Where is the “Talent Management” Market going?
As the US economy lost 240,000 jobs last month and the unemployment rate rises to 6.5%, one of the questions I know many people ask is the direction of the “talent management” marketplace. Let me give you our thoughts on the trends taking place.
First, the urgency of “talent management” in corporate HR organizations has not slowed. In fact, nearly every organization we talk with is moving ahead with their new talent management strategies, which includes redesign of performance management, further integration of their HR organization, assignment of a Vice-President or other senior HR leader responsible for “talent management,” and the desire to implement talent management software.
Second, we also are finding that most companies are also reducing the size of their HR and L&D organizations (the US L&D market in 2008 has shrunk significantly, and we will be publishing this data in the next few weeks). We are now working with many organizations to restructure their training departments to create more centralized organizations in the interest of reducing costs, and we see a dramatic dropoff in the development of new L&D initiatives which are not directly related to talent management.
Third, organizations are cutting back on travel and other development-related expenditures and now investing more in lower cost, collaborative learning infrastructure. One Fortune 100 company we are working with has decided that instead of replacing their learning managment system they are going to implement new collaborative, Learning 2.0 strategies using low cost social networking software to enhance their sales and service training and create more employee engagement. The LMS “upgrade” looked like a $5 Million project, so it is going on hold.
Fourth, the talent management systems market continues to grow, but at a slightly slowing rate. In fact, if we look at the Q3 2008 revenues of four publically traded companies, SuccessFactors, Taleo, SumTotal, and Saba, we see positive but slowing revenue growth in every single company. Revenue growth rates at these four companies are 77%, 39%, 12%, and -1% respectively. Unfortunately, each of these public companies continues to lose money and all have seen their market caps drop (along with the entire market). But the market is still healthy: for example we know that private companies are also growing – Plateau, GeoLearning, and Learn.com each grew by over 25% in the last year.
Fifth, if you look at the talent management software market, which we see as a tremendously important part of corporate HR and talent management going forward, it is beginning to become a bit crowded. While we still see explosive growth into many years in the future, our latest research now shows that most buyers see similar features from many software providers. As a result the “price to enter” the market is higher, and software vendors have to invest more and more in sales and marketing to maintain their revenue growth. SuccessFactors, the fastest growing of all, continues to invest an amazing 61% of its revenue in sales and marketing, which is unsustainable for any company over a long period of time. We firmly believe that the talent management software market, just like the LMS market, will segment itself into leaders in different segments (global enterprise, enterprise, mid-market, and eventually small business) – and both Oracle and SAP will continue to grow.
Bottom line: Today’s economic environment has caused new stresses for the HR and L&D organization and will definitely slow the market for talent management software. But is the party over? Not at all. Organizations of all sizes continue to push ahead with their new talent management, social networking, capability modelling, and collaborative learning strategies — they key is to maintain the focus on these programs in a highly efficient way.
New research on these topics: