The talent management systems market has been under quite a bit of stress lately.
In the last 90 days we have seen SAP's acquisition of SuccessFactors, followed by Oracle's acquisition of Taleo, and then the smaller Kenexa acquisition of Outstart and PeopleFluent acquisition of Strategia.
And while all this is going on, CornerstoneOnDemand announced a strong end to 2011 (revenues up to $75.5 Million up 62%), SumTotal announced 90% revenue growth, Saba's stock is up 21% this month, and LinkedIn announced that its revenues in the recruiting market have now eclipsed that of Taleo (136% YTY growth).
What's going on?
We are seeing three big trends play out here.
1. Buyers of talent management systems want integrated talent platforms (and data).
Our research last year showed that more than 1/3 of all HR systems buyers are willing to give up functional features for the benefits of buying an integrated platform. They want this because the big benefits of these systems are 'BigData' - integrated data about people. Without an integrated platform it is nearly impossible to identify patterns of high-performance, high-potential, and workforce gaps and risks.
So nearly all the remaining talent management vendors are building or buying products to fill in their end-to-end solutions. Vendors with fully integrated solutions are growing (SuccessFactors, Taleo, CornerstoneOnDemand, PeopleFluent, Silkroad, Halogen Software, SumTotal Systems) and the big ERP vendors (SAP and Oracle) want in.
LinkedIn has disrupted the market leveraging its tremendously powerful database to sell integrated data-centric solutions for sourcing and recruiting. This is a disruptive move and is actually proving that BigData business models are becoming just as powerful (maybe more powerful) than cloud computing software. So just as companies want integrated platforms to understand their own employee data, they want integrated data from the outside world as well.
2. The merger between ERP and Talent Management is now coming.
SAP and Oracle are getting tired of being left out of the cloud computing market (and the talent management market), and each company acquired the talent and market share it needs to compete. In the coming weeks we will produce more research detailing each company's strategies, but already we know that both companies plan to build an integrated system which incorporates best-of-breed talent management with core HR and payroll.
This is not a new idea at all (PeopleSoft tried it 10 years ago), and it's not as easy as it looks. But now that Oracle and SAP have tipped their hands, all major buyers are going to ask themselves "should I buy a talent management system from a vendor other than my ERP/Payroll provider or not?" Only time will tell how well Oracle and SAP execute here (and Workday is nipping at their heels), but today the market is shifting: talent management as a seperate software category is slowly starting to go away. Even ADP has now announced its own end-to-end talent management system coupled with its payroll and HRMS: Vantage HCM. (SilkRoad and SumTotal now offers an integrated HRMS as well.)
Again, there is good reason for this. Customers would like to have a single people management "system of record" - so large companies (those who tend to run their own payroll) are looking for more tightly integrated single vendor solutions. In the past of course both Oracle and SAP were far too busy with other things to really put the innovation muscle they needed into talent management. Now that the market is well established, SAP and Oracle have decided to manage SuccessFactors and Taleo as "growth businesses," and we hope they will succeed in creating integrated solutions (more on this to come later).
3. The key to success will be "integration" of systems, not only organically built software.
The third thing we now see is that nearly all talent management vendors (with the exception of Cornerstone and Halogen) are now made up of acquired companies. The reason for this is simply one of economics: it is nearly impossible to innovate in all areas of talent management fast enough to stay ahead. So rather than build a product set which is "barely good enough," most vendors buy a best-of-breed software company and integrate it with the rest of their suite (acquiring specialized skills in the process).
There have been dozens of these acquisitions (Taleo's acquisition of Learn.com and Worldwide Compensation, Saba's acquisition of Centra and Thinq, SumTotal's acquisition of Cybershift, GeoLearning, and others), And as much as a software purist hates to see this happen (different data models, different user interfaces, different technology stacks, different engineering teams), this is the way enterprise software evolves. Customers want more and more integrated solutions - and they would prefer the vendors to do the integration.
This week Taleo is launching Taleo 12A, which is a new release which fully integrates Taleo Performance (a very innovative, organically developed product) with Taleo Learn (the Learn.com product acquired 18 months ago). This integration is quite elegant and powerful - and it is impossible for anyone to see that these were originally two different products. SumTotal, PeopleFluent, and Saba have demonstrated similarly seamless integrations in their new releases. (View the demo if you want to see what integration looks like.)
What this tells me is that we can no longer expect Talent Management vendors to be 100% organically built. Workday, one of the most modern and technologically advanced ERP providers, developed a highly architected integration system to enable the company to integrate well with LMS providers and recruiting firms (and many others). Even Salesforce.com (one of the most "platform oriented" companies in the cloud market) just acquired Rypple.
A New World: Innovation and Integration
So we have entered a new world. One where innovation continues, but "integration" now starts to define the players. How well will Taleo and SuccessFactors continue to integrate their offerings with their new ERP parents? How well will the rest of the vendors integrate their products with each other?
If you are a buyer, this market has now reached the stage where some of your most difficult problems will be solved. Rather than selling you "HR Catnip" (features which make you want to pant with desire), you can now find vendors that truly sell (and are trying to improve) their end-to-end integration, so you can provide your employees with a single integrated system and look at all the data about your employees in one single place. We aren't there yet, but the world is improving rapidly.
Lots of change going on in this market. If you really want to learn more, come to our upcoming research conference, IMPACT 2012: The Business of Talent. We will have a number of sessions talking about this market, including two sessions focused on BigData in HR.
The world of talent management software will continue to grow and evolve - but big changes are occurring, and the word "integration" is coming across loud and clear.
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Wednesday, February 22, 2012 08:59
Josh, it's probably worth qualifying that Sumtotal's growth is nearly based on adding acquired, disparate companies. Saba's stock run up is based purely on acquisition speculation. Both companies barely have any organic growth while Cornerstone has been growing organically over 60%.
Posted by Anonymous
Wednesday, February 22, 2012 18:58
I think it's safe to assume from which direction the above comment originates....
Wednesday, February 22, 2012 20:50
Also, "organically grown" matters more to Cornerstone than it does to it's customers. Cornerstone needs to move on to another talking point.
Wednesday, February 22, 2012 23:01
Agree. I used to be a believer in organic only vs. acquire. Being at Taleo, we would acquire and migrate the customers to our platform for overlapping solutions, which made sense. But when that acquisition was outside our core product suite and was added to complete the talent solution, we did not rewrite and migrate...and customers were just FINE with that. They just liked the systems to be integrated and the data to be shared for reporting and analytic purposes. Also...why does Cornerstone hire a VP of Corporate Development and say that role is to aid in M&A if they never plan to go down that path...
Thursday, February 23, 2012 00:01
I think it is clear that there is consolidation of "1.0" SaaS applications in HR. But, no one should kid themselves and believe that this is the end of innovation history in recruiting, learning and performance management, etc. New innovation in all areas is coming - and the big players will not be able to compete nor keep up. And, standards for integrating applications in the cloud will only improve...so, expect a report from Bersin tomorrow, perhaps in two years, that argues the emergence of highly-focused, and "integrate-able" best-of-breed applications may take over the slow, and lumbering sweets of yesterday.
Thursday, February 23, 2012 22:55
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Emerging Trends in the LMS and Talent Management (2012 Learn@Work Week) | Learning Lately
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Josh Bersin writes on the ever-changing landscape of business-driven learning, HR and talent management.
His favorite topics include strategic talent management, creating high-impact learning organizations,
and how organizations drive business change and competitive advantage through talent strategy and technology.
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