In early May I attended the CornerstoneOnDemand (CSOD) customer conference and this year the company introduced several important new offerings.
As an introduction, CornerstoneOnDemand is one of the few independent, publicly traded talent management software companies in the marketplace. The company competes with dozens of other talent software companies (Saba, Skillsoft, iCims, PeopleFluent, JobVite, Halogen Software, Lumesse) as well as ERP and payroll providers like Oracle, SAP-SuccessFactors, IBM, Ceridian, ADP, Ultimate Software and Workday.
The talent management market has matured and expanded rapidly over the last 12 years and is now well over $4 billion in size. Many of the pioneering smaller companies have been acquired and there is a large new wave of startups now building tools for agile performance management, social learning and video learning management, feedback and pulse surveys, and recognition management. Each of these segments has dozens of players but the core segments (learning management, performance and succession management, recruiting, compensation management, and analytics) are typically the most widely purchased and are considered core to a talent management suite.
Cornerstone’s strategy has been to build its products organically, and with the exception of the purchase of Evolv (an advanced analytics company) and Sonar 6 (a small business solution), the company has built all its application modules internally. This has somewhat slowed Cornerstone’s innovation but generally helped the company because its “Unified Talent Management” platform uses an integrated data model, is all based on a single technology stack, and is easy to use and extend. This strategy has enabled Cornerstone to launch its new open platform (PAAS or Platform as a Service) called Cornerstone Edge which I will discuss below.
Fig 1: History of Acquisitions in Talent Management
I have worked with CSOD since its inception and the company has been very successful over the years, booking $74 Million of revenue last quarter (up 29% YTY) and an expected revenue of around $350 Million this calendar year (according to Adam Miller, CEO). The company now has strong global operations (customers in 191 countries) with more than 2,200 clients and a revenue retention rate around 95%.
I believe one of Cornerstone’s keys to success is its culture: most of the original management team is still in place, the employees are very passionate and committed to their customers.
Today most of Cornerstone’s customers use the platform for learning management (85% or so), performance management (~65%), and lesser for compensation (20%) and recruiting (15%). So while the company positions itself as end-to-end talent management, its core is still learning, which the company uses as a lever to win new accounts. Every year the company increases its cross-sell and this year the average customer buys 2.5 modules, so this is working. The new products (Cornerstone Insights and Cornerstone Edge) will add more products to the portfolio.
Interestingly, Cornerstone is now selling an expanded offering that lets customers put their core HR system of record data into the platform, similar to an HRMS. While the company clearly is not trying to compete in the HRMS market, several of the clients at the conference talked about how they were expanding their use of Cornerstone to be their core employee hub for core employee data, bringing together different payroll systems in different countries (Luis Vitton, for example, described this scenario at the conference.)
Momentum Continues and New Products Show Potential
At the conference the company introduced two important new offerings that help set the stage for the HR software market.
First, CSOD unveiled Cornerstone Insights, the company’s flagship analytics product based on the technology and team acquired from Evolv last year. Because of its roots from Evolv, CSOD Insights is a proven people analytics product. It is based on Big Data machine learning technology and the algorithms and recommendations have been proven in production in many large accounts.
The HR analytics market is white hot. Interestingly, at the same time ADP announced its ADP Datacloud, an offering which gives companies access to tens of millions of other company’s anonymous HR data for benchmarking and business intelligence. Workday just upgraded its Workday Big Data Analytics product and both SuccessFactors-SAP, Oracle, Saba, and IBM are doing the same.
The initial version of Cornerstone Insights is designed to help companies immediately predict who is most likely to undergo compliance violations, which is a huge topic in the financial services and life sciences industry. It can predict who, why, and even when someone is likely to fall out of compliance – and it uses a variety of interesting factors.
Fig 2: Cornerstone Insights
The next version will include Cornerstone Selection Analytics, which is based on Evolv’s core product to help select the right candidate. Every company can benefit from this product, which is based on Evolv’s primary offering which includes pre-hire assessment as well as detailed analytics of candidate fit based on dozens of data points.
The second major announcement was Cornerstone Edge, the company’s new “platform as a service” (PAAS) offering. (This is a first for a talent management vendor.) For non-techies: this is an important new offering. Cornerstone now has a set of programming tools which let companies build their own applications, forms, workflows, and data tools on the Cornerstone platform. You can create, for example, a tool that lets employees submit requests for time-off and check their vacation balance. There are hundreds of similar “addons” people want to build on their core employee platforms, and now with CSOD companies can leverage the data they have in Cornerstone and build these applications themselves.
Fig 3: Cornerstone Edge
Not only does Cornerstone Edge give customers an opportunity to expand and extend the Cornerstone platform, this also makes the company’s products more “sticky” and hard to replace. Just as Salesforce.com has extended its platform for years (using a model they call Force.com) and hundreds of companies have built ecosystem applications on Salesforce, Cornerstone hopes customers and integrators to build ecosystem apps on Edge as well. While the toolset is limited in some ways, it appears to offer many flexible options (including one step publishing to mobile devices) so customers are likely to start extending the system in many interesting ways.
Competition Remains Fierce
The talent management software market is very large (well over 400 million seats available around the world) and the markets for small business, mid-sized companies, and large companies are all different. Zenefits, for example, which focuses on small businesses, is growing at more than twice the rate of Cornerstone, and has a market cap more than twice that of CSOD. CSOD’s average customer size is over 8,000 employees so the company plays in the mid to large enterprise segment, where it competes with a small number of enterprise players.
For years analysts have wondered if Oracle, SAP, IBM, and Workday would “take over” the talent software market and force companies like Cornerstone to move down market. Despite the popularity of these aggressive companies, this has yet to happen. The reason is that talent management software is very complicated, it demands a rigorous focus on sales and marketing, and the feature set is expanding rapidly. Only companies that can manage their engineering, sales, and marketing teams well are winning. I can cite dozens of companies that had great products in this market for a while, only to fall behind because they lost the sales or marketing war or their product did not keep up.
Cornerstone has overcome all these challenges and continues to progress on product, sales, marketing, and customer service. While the competitors are also doing well (SuccessFactors stated they have sold more than $1 Billion of products in the last year), and Oracle claims to be #1 in market share (measured by the number of companies running Taleo and Peoplesoft, two of its legacy brands), Cornerstone is still growing at nearly 30% per year and our research shows that Cornerstone is clearly in the top 3 companies in LMS market share.
I had the opportunity to speak with Adam Miller the CEO on stage during the user conference and he challenged me to explain my article “Is People Management replacing Talent Management?” which I published several months ago. What I explained was something profound in this market: while every major business does need talent management software and the market continues to expand as software products mature, today’s focus has shifted from “automation and integration” toward features that don’t only help HR administer its processes, but features that help employees do their work better.
Our research (Deloitte Human Capital Trends 2015) shows that the talent issues surveyed companies face today are those of engagement, retention, culture, leadership, and management. Talent management software can be a tool to address these challenges, although not necessarily a solution. Cornerstone, whose tagline for years has been “Empowering People,” is starting to evolve and think about how they can help their customers address these issues.
It turns out that video and collaborative learning, agile and easy performance reviews, mobile and simple employee collaboration, and analytics-based recruiting and career management are all hot topics among HR buyers. And these are areas where Cornerstone focuses. So while the market has shifted away from “integration” toward “optimization” of talent practices, Cornerstone has shifted as well – so I believe the company is effectively moving to where the puck is going.
All enterprise software companies have challenges and face competition from new cloud vendors. In the case of Cornerstone, I believe the company continues to be well positioned and will likely continue to grow as it has over the last 15 years . These new products show continued investment in products and offerings that should continue to drive the company’s growth going forward.
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