleo’s talent acquisition solution is a market leader and a no brainer for Oracle, the other components, especially performance, are less clear cut. Whilst Taleo has invested significantly over the past couple of years to create a truly integrated platform, this is still work in progress. A potential outcome of the acquisition is that the focus of product development could now potentially switch towards core integration (e.g. with Fusion) rather than amongst the existing components. Whether this means that investment in learning and performance will suffer, only time will tell. Oracle can easily talk a bullish game, but the reality of its existing HCM suites is a slow march of gradual enhancement, rather than any true picture of innovation at an application level.
Impact for customers
Other analysts have been very positive about Oracle’s ability to integrate the Taleo acquisition and to continue positively forward. We are more sceptical, but are willing to look for positive evidence. Many Taleo customers were also Oracle HR application customers. If so, there is little to lose in terms of technical architecture, and depending on the likelihood of transitioning to Fusion, potentially much to gain. But this will be a long game and customers should tread carefully.
We also expect the broader Taleo suite picture to become more complex. Taleo Learn has real potential (it was after all based on emerging market contender Learn.com) and indications in Oracle’s joint announcements indicate learning is likely to be a ‘green’ system not a ‘red’ one. That’s promising, but Learn.com is not necessarily strong enough to make it the undisputed Oracle preference for learning (unlike the Plateau offering at the heart of SuccessFactors Learning).
A similar picture is probably true for performance too, although this could get messy as multiple competing solutions and architectures vie to be top dog in Oracle’s portfolio. Of course, Oracle is easily big enough to have many competing sub-products within its overall HCM solution set. But, that doesn’t necessarily translate into easy decisions for customers or mean that they will necessarily stay with Oracle as they evaluate their options going forward. We are already seeing evidence of this in the core HR space with many PeopleSoft users now evaluating their options, including strong consideration of Workday as a real alternative to Fusion or staying put on PeopleSoft.
For non-Oracle (HCM) customers, the impact of Taleo may be the mirror image of SAP and SuccessFactors. SAP customers are potentially now less likely to prefer Taleo for talent acquisition, and users of other HR systems are similarly likely to see Taleo in a negative light.
Whether this has much impact short term is hard to say. On balance we expect it won’t, but longer term we expect Oracle’s ownership of Taleo to become a potentially more divisive factor. We also see significant risks for the rate of innovation in the products. Taleo has historically been an aggressive innovator, but there is a potential for Taleo ‘innovation time’ to trend towards ‘Oracle time’ and not the other way round.
Building the full talent suite
As well as the two monster acquisitions, there have also been a spate of similar niche acquisitions by other talent and learning vendors which also merit discussion. Individually their impact may be smaller, but collectively they still strongly reinforce the key trends discussed earlier in the paper, as well as creating challenges for existing customers and market selection processes.
Kenexa and Outstart
Kenexa, the other major competitor to Taleo in the global talent acquisition system market, bought OutStart, a US learning technology company, at the start of 2012. This caused only a small amount of comment, although helped to push up the stock price of a few of their competitors for a while.
Kenexa had already transitioned to become a broader HR and talent management vendor, through other acquisitions, noteably including Salary.com in 2010. In the announcement for the acquisition, OutStart is described as a leading provider of ‘SaaS e-learning solutions and services’. The press release then goes on to focus on OutStart’s expertise in learning management. This is telling, and confirms the goal of acquisition clearly – to broaden out Kenexa’s talent management solutions offering to include learning management.
The trouble is that whilst OutStart did have an LMS, and through its TrainingEdge.com solution was gaining some success in the SaaS LMS market, that wasn’t really OutStart’s core focus or expertise historically. It was in providing learning content management solutions, i.e. LCMS. To HR observers the addition of the extra ‘C’ for content might sound like it is splitting hairs, but we don’t believe it is.
OutStart was one of the main global proponents of high-scale learning content management with its Evolution product, and via its acquisition of Eedo Knowledgeware previously, ForceTen. Whilst there is some overlap in functionality, LCMS tools focus on very different processes and needs than LMS. Unfortunately for OutStart, the LCMS market has been hard work, growing only slowly as companies struggle to recognise and come to grips with their learning content challenge.
Does this impact the reality of what Kenexa have bought?
We believe it does. OutStart had a lot of learning expertise and market knowledge, but it did not have a real or credible platform geared to enterprise LMS. It therefore also lacked the market expertise as well as the product to truly fill this hole in Kenexa’s portfolio. The LCMS offering is strong, but unlikely to fit easily with Kenexa’s broader product set or market focus, so this may not be a strong combination. We shall see.
Lumesse and Edvantage
Much smaller, but along similar lines to other market acquisitions, Lumesse (or Stepstone Solutions as was), acquired Edvantage Group, a private provider of learning management and e-learning solutions based in Norway but operating across Scandanavia, Benelux and the UK.
Edvantage had three main product lines with a SaaS LMS (Learning Gateway), a SaaS e-learning authoring platform (CourseBuilder), as well as a bespoke e-learning content business. Edvantage was also a relatively small organisation by global talent management standards, so the impact for customers is likely to mainly be felt within the Lumesse customer base, or in organisations considering Lumesse talent solutions.
Both Learning Gateway and Coursebuilder should be good additions for Lumesse, which prides itself in its ability to operate locally on a global basis. Both platforms had limited historic exposure in the enterprise market, especially outside Western Europe, and should have real potential if Lumesse can build appropriate expertise and sales opportunities in its other global markets.
Lumesse does have real experience of this, having itself grown rapidly through acquisitions, including MrTed and i-GRasp previously.
If there are question marks, they are about Lumesse’s understanding of the slightly parochial learning market, where it has little exposure currently, and where it has to grow capability in all geographies outside of Scandanavia, the UK and Benelux.
Lumesse also offers two main product strategies for talent management, one focused on its on-premise legacy, and the other at the SaaS. These are based on different origins with differing strengths and weaknesses. Whilst we’re sure Lumesse believes the dual track approach and their entrenched customer base and product variety is a tactical strength, we are concerned it could be a strategic weakness. Transforming both products into a unified talent proposition will be difficult and inefficient.
The overall challenge is to continue to grow enterprise market share whilst building further the enterprise credibility of all of its solutions. Early indications are good, but being good at being ‘globally local’ may not translate as being great when it comes to truly global customer decisions.
Last men standing
So if that’s Fosway’s view of some of the main acquisitions, what about the vendors that are left – who haven’t been bought? What does this mean to them? There are of course many potential organisations we could focus on, but there are a number of principal ones that are worthy of discussion within this analysis.
One of the first questions we asked when we heard about the SuccessFactors and Taleo acquisitions was what does this mean for Workday and its strategy?
Workday is the new baby of Dave Duffield, previously founder of PeopleSoft, and Aneel Bhusri, who sold out to Oracle in 2005. Founded in March 2005, and leveraging their founders’ previous market know-how together with a commitment to Cloud/SaaS-based, Workday has become the lead provider of Cloud-based Enterprise HCM solutions, growing rapidly in the US and internationally. It is now starting to aggressively compete with SAP and Oracle in the Enterprise HCM market, as well as rapidly expanding its mid-market presence.
Currently Workday has focused more on core HRM that it has on talent management, offering partnering or integrating with specialist talent applications where needed. This included Taleo, and the Workday-Taleo combination was something you could have seen developing further – that was until Taleo was bought by Oracle.
Workday’s relationship with SuccessFactors was more problematic. Workday definitely viewed SuccessFactors more as of a competitor than it did as a potential partner. Historically, Workday had had a strong relationship with Plateau for learning. But, all that went out the window when Plateau was bought by SuccessFactors.
Our view is that Workday probably has some difficult decisions to make. Yes, it can continue to tread its current path, and we fully expect it to do so. There is still a huge opportunity and potential within the core HRMS and financials space it currently is focusing upon. So why wouldn’t it? Whilst this position is not tactically threatened by what SAP and Oracle has done, it is strategically. If Workday wants to own the full HCM suite position, it needs to either have strong best of breed talent options to partner with, or it itself has to become an acquirer. An obvious candidate would be Cornerstone OnDemand with its similar commitment to Cloud-only solutions. But with a market value of around $1 billion, this is not a small acquisition, particularly for Workday at its current size. Funding this would require additional investment, and that could cost Duffield and Bhusri their ownership-based control of the company. We have no doubt they could do it, but are unsure whether they would want to.
There are of course other acquisition candidates, including Saba and a number of smaller talent companies. But these could bring a lot of on-premise legacy. Something we think Workday is keen to stay away from. Either way, strategically Workday probably needs to respond as SAP and Oracle have seriously upped their game (in both talent and Cloud) with the acquisitions, and taken out some of Workday’s historic partners.
Little known outside North America, Ultimate is another major player in the Cloud HCM space and potentially another acquirer in the talent management space as well. A public company with a market capitalisation (at date of writing) of around $1.8 billion, Ultimate is large by talent standards, but only mid-sized by enterprise software standards.
In Europe, we have no real visibility of Ultimate, so it’s difficult for us to take a position. We anticipate much of the same argument for Workday could be applied to Ultimate, but maybe the pressures to compete with Oracle and SAP at an Enterprise level are lower, and therefore the impact of the SuccessFactors and Taleo acquisitions competitively could be correspondingly lower. Ultimate has been partnering in the US, e.g. with CERTPOINT Systems for its learning platform. It would not be a surprise to see them make some moves to expand their direct offering via acquisition. We include it this analysis because of that.
Having completed its IPO onto NASDAQ in March 2011, Cornerstone OnDemand is one of the organisations, alongside Saba, which has been subject to a lot of speculation as a potential acquisition target. A pure-play Cloud provider of talent management solutions, Cornerstone has grown rapidly over the past few years, emerging as one of the market leaders in learning management, and then organically growing out into performance, talent, and now in 2012, also into recruitment management.
Whilst currently valued at $1 billion, Cornerstone’s revenues were only around $76 million for 2011. This still makes Cornerstone smaller than Saba and SumTotal Systems, although by organically growing around 60% year on year, it may not take them long to catch up. Cornerstone has also attracted a lot of attention as one of the new kids on the block, and its complete commitment to Cloud/SaaS. Its recent market momentum potentially makes it a strong acquisition target. However, its relatively high price currently, may damper some of that enthusiasm.
The view from Cornerstone, and from the other remaining independent leaders, is that the SuccessFactors and Taleo acquisitions create opportunity for them and reduce competition. We have some sympathy for that view.
We know historically the talent war has been won by the best of breed providers, and is being won by Cloud as the dominant deployment model (see key trends earlier). If the previously discussed impact of SAP/SuccessFactors and Oracle/Taleo acquisitions is to remove at least one major competitor from the jungle depending on which side of the SAP/Oracle divide you were in terms of HRMS. If a customer is using a third-party HRMS, maybe it takes out two competitors? That has to be good for the best of breed independents, doesn’t it?
We feel there is some validity to this view, but it ultimately it also depends on whether SAP and Oracle really interfere with their recent acquisitions and make them subservient to their ERP masters. The less they do this, the less the real impact may be competitively. It also depends on Cornerstone’s (and other similar organisations) ability to continue to drive innovation and customer value. Inevitably this becomes more challenging as the scale and scope of the solutions widens.
In Cornerstone’s case, that means organically, and whilst they have cash in the bank from the IPO, they are only just trending to being cash positive, and costs continue to grow rapidly. If sales slow, the impact may be significant, not least on their market value. That inevitably will make them a much more attractive acquisition target. The big test is likely to be in building the recruitment Cloud solution to a competitive position against well-established competition.
Saba is a company built upon its origins as an Enterprise LMS provider with a long term strategy via a combination of acquisitions and organic development to transition into a more unified HCM/Talent Management offering. Originally heavily on-premise or hosted, Saba has also got Cloud religion, and has repositioned its primary Enterprise offering with a de facto bent to Cloud, whilst still offering on-premise options where necessary.
Bobby Yazdani from Saba has talked publically about the talent market acquisitions as increasing opportunity and distracting competitors. This is probably true, but Saba’s main challenge is still to kick its business into a different gear to be able to match pace with its Cloud competitors as well as continuing to outgun the ERP providers (and their recently acquired offerings). In overall terms, Saba has only grown revenues slowly over the past few years, despite a number of small acquisitions. Whilst its strengths are still in learning, Saba continues to expand its talent portfolio and its new People Cloud strategy may drive new opportunities outside its Enterprise heartland.
Overall, Saba is still a potential major acquisition target. Whilst its stock price has risen considerably on the back of general acquisition interest in the market, at $300 million (at the time of writing) it is still substantially below the value multiples of its pure-Cloud competitors such as Cornerstone OnDemand and that paid for SuccessFactors and Taleo.
To change this, Saba needs to continue to accelerate the change in its revenue profile away from on-premise and high services, and to truly break free from its learning roots and become a lead player in the integrated talent market. But this is likely to mean significantly strengthening its competitive position in either performance or recruitment or both.
Progress is being made, and Saba Cloud is a nice innovation with significant potential targeting the social enterprise model. Saba’s acquisition of Human Concepts also shows real intent to expand its HCM and talent credentials. But for traditional Enterprise customers, real market leadership outside of Saba’s learning heartland does not look likely in the near term.
Originating in the learning market, SumTotal Systems has grown through a series of mergers and acquisitions to span the broader talent and HCM market. Acquired by private equity firm Vista Equity Partners and taken private in 2009, SumTotal has subsequently gone on to acquire Accero (already party of Vista), Softscape, Cybershift and Geolearning.
Undoubtedly, all these acquisitions have reshaped the business and grown customer numbers and revenues, as well as expanding the scope and number of underlying product offerings. But despite this, SumTotal’s overall market profile in Europe seems to have decreased rather increased, with frequent organisational and people changes negatively impacting both market presence and customer continuity.
With a new team in place at the start of 2012, SumTotal is aggressively focusing on addressing these issues and on raising customer satisfaction. A new ‘improved customer experience’ team and additional headcount should help significantly.
In the meantime though, some of its Enterprise customers in EMEA have chosen to reconsider their options, particularly in the LMS space. SumTotal’s response to this has been fairly passive, and some customers continue to look for alternative solutions. This is slightly puzzling, as on face value, SumTotal remains committed to its core LMS business, and continues to invest heavily.
Another key factor for SumTotal is Accenture. A long time SumTotal partner and investor, Accenture has been an important source of Enterprise LMS business for SumTotal, and built its Managed Learning Service offering around the SumTotal LMS platform. But Accenture has also diversified its offering to include other platforms, notably Saba. This change may have a further negative impact on SumTotal customer retention, although ironically it could also lead to greater direct customer influence for SumTotal itself, and better customer satisfaction as a consequence.
Is SumTotal a target for acquisition itself? This is difficult to tell. Possibly, but its private equity backers currently seem to be more focused on being the acquirer rather than the acquired. With a diverse portfolio of solutions, and lots of on-premise legacy, we feel SumTotal is less likely to be a major target at this stage. But who knows. It certainly has some of the component parts that others may find attractive.
Jokers in the pack
There are of course many other companies that could be discussed and mentioned in the above analysis. Most of the LMS companies have shifted to engage in the talent management space, and acquisitions are also happening within the sub-Enterprise providers as well. These changes tend to reflect what is happening in the main market leaders, and in general, these companies are not large enough to acquire a market leader or fundamentally change the game in play. There are however a couple of potential exceptions, what we might call ‘jokers in the pack’; vendors that could make acquisitions and have a big competitive impact.
The poster child for Cloud business applications, SalesForce.com has established itself as a major player overall in the business applications market, both via its core CRM business and via the applications ecosystem running on its Force.com platform-as-a-service infrastructure. With a market capitalisation of $18.8 billion (at time of writing) and estimated sales this year of over $2.2 billion, SalesForce.com is much larger than its HCM equivalents. It clearly has the financial muscle, business applications understanding, and technical infrastructure underpinnings to be a big player in HCM, if it chose too. The question is, whether it would?
In December 2011, SalesForce.com acquired Rypple, a Cloud-based social performance management company, and announced the formation of a new HCM business unit, SuccessForce, headed up by John Wookey. Whilst it is dangerous to read too much into SalesForce’s long term plans, or potential impact based on one acquisition, the formation of SuccessForce could clearly indicate intent. But to make a real play as an enterprise HCM provider, SalesForce will need a lot more than social performance – not least a core HCM platform, and other parts of the talent management portfolio.
Its current partnership with Workday could provide the source for part of this, but having Workday as an ISV building on Force.com is not the same as SuccessForce becoming a major HCM player directly. To take the lead it would need to probably acquire. Workday would be a good candidate, as could Cornerstone OnDemand. SalesForce.com has the size to consider doing this, but whether its aspiration is large enough to actually do it is another matter. It’s an interesting idea though, and one that would have at least as big an impact as the recent acquisitions of SuccessFactors and Taleo.
In reality though, their strategy towards HCM is difficult to read. They are currently focused on ‘social enterprise’ rather than traditional HCM. And whilst Rypple was originally to be re-branded as SuccessForce, this name already appears to be dead in the water, with the SalesForce Rypple label staying.
Overall, SalesForce clearly has the muscle, funding and probably the intent to make a major play into the HCM and Talent market. Given the size of the market opportunity, and the fact that SAP and Oracle are now aggressively pushing into Cloud solutions, it may be only time before SalesForce believes a bigger play in HCM is critical to its long term strategy. Our view is this is likely. But until then, it’s still a bit of a wild card.
HRO’s and HR service integrators
Another interesting potential game changer could be a greater intervention driven by the ‘service’ rather than ‘software’ part of the market. The most obvious route for this is via the HR/payroll outsourcing and service providers. Specific examples include ADP, Ceridian and NorthgateArinso. All offer a core HR platform and related service options, but have been weaker when it comes to learning and talent.
ADP’s Vantage Cloud HCM suite is explicitly targeting the end to end service opportunity and its partnership with Cornerstone OnDemand (which has just been renewed for a further five years) provides a strong talent dimension.
Ceridian’s platform options have probably been historically weaker, but its acquisition of Dayforce and its workforce management solution shows the potential for service providers to become a key axis in the changes in the software market too.
NorthgateArinso seems currently to still be pushing services more than platforms, although its euHReka Inclusion Framework announced in 2011 shows intent about building a broader learning and talent ecosystem.
Whilst there are no clear answers yet, this is another area to watch in the future.
We started out this paper with the intention of analysing the impacts and the motives behind these major acquisitions in the talent management market place. The challenge for corporate observers is to be able to strip apart the layers of the acquisition stories so they can understand the underlying drivers. In this analysis we focused on the five underlying trends or business drivers behind the acquisitions.
- The emerging dominance of Cloud and SaaS in business applications, particularly for talent and learning
- The success of best of breed learning and talent solutions in winning in corporate decisions against their ERP equivalents
- The silo’d nature of talent management in companies, and the shift to hybrid solutions and potentially longer term to unified solutions suites
- The significant ‘cost to impact’ advantage of talent systems over core HRMS; and the questions this is starting to raise in terms of core HRMS strategy and implementation
- The positive impact of widening the talent lens away from purely being on staff towards the full people value chain, including channels, partners and supply chain
The impact of the Cloud and best of breed decisions are tangible already, and hugely significant in terms of the motives of both SAP and Oracle in their recent acquisitions. The silo’ed nature of talent management is in-built to the assumptions of the talent vendors themselves; all have positioned themselves for a unified talent market, although the corporate reality is at best hybrid and often still silo’d currently.
The last two, related to cost and an extended view of what we mean by corporate talent, are more subtle and less evident currently. But ultimately these could turn out to be the most significant of all as they multiply the size of the opportunity for enterprise performance significantly.
After all, the core HRMS market is still significantly larger than the aggregated systems market, and the potential audience and impact of talent across the whole value chain is much, much larger than internal staff in the internal HR system.
Oracle and SAP
The impact of these trends on the main talent and HCM vendors going forward is really interesting, and whilst at face value, their motives are similar, reality is more complex.
Both SAP and Oracle seem to be as motivated by getting serious about Cloud, as they are about winning in Talent Management.
SAP’s situation is definitely simpler, and ultimately will be measured in terms of their total Cloud success. SuccessFactors has less direct competition within the SAP HCM suite, and as such, has quickly become the driver and focus for all SAP’s Cloud investment.
Continuing that strategy, and keeping Lars Dalgaard fully engaged will be critical, as will continuing to combat the internal vested interests that will inevitably resist change!
Oracle is definitely more complex, and the water is already muddier than SAP. Oracle already has multiple competing solutions in its HCM bucket, and has spent a vast fortune on developing Fusion as a potential successor. The portfolio is crowded already, and whilst Taleo is the hands-down winner in recruitment systems, and potentially learning, the rest is more up for grabs.
Both the acquired companies will though face some common underlying problems. Being part of a bigger company with deeper pockets doesn’t necessarily mean you get your hands on more of the cash!
There’s a lot of competition for it also, and you’re competing against core vested interests which ground you down and absorb lots of management bandwidth, let alone developer effort to work on integration.
Also the pace of innovation in the big ERP companies is positively glacial. It will be a huge challenge to maintain the roadmap and run-rate of a Cloud company, as they get dragged back from Cloud-time to ERP-time.
The biggest challenge for the ERP vendors is likely to be to retain the vision, leadership and talent that made Taleo and SuccessFactors so attractive to buy in the first place.
Impact on customers
But the really critical measure of success for all these acquisitions is the impact they will have on their customers and on Talent systems selection decisions.
For talent customers that have landed on the right side of the HRMS fence, i.e. SuccessFactors customers who have SAP, and Taleo customers that have Oracle/PeopleSoft, the immediate impact is likely to be negligible in the short term. Longer term, it depends on how successful the parent companies are in their strategy of leveraging the assets brought by the acquisitions. For customers on the wrong side of the fence, there is likely to be greater concern. This may start to impact their decisions about renewal or regarding preferred hybrid platforms much sooner. Strategically it is likely to be a much bigger deal. But it maybe not decisive, unless the ERPs start actively interfering with and damaging their acquisitions best of breed credentials.
Best of the rest
For customers of third party HRMS, and for companies making independent best of breed decisions, the acquisitions could easily result in negative factors for both the acquired companies, and increasing opportunity for the remaining independents such as Workday, Lumesse, Kenexa, Cornerstone OnDemand, Saba, SumTotal etc. Workday has some interesting choices to make. The loss of Taleo as a partner is very significant. SuccessFactors less so, as in reality it was considered more of a competitor. Workday can and probably should stick to its current strategy, continuing to focus on winning the HRMS war. It has made great strides over the past 12-24 months and is unlikely to want to get distracted. But the game has changed, and so has the threat from Oracle and SAP going forward. It may be difficult to resist responding positively, but anything more major, such as acquiring Cornerstone OnDemand, is likely to be financially challenging and could be politically impossible for the respective owners to want to pursue. The potential wildcard in the deck could be SalesForce.com, but currently its intentions are unclear. Certainly the acquisition of Rypple was an interesting opening gambit, but we think SalesForce is more interested in Social Enterprise than it is in HCM, at least for the moment.
In the end…
Ultimately, time will tell which of these factors emerges as the most important, and whether the ERPs are able to tame their internal vested interests and let their new acquisitions truly maximise their potential.
But to paraphrase one of our analysts as they reflected on one ERP briefing session:
‘Watching the ERP vendors talk about their talent acquisitions feels a bit like watching the Borg on an episode of Star Trek – There’s an underlying sense that “You will be assimilated!” A lot of the things that made the acquired company dynamic and exciting could easily be lost in the pursuit of an integrated collective.’
We will be watching – closely!
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