Last week, I was part of a panel at Cornerstone’s Convergence customer conference. Bill Kutik, the moderator of the panel, tossed out the first question to me. It is a good question – a question that is on everyone’s mind today – and, as you can imagine, I had a lot to say.

The question was:   “What impact has the economy had on the talent management and general HR technology market? Are companies buying new solutions or just adding on to what they already have?

Unfortunately, I only had less than three minutes to respond and could not share everything I felt was needed to understand the current state of affairs.  So here is the more comprehensive response.

The need to support strategic HR processes and address talent challenges did not suddenly go away because of the recession. If anything, talent management initiatives and the enabling technologies are absolutely mission-critical in helping organizations stay solvent during the downturn and prepared for the upswing.

Let me give you two examples.

• Oil and gas giant Chevron is proactively working on talent management initiatives to support its commitment to conservation through clean and renewable energy solutions. As such, the company is identifying and cultivating talent pools with new capability profiles and targeted development plans.
• And not far down the road in San Jose, Cisco, a leading high-technology company, is preparing its leaders to lead in an expanded business model – one that offers both hardware and software solutions in the new collaborative business world.

Both organizations are taking this time to change and increase the quality of their existing talent pools in the context of this “new economy.”

At a more tactical level, talent management systems are being used to help companies make decisions for a reduction in force. Information contained in the comprehensive employee profiles (a key attribute of a “true” talent management system) has the potential to help business leaders plan out different scenarios in order to make calculated and legally defensible layoff decisions. By “calculated” we mean not letting go any top performers and named successors. Alternatively, business leaders can target the employees who consistently perform below expectations. In addition, business leaders can view related information, such as who is eligible for retirement and total worker spend.

As far as the market for talent management systems is concerned, interest has not waned and many organizations are still actively shopping. In fact, most of the leading vendors on the market report a very healthy pipeline of prospective customers. The problem is that most deals have slowed down substantially due to spending freezes and postponed (but not canceled) initiatives. As our founder and CEO Josh Bersin pointed out in his recent blog posting, in Q1’2009, the market for performance/career/succession management systems only grew by 5.5%, down from our prediction of 26% growth.

Part of the slowdown is caused by the organizations having to retrench and build detailed business cases to cost-justify purchasing and implementing new technology, particularly when they already have a solution in place. We encourage and help organizations to build a business case that not only focuses on savings gained through automation and consolidation, but one that also addresses the value to be created for the organization.

Organizations are also asking more questions regarding vendor viability – and justifiably so. In the downturn, we see strong vendors outpace market growth rates, continue to make investments and push out innovative product enhancements. By contrast, vendors with questionable viability are laying off a significant percentage of their workforces and have slowed product development efforts.  Rest assured we will see more consolidation in the market, perhaps even sooner due to the recession.  (In a blog posting here, I offered some sample questions for organizations to ask regarding solution provider viability.)

We believe that now is the time for both organizations and talent management system providers to position themselves well to lead once the economy eventually recovers.