HR Technology Conference 2006
Reflections on the 2006 HR Technology Conference
We recently attended the HR Technology trade show in Chicago. This conference is the only event purely focused on the selection and implementation of HR technology (primarily software systems). This year’s three-day event, held in Chicago in early October, drew more than 1,500 attendees and more than 220 exhibitors. Vendors displayed a wide range of solutions for payroll, performance management, assessment, applicant tracking and recruitment, compensation, learning management, and talent management.
We were stunned by the growth in HR-related tools and software. Following are some of our observations:
- Talent Management has become the buzzword of the day. Almost all recruiting and performance management vendors now position themselves as talent management software providers. The definition of “talent management” is becoming fuzzier every day. Today it appears to encompass almost every major task an HR organization must undertake. We believe it is better defined as software that integrate and empower HRD functions. We are in the middle of a major research project to help define this market in a very business-centric way.
- Talent Management suites appear to be everywhere.. Every major software provider now claims to have a talent management suite, making it even harder for buyers. Despite this hype, most providers focus heavily on one or two major areas of HR automation: assessment, payroll, HRMS, performance management, candidate assessment, applicant tracking, learning management, compensation management, benefits administration or outsourcing services. This usually comes from their roots. Vurv, for example, which positions itself as an integrated talent management provider, started in recruiting (Recruitmax). CornerstoneOnDemand, KnowledgePlanet, Plateau, and Saba, for example, all have their core in Learning Management. We will be publishing our research on integrated talent management in 2007. Unlike other analysts, we do not believe the market will “consolidate” any time soon.
- Performance management is the hottest new application area. If there was one application area which nearly every vendor is marketing it is Performance Management. As we have described in Performance Management 2006, performance management is a core business process which forms the basis of compensation, leadership development, learning & development, succession planning, and functional skills gap analysis. Nearly half the companies we talk with in our advisory services are focused on implementing, improving, or revamping their enterprise-wide performance management processes.
- The overall HR software market remains very fragmented. The HR systems market is as fragmented as the training market. Of the conference’s technology exhibitors, we estimate only 10% have revenues of $30 million or more. Most providers are creative, innovative companies which have found a way to automate some of the painful and meticulous data-driven processes of HR. The LMS market, which for years was a standalone business driven primarily by training departments, has now become very well integrated into the rest of HR software, as we describe in the shootout below.
- The HR systems market will continue to be fragmented for some time to come. While we do see convergence starting to take place in LMS, performance management, and other forms of talent management, the market will remain fragmented for years to come. For example, one vendor highlighted at the show delivers compliance training related to e-mail standards and corporate etiquette. Given the high level of regulatory focus on corporate governance and confidentiality today, we are sure this company will do well over the next years. Such small and specialized HR market niches will evolve as business demands change.
- Oracle and SAP’s role is still limited. Despite tremendous investment in integrated talent management, SAP and Oracle/Peoplesoft have not been able to establish a dominant position in any major markets outside of the core HRMS. More on these vendors below.
One of the biggest trends in HR software is the convergence of performance management, staffing, competency management, and learning management software. HR managers are looking for a single application which can be used for these core processes and provides consistent and up-to-date information on the performance, skills, compensation, competencies, career plans, and potential of their employees. (For more information and our definition of talent management, please read our Talent Management: What is it? article.)
When Bill Kutik, the show chairman, asked the audience members what they were going to buy in the next year, fully 20% stated they would be interested in acquiring a talent management suite. I would venture to say that many of these organizations are not totally sure what they would do with such a system, but the potential benefits are obvious:
- Provide employees self-service for performance and career planning: Employees would have a single place to go for goals, development plans, training, career planning, and assessment. Such a system would go a long way toward giving the new generation of workers the ability to self-actualize their careers and plan their future. These workers (unlike the baby-boomers) are far less interested in the company’s long term plans than in plotting their own future using their own creative, self-development approach. Organizations that provide such job and career planning tools know that they gain much higher performance, engagement, and loyalty from their employees.
- Simplify and align management processes: Managers would have a place to simplify and automate the processes for goal setting, performance management, development planning, coaching, and evaluation of employees. Today, with spans of control broadening (one company told us that their plant managers have up to 100 direct reports), most managers barely have time to do annual performance plans with employees. Talent management systems would give managers a tremendous productivity boost and force them to follow a complete and consistent process for employee management.
- Delivering Strategic information for HR: HR managers would have access to a trove of valuable information, such as performance ratings, skills and competencies, career goals, and even succession plans (if managers are trained to perform this process). A global manufacturer of high technology products invested six years in the implementation and adoption of an integrated learning and performance management process. It has seen tremendous increases in engagement, leadership development, and alignment; fully 95% of all employees have goals and performance plans which align with the top executives’ goals and objectives.
- Deliver strategic guidance for Learning & Development: Training and development managers could work more strategically. They would be able to see where critical skills gaps exist and align training investments and programs to fit perfectly with corporate goals, development plans, and specific talent demands. For more information on the convergence between Learning Management and Performance Management, please read our research on the Convergence between Learning and Performance Management.
- Simplify the world for HRIT professionals: HRIT managers would be the happiest. With such an integrated system, there would be no HR data warehouses. Data would consistently flow between applications and the ERP system, and the complex tapestry of software systems would be greatly simplified. Managers could easily generate reports for compensation planning, succession planning, and other strategic talent applications — without asking IT to integrate a tapestry of new and legacy systems.
Are these suites ready for everyone? Not yet. Our research and discussions with organizations illustrates that most companies are still focusing on defining their talent management strategies and processes. They tend to focus on one area at a time. Until your strategy and processes are defined, you will have a very hard time identifying and selecting the right platform.
We urge organizations to do two things: first, align the business priorities for your talent management initiative (make sure you know what problems you want to solve); second, develop a plan, working with the lines of business, to define the process. From there you can select a platform. (Please join us at our “Implementing Successful Performance and Talent Management” workshops if you would like to learn more.)
The LMS-Performance Management Shootout
Bersin & Associates was selected to define a series of integrated scenarios to be used for a shootout of learning and performance management systems. We developed the script to specifically highlight integration and feature strengths in the areas of performance management, development planning, and training.
More than 200 people squeezed into the room to watch CornerstoneOnDemand, KnowledgePlanet, Plateau, and Saba (each primarily LMS vendors) demonstrate their integrated solutions. Because the LMS market is so much more complex than the performance management systems market, LMS vendors have had a head start on integrating learning and performance management technologies. Over time, we expect other vendors from other categories to enter this market through development or acquisition of LMS products.
Each of the four vendors showed a powerful, integrated solution that would work for most organizations. While most demonstrations showed work in process, the shootout demonstrated that integrated learning and performance management is a reality today. However, there’s certainly more work to be done. The best practice workflow to integrate performance management, development planning, career planning, and learning management is yet to be invented.
By the way, Plateau won the shootout. CEO Paul Sparta’s presentation and demonstration showed the highest level of integration and most graphically appealing interface.
Oracle and SAP
While Oracle and SAP both had large booths at the show, most buyers are seeking specialized applications for talent management and related areas. While most PeopleSoft and Oracle and SAP HR customers would like to buy all their applications from their ERP vendor, the slow progress on many of the talent management applications has led many buyers to shop for their talent management applications elsewhere. Witness the tremendous growth of companies like Successfactors, Authoria, and Softscape. Each is growing at double or triple digit rates despite Oracle and SAP’s continued presence in this area.
Representatives from four large organizations discussed their level of commitment to Oracle/PeopleSoft at the PeopleSoft customer panel session.
- One of the participants said that his organization had migrated from Oracle/Peoplesoft to the SAP HR solution and was quite satisfied with the integrated solution now under implementation. (We know that the SAP HCM solution is well integrated, just not widely deployed yet.)
- The three remaining Oracle/PeopleSoft customers told varying stories about their success and frustration with Oracle’s plans for Fusion, the intended integrated application between Oracle and PeopleSoft. The Fusion strategy has changed. Today Oracle is recommitting to the two independent product lines with the intention of merging some time further into the future. We will publish more details in the coming months as we learn more.
The Direction of HR Technology: Consolidation? Expansion?
While the large number of HR technology providers can make for a confusing and sometimes risky environment for buyers, we believe that fragmented markets are actually good and natural. They demonstrate that the market is growing and is fed with an influx of innovative thinking and new ideas being applied toward solutions. I am a big believer in the entrepreneurial spirit of the U.S. economy, so I’m always excited to figure out new winners in emerging and fragmented markets.
Other analysts have made comments about the coming “consolidation” of the HR and talent management software markets. We actually see otherwise. As markets grow and mature, one starts to see more solutions available in the market — products with features and prices attractive to small companies, more sophisticated solutions for global companies, and still others specialized for specific industry segments. When a software market gets crowded, the innovative companies find new ways to differentiate themselves – and new solutions are born.
I recently read an article entitled “The Long Tail” describing how the web has created more and more growth in niche markets at the expense of the “consolidators” who try to consolidate markets. A similar trend is taking place in enterprise software. With the advent of on-demand software, new companies which address niche solutions can come to market quickly and generate profitable businesses by focusing on a single industry, a single geography, or a single customer size. Consider what is happening in the music and film industry. Now that a musician or filmmaker can publish their creative content on the internet, they can generate enough awareness and revenue to grow without the need to sign a contract with a major recording label.
A similar evolution is taking place in enterprise software. Companies like Successfactors, Softscape, Authoria, Halogen, and others can capture market share and grow without the need to deliver a total ERP-like solution. The question is whether an integrated solution is “better” than a set of best-of-breed solutions. And this comes down to how well software companies build, integrate, and support their products. Just wait: the big “winners” in talent management application software are still being defined.
Talent Management: A Killer Application?
We do believe that there is a huge market demand for an integrated talent management solution. In the report The Convergence of Learning and Performance Management Systems: Has Talent Management Arrived, we point out that HR development processes (HRD) are fundamentally different from HR management processes(HRM) . HR executives will always separate these groups because they focus on different business problems and have different types of business drivers.
HRM processes such as payroll and benefits tend to be transactional, so associated goals are related to driving up consistency and driving down costs. These are the processes which are most easily outsourced. By contrast, HRD processes are very strategic, unique to the organization, and culture-centric in nature. They are data rich and provide insights into core competencies, workforce readiness, talent gaps, employee motivation, and much more. We believe that software solutions for HRD have the potential to deliver much higher returns and value and can help the organization truly optimize its workforce, not just the processes surrounding it.