Today SuccessFactors announced plans to acquire InfoHRM (renamed Inform Business Impact) – a small but very well established leader in the area of HR and Talent Analytics and Workforce Planning.  We believe this acquisition is very significant for the talent and HR systems marketplace: it now establishes SuccessFactors as the emerging leader in the broad and important area of delivering actionable talent and HR measurement and analytics.

Consider some of the most important yet difficult questions all companies face: how many employees do I have on the payroll today? What is my retention rate for high-performers? Which managers are driving the highest levels of performance (or retention or leadership growth)? What are the characteristics of the most successful new hires we bring into the organization?

And consider some of the even more strategic workforce planning questions organizations have: what is the impact of the potential reorganization or merger we are considering? What are the biggest gaps in our talent pipeline as we move into China, Brazil, or another emerging market? How will the aging baby boomer affect our professional workforce in the next three years? Where in our talent mix do we have the greatest risk?

These questions, and many more, plague business leaders in all functional areas: CEO, Sales, Customer Service, Operations, and even internal groups like Finance and IT. Without easy answers to such questions most business leaders make decisions “on the fly” – and often with very imperfect information.

One of the biggest US manufacturers of industrial equipment is in the middle of a major product shift from automotive and transportation products to new products for emerging energy companies. I spent a few days with them and they are asking questions like: where do we have the deepest management pipeline to pick for new business units? Who are the individuals we can best send on expatriate assignments to build these businesses? How do we measure the effectiveness of our managers in the context of our new business strategy?

All these questions depend on information buried deep in a company’s human resources databases and other operational systems. And most companies have many of these systems – often linked together with a messy variety of data replication tools which make it very difficult to quickly frame questions and come up with answers. And when an organization embarks on workforce planning (a hot and emerging topic for strategic HR leaders), they have to pull this information together in a consistent and repeatable way.

InfoHRM was quietly and slowly answering these questions for its clients. The company was founded in 1982 by Peter Howes, an academic HR leader in Australia who originally built InfoHRM as a consulting company. Over the years the company branched out into benchmarking and then built a SaaS based HR data warehousing and analytics platform which was designed for extensive reporting, analytics, and workforce planning. We ran into InfoHRM about three years ago while we were expanding our research on learning measurement (read more about the Bersin & Associates Impact Measurement Model®) and found the company to be very successful and business focused.

Inform is a company with a consultative approach to selling its platform – rather than sell a measurement “tool,” Inform has always tried to help their clients focus their measurement and analysis needs on the particular business challenges they face.  Prior to the acquisition the company had about 150 customers and was growing slowly with a limited budget for sales and marketing.

In the last five years as HR managers evolved toward more interest in workforce planning, InfoHRM build out its modeling and scenario planning capability – so the platform not only aggregates data and lets managers run many important reports, it also lets users build scenarios about candidate growth, attrition, retirement, and other supply factors to look at the impact of different workforce planning scenarios. Such analysis is now considered what we call a “level 4″ maturity in workforce planning and most large organizations are in great need of such a solution.

Prior to the acquisition InfoHRM sold its platform as a totally vendor-neutral solution which can capture data from virtually any talent management or HR system. In fact, InfoHRM had partnerships with many of SuccessFactors’ competitors and worked with them to build data connectors and business partnerships. Now, with the vast sales force of SuccessFactors, the company will try to maintain its open platform but will likely be positioned as a SuccessFactors solution designed to work with SuccessFactors software first.

(When I was at Sybase years ago we acquired a middleware company which had industry-leading connectivity to all database platforms. While the strategy was always to sell the middleware as a database-neutral solution, within a few years the reality of the business forced the product to become more and more “Sybase-centric.” I expect the same thing to happen here. While Inform will continue to be sold as an open platform, over time SuccessFactors is going to build strong integrations with its own platform which will encourage customers to buy the SuccessFactors suite along with Inform.)

The market for such analytics solutions is very large and very underpenetrated. Today companies like KnowledgeAdvisors, Hewitt, IBM, Mercer, OrcaEyes, Aruspex, Vemo, and all the talent management and HR software companies sell software platforms designed to help organizations take people-related data and make it highly actionable. The problem is quite complex – because data of interest to an HR manager may be quite different than the data of interest to a CEO or VP of Sales. Ultimately an integrated solution like Inform, coupled with the engineering resources and sales expertise of SuccessFactors, will light a fire under this market and force other platform vendors to increase their focus and investment in this area.

I applaud SuccessFactors for their vision – as the company rolls this new solution out to the market, we are going to see an increased focus on integrated, business-driven talent measurement as a fundamental part of success in human resources. And as SuccessFactors likes to put it, this is all part of excellent business execution as well.

Toyota, one of the most revered brands in the world, has crashed to earth in the last few weeks due to its slow and weak response to a variety of gas pedal and braking system product defects. Most news sources state that the company has already spent $2 Billion to respond and the company’s sales dropped precipitously in the last month. The ultimate cost of the company’s behavior is likely to be much higher.

One can ask many questions about why this has occurred. Does Toyota in fact have quality problems in engineering and manufacturing? Has the company become complacent due to its growth and market success? Or is there a cultural problem of facing up to reality and transparently sharing information rapidly?

All evidence points to the latter. Over the last 40 years Toyota has developed an iconic process for product engineering and manufacturing quality. The company’s products have out-performed its peers year after year. Yet Toyota people, like all of us, are not perfect. Mistakes occur and problems arise. The organizational challenge is not how to prevent all problems from occurring, but rather design systems and a culture that enables problems to be recognized rapidly, transparently discussed, and then resolved.

Much of the whole concept behind the Toyota Production System is the theory that people, not machines, make the manufacturing process work.

We have studied this process (it is now widely adopted in the trend toward “Lean Process” consulting) and underneath much of Toyota’s success has been a focus on giving individuals the power to stop a process, identify a problem, and fix it.  One of the biggest reasons Toyota was able to rapidly outperform the US automobile industry in the 1980s and 1990s was this fact: Toyota learned that the production engineers and manufacturing operators should have the power and control to improve the process. US manufacturers treated labor as a replacable part, and as a result ended up with poor labor relations and billions of dollars of union costs to hold them back.

What We have Learned about Transparency

We study talent management – and in fact we are in the middle of finalizing a comprehensive research report on organizational learning culture.  What we have found, after interviewing hundreds of companies, is that high performing companies have a variety of cultural processes for “sharing bad news.”  At Intel it is called “constructive confrontation.”  At the Federal Reserve they call it a “culture of sharing.”  In other companies it is called a “feedback-rich culture.”  Today’s modern word for this is “transparency” – making information available, freely distributed, and encouraging feedback.

The Japanese culture is well known for its tendency to “save face” – that is, try to avoid disclosing embarrassing information because it may harm one’s position or reputation.  Transparency teaches us the opposite.  Only by creating a culture where direct feedback and open disclosure is valued can an organization learn rapidly and continue to improve.

Our most recent research shows that today, as the global economy starts to recover, organizations are starting to focus their attention very heavily on new product and service programs and rebuilding their culture of innovation.  (Surprisingly, 44% of companies now cite “driving innovation” as one of their top priorities for this year, almost triple the percentage from a year ago.)  This is a natural response to slowly growing markets and new business opportunities.

We can learn from Toyota that such success is dependent on transparency.  Only when people feel free to disclose customer feedback, talk about problems in an open way, deal with issues quickly, and share best-practices, can an organization truly respond and innovate with world-class speed.

I have much faith in Toyota.  This is an enduring organization which will bounce back.  Our dealings with the company have shown an ultra-keen focus for customer needs and quality – perhaps this latest issue is simply a wake-up call to focus on internal transparency in a new way.

Watch for more on this critical topic – I will be introducing our new learning culture research at IMPACT 2010:  The Business of Talent®.  Come join us.

This week I had the opportunity to keynote the largest learning conference in the UK, the UK Learning Technologies Conference (developed and run by Donald H. Taylor, one of the most knowledgeable professionals in our industry). The title of my presentation was “Informal Learning: What, Why, and How – and what it means to You.”

The thesis of the presentation is that three converging factors have accelerated the interest and adoption of informal learning: the recession, the need for deeper skills specialization, and the proliferation of new sharing and social networking technologies. If you would like to hear the whole story, send us an email and we will send you the slides.  (To view our informal learning framework, click here.)

We had approximately 450 L&D and HR professionals at the conference, and it was clear to me that the topic of informal learning was very interesting and enlightening to this audience.  As many of you know, we define informal learning in three categories (on-demand, social, and embedded) – and many of the questions people asked were about how to build a learning culture that supports this strategy.

But one of the most interesting things I wanted to share was how European organizations differ in their learning and talent strategies from those we work with in the US.   I was there an entire week and had the opportunity to talk one-on-one with more than 30 different L&D leaders and solution providers.

A Few Differences between Learning and Talent Strategies Across the Atlantic

•  Organizations in Europe are well behind the US in the adoption of traditional e-learning technologies. As the UK Corporate Learning Factbook® will point out (we will be publishing in a few weeks), the adoption rate of virtual classrooms, traditional e-learning, LMS, and other tools is only half that of the US.   I asked many attendees about this finding and the only good answer I heard was that  “people here live closer together and they are accustomed to meeting face to face.”   Fair enough.  This points out how important it is to reflect local customs and traditions in any learning or talent program (more on this later).  I do believe this is going to change – the European organizations I spoke with are very interested in informal learning and are now starting to jump into virtual classroom solutions in a big way.

• Many organizations we spoke with found traditional e-learning to be expensive, rigid, and hard to edit and modify.  In fact, one of the most popular e-learning development tools in the UK is Atlantic Link, a toolset which blends rapid e-learning and traditional design into an integrated, server-based solution (watch Atlantic Link to come to the US later this year).   Several companies told me that they were less than interested in developing expensive “high-fidelity” courseware because they knew it would go out of date so quickly.  This points out an important trend:  the expensive e-learning programs of the last 10 years are slowly being replaced by dynamically-produced videos, virtual classroom replays, and other highly dynamic content which can be created by subject-matter experts.

• Virtual classroom usage in Europe is growing rapidly. The UK organizations I spoke with were asking questions we heard in the US several years ago: how do I train instructors to use the technology? How do I make sure people are paying attention? These issues are very solvable – and we have many case studies and research reports which detail these practices.   In response to all this increased demand, this year we will be publishing a comprehensive new study of virtual classroom practices (and tools), authored by David Mallon.

• European and UK organizations understand the need for “deep specialization.”   In our conversations with Equifax, BT, BP, BDO, and others, we heard a tremendous focus on building career-level skills in various employee groups.  In the US it is often difficult to cost-justify a career development program (but this is changing rapidly) – the European companies we talked with understand this need, even when their budgets are being cut.  They understand and embrace mentoring and apprenticeship for operational skills as well as white collar development.

An excellent example of such a program is the apprenticeship program which BT uses for its field service organization. BT found that by hiring younger, lower skilled employees and training them internally they are able to develop the same level of skills through apprenticeship and their retention rate is 30-40% higher than professional hires.

• Talent management practices in Europe are more advanced and mature than typical companies in the US. Every company we spoke with has an established performance and succession process, and they understand the need to implement a “career progression” model (aka career development).   This is somewhat driven by the various government and labor regulations which require organizations to put in place career plans and training plans for all employees.

While career development programs are rapidly coming back int he US, most companies are more likely to use what we call the “pinball” approach to talent management – hire people into the company and let them bounce around from job to job like balls in a pinball machine.

• Following this trend, the European L&D professionals I talked with have an excellent understanding of all aspects of talent management.   Nearly every L&D professional I met with was intimately familiar with the need to link their programs to development planning and career progression programs.  In the US many L&D organizations still operate quite independently from HR.

This year we are significantly expanding our global research coverage into Europe and other geographies.   In the next few weeks we will be launching the UK Corporate Learning Factbook, and we plan more european research as the year progresses.  If you work in a global organization, you are a non-US solution provider, or have research needs in your local country, please contact us – we are actively engaged in many projects to further globalize all our research subject areas.

Bottom Line:  A Global Perspective on all Learning and Talent Programs is Critical

Bottom line: while disciplines, tools, and principles of learning and talent management are similar around the world, each geography must adapt to meet its local cultural needs. Countries which have a very “local and personal” way of doing business (e.g. Spain and Italy) are likely to tend toward more personal learning and talent processes.  You must adapt to these variances in your design, rollout, and implementation.

If you are building a global L&D or talent program, we always recommend you do three things:

• First, make sure your design and development team includes participants from the major geographies you serve. Unless you have lived and worked in the local country, you are very likely to miss some significant local issues in your whole program design.

• Second, do not assume that language translation will globalize a solution. Many non-US countries now speak English as their business language – but many do not.  In most cases it is more important to use local examples, local imagery, and local dialects and traditions than it is to simply translate content.

• Third, make sure that your program has a local program manager to support employees. Just as your design process must be collaborative and localized, so must your support strategy. No matter how hard you try to “design globally” you must “implement locally.” When an employee, manager, or learner needs help – you should make sure you have a local subject-matter-expert on your team to help them.

These three recommendations may seem simple and obvious, but many organizations do not follow them. One of the most important things to remember is that the most common failure point of a learning or talent management process is not the design, but rather the implementation. No amount of excellent design will succeed if local employees, managers, and HR and L&D staff do not understand, support, and embrace the program.

In today’s globalized business environment, we all benefit from a mindset of “freedom within a framework” – design globally and implement locally.

I welcome your comments and feedback on any of these topics.

One of the most daunting talent management challenges in organizations is something we call “talent mobility” – the ability of an organization to enable and direct the movement of people from role to role.   In today’s business environment this includes lateral movement, upward movement within a role, movement into leadership, movement into international or global assignments, movement into functional specialties, movement into developmental or exploratory assignments, and often movement from part-time to full-time or vice-versa.

When we launched our High Impact Succession Management® research in 2009 we noted that one of the most common attributes of high-performing, enduring organizations is what we call “Transparent Talent Mobility.”  In fact our four-stage succession management model actually defines level 4 succession management as such, forcing our clients to understand that succession management is not really an end in itself, but rather a very special case of organizational talent mobility.

In the last few months we realized that this topic is now on the minds of most large organizations.  Consider just a few real-world  situations where talent mobility strategies become vitally important:

• A large midwestern manufacturer which is trying to rapidly globalize its operations.   One of their biggest challenges is convincing high potential leaders to leave the US operations and take key positions in Europe and Asia.  The company has neither trained them nor put in place the rewards and support to make them effective.  And many of them are afraid to take international assignments because they are not sure that they will have jobs when they come home.  A “transparent mobility” strategy will make such a program succeed – and such a program will demand a new type of talent review process, a more transparent set of discussions about leadership and progression, and new rewards programs which incent international assignments.
   
  
• A large Canadian bank is highly successful in Canada (Toronto based) and South America (Scotiabank).  Yet the company does not yet have a presence in Brazil, Europe, or China and feels a critical need to expand into these countries to further leverage its growth plans.  80% of its top leaders are in Toronto, from Toronto, and have never worked internationally.  Its international leaders came into the company through acquisition.  How can it leverage this leadership team to grow into new geographies?  The company needs a talent mobility strategy.
   
  
• A fast-growing retailer (Wal-Mart) now has more than 1.4 million employees and sees growth opportunities to expand domestically and internationally to more than 2 million employees in the next few years.  The top 500 leaders in the company are now expected to rotate among domestic and international assignments and the company expects to grow this pool by a factor of two in the next few years.  How do they extend their mobility strategy to develop from within and attract highly successful general managers from other industries?
   
  

Ultimately the whole topic of talent mobility plays a fundamental role in all aspects of talent management.  It drives the way high potential leaders and technical specialists are managed, it drives the use of internal career management in the organization, and it sets the foundation for many of the conversations which take place about “how I get ahead” within the organization.

Our New Talent Management Framework will be published soon – and you will see a major focus on talent mobility and career management throughout this and other future research this year.  We know one thing for sure:  organizations that enable people to move easily, share information about capabilities and opportunities, and openly enable people to fulfill their personal goals in the context of the organization are outperforming those which fail in these areas.  As you start to plan your programs for 2010, consider putting “Transparent Talent Mobility” onto your list of things to talk about.

By the way, we encourage you to come to IMPACT 2010:  The Business of Talent® – on April 4-6 2010 in St. Petersburg Florida.  We expect to have 400 of the world’s leading talent and learning leaders joining us, and we will be discussing talent mobility strategies as one of the many important themes for 2010.

Last week Bedford Funding announced its acquisition of Peopleclick and the immediate combination of Peopleclick with existing portfolio company Authoria, creating a combined talent management systems company with more than 2,000 customers and $100 Million in revenue.  The combined company (now named Peopleclick Authoria)  is now a significant player in the talent management systems market.

History and Analysis of this Merger.

Authoria is one of the pioneers in the talent management market, with a strong solution for integrated benefits communication, performance and succession management, compensation, and talent acquisition.   Founded in 1997 with a focus on building a platform for integrated benefits communication (helping employees view all their benefits and retirement information), the company learned how to build compelling HR portals and integrate data from many back-end applications.

In 2004  Authoria acquired AIM, a small provider of performance and compensation management software, and then re-engineered the product to launch a to compelling suite.  In 2005 Authoria won the HR Technology Conference Shootout for performance and compensation.

In mid-2005 the company acquired Hire.com, bringing a set of technology and services to integrated recruiting into its talent management suite.  Hire.com was one of the first systems to introduce candidate relationship management, a key feature in Peopleclick.  In 2006 and 2007 the company focused on marketing its integrated suite and further integrating these platforms into a next-generation, integrated user experience.  The resulting product suite was so successful that Authoria once again won the HR Technology Conference Shootout in 2008.

As a pioneer in integrated talent management, Authoria’s product has been ahead of its peers in many ways.  But by 2008 the market had grown to over $1.5 Billion and aggressive entrants like SuccessFactors, Taleo, Oracle, SAP, Plateau, Saba, and Softscape were now significant players.  (The original investors and management team were not growing the company at competitive rates, so in September of 2008 Authoria was acquired by Bedford Funding, a savvy private equity firm which has extensive experience in enterprise software.  Excited by the company’s position and the fast-growing market, Bedford put significant money, management and executive focus into the company and started to redefine Authoria’s go to market strategy.

One of the things Authoria’s leadership found was that the talent management software market has reached a stage of “early majority” adoption.  That is, today there are many excellent offerings on the market so the keys to success are no longer only product innovation and evangelism, but scale, industry depth, and end-to-end solutions.  With the two gorillas in the market (SuccessFactors and Taleo) now well over $200 Million in size, Authoria’s leadership realized they needed a way to “get big fast.”

At the same time this was occurring, Peopleclick, a provider of talent acquisition solutions, was continuing to grow – with a strong focus on high volume recruiting, candidate management, diversity, and other talent acquisition services.  The talent acquisition market, while now considered part of talent management, is actually a slightly different space.  Talent acquisition buyers have very pragmatic, somewhat tactical needs – they must rapidly source, select, hire, and onboard people.  Their needs dovetail with the rest of talent management, but their actual problems are different.  They want to reduce cost to hire, improve quality of hire, work seamlessly with internal and external recruiters, manage costs carefully, and take advantage of the new world of social-network based recruiting solutions.  Small to mid-sized companies needs are fairly common and can be addressed by most applicant tracking systems;  larger corporations need high-volume, very easy to use systems which must have many external interfaces and tools.

Peopleclick, which focuses on the mid to larger enterprises, became an excellent, highly focused, innovative company in this space.  But as I described above, with Taleo and SuccessFactors now heavily focused on integrated recruiting and talent management, it was becoming clear to PeopleClick that some type of merger made sense.  (Most of the talent management companies were talking with Peopleclick).  Bedford Funding, the owners of Authoria, have now made this happen.

The combined company now has many strengths:  a global reach with more than 500 employees and revenues around $100 Million, best-of-breed products in all segments of talent management, and a deep level of expertise in almost every area of talent management.  And of course this merger gives Peopleclick Authoria the opportunity to cross-sell products and further develop integration between the Peopleclick and Authoria product families.

What this Tells us About the Market.

The market for talent management software is growing up (I’d say it’s in its late teens – filled with potential but not fully mature).  As this happens the market itself expands, because more and more companies now realize that they should consider implementing a talent management solution.  But at the same time, the market now has many major players (read more in our Talent Management Systems 2010 research) so an aggressive company must have enough money and people to survive the next phase of growth.

Innovation is still a critical key to success.  While some of the talent management modules have become common (e.g. performance reviews, goal setting, goal alignment), many areas of talent management are still very new and unexplored (critical role identification, succession pooling, readiness pools, workforce planning, scenario modeling, and the whole area of talent analytics and measurement).  Companies like Salary.com, Silkroad, Softscape, and Workday are focusing heavily on building out the core HRMS, which is another rapidly growing adjacent set of customer needs.  I believe that Peopleclick Authoria now has the scale to continue to innovate, an important strategy in this evolving market.

Finally, this merger once again illustrates how the financial community has become very important.  For the last two years many venture and private equity companies have become very involved.  (SumTotal’s acquisition by Vista Equity Partners, for example.)  This is a very positive sign – it means that this market has become a healthy place to invest and innovate, driving companies to become bigger and better solution providers.

Will Peopleclick Authoria Become a Market Leader?

As in all mergers, it all comes down to execution.  The new combined company has a tremendous set of assets to draw upon.  Now they must integrate sales, marketing, product, and support strategies to create a 1+1=3 solution.  With strong leadership from Bedford I believe Peopleclick Authoria has the potential to become an even larger player in this exciting market.

As we recap 2009 and look ahead to 2010 in the market for talent management software, two gorillas have emerged:  Taleo and SuccessFactors.   While together these companies make up less than 20% of the total market, their size and growth has made them companies to watch as this market continues to grow and mature.

In October, SuccessFactors announced plans to raise an additional $180 Million through public sale of stock at a price around $15 per share.  Not to be outdone, in November, Taleo announced plans to raise over $140 Million on the public market by selling shares at around $20 each.    Clearly both companies are on the warpath:  they expect to hire more people, acquire more technology, and expand globally.  And both are taking advantage of a runup in the stock market:  Taleo is now valued at $900 Million and SuccessFactors is valued at over $1.2 Billion. (Taleo is priced at nearly 4X sales, and SuccessFactors at over 8X sales – multiples that remind me of the .com boom.)

A few comments and thoughts on these two companies and why they continue to grow:

*  Both these companies are headquartered in the San Francisco Bay Area, so they each have access to a tremendous wealth of talent.   I had a conversation with another talent management company last week and one of the things I told them was that at this point in the market “depth of leadership team” is one of the most important elements of success.  Both Taleo and SuccessFactors have attracted senior leadership team with a wealth of experience at Oracle, PeopleSoft, Siebel, and other highly successful Bay Area enterprise software companies.  I think in 2010, as the market heats up again, the war for talent will differentiate high-performing vs. lower-performing talent management software companies.

* Each company comes from a different core.  Taleo’s history as a recruiting and applicant tracking software company positions it very well for 2010, when companies will again start hiring again and will see an increased need for recruitment automation.  Taleo’s Release 10 and its Taleo Anywhere, Taleo Grid strategy, and new Performance Management offering will appeal to the thousands of existing Taleo customers as the economy improves.

* SuccessFactors, by contrast, has built its core business around performance management software.  This area of talent management, while one of the hottest and fastest growing areas, is actually becoming more commoditized every quarter.  Organizations can now purchase software for goal alignment and performance management from almost any one of their HR systems providers, forcing SuccessFactors to move “upstream.”  The company has responded to this by focusing its marketing efforts on both building out the rest of the suite (SuccessFactors now has a highly competitive recruiting products) and rebranding itself as Business Execution Software.  (Read more on this topic here.)

* Taleo is profitable, SuccessFactors is not.  Taleo has managed to grow profitably while acquiring two companies in 2009 (Vurv and Worldwide Compensation), while SuccessFactors is now cash-flow positive but still not profitable.  The main reason for this difference is that SuccessFactors is still using a “scorched earth” strategy by spending 51% of its revenues on sales and marketing.  Taleo, by contrast, only spent 32% of revenue on sales and marketing in Q3 of 2009.

This strategy of “growth at any cost” pays off early in the market – as SuccessFactors now appears as a player on almost all RFPs and in most channel and reseller relationships.  The downside of this approach is that (A) many of the sales and marketing people hired by SuccessFactors will not stay very long, so the company actually tends to train people who then move on to other companies, and (B) buyers now know a lot about SuccessFactors and many have told me that they no longer consider the company’s products as strategic as they were originally positioned.

I am not a big fan of the “business execution software” positioning, because essentially what SuccessFactors sells is software to help HR and line managers do their jobs of better managing people.  Time will tell whether this marketing approach truly brings SuccessFactors into the board room.

* SuccessFactors continues to grow at a faster rate than Taleo, but not by much.  Taleo, which is running at about a $200 Million annual revenue runrate, grew its total revenue by 3.3% in Q3 and SuccessFactors, which is running at about a $160M run rate grew at around 4.7%.    Taleo’s total revenue and backlog grew by 11% in Q3 and SuccessFactors total revenue and backlog grew by 22%.  Clearly the public market loves this growth – giving SuccessFactors almost twice the multiple of sales over Taleo.   Over time I would expect SuccessFactors’ market valuation to come in line with Taleo, Ultimate, and the other more established players in the market.

* Both companies have yet to enter the LMS market (which is close to a $Billion market).  Taleo recently announced its own employee development product and signed a reseller partnership with Learn.com.  SuccessFactors has had a similar relationship with GeoLearning for the last few years.  In 2010 I would expect both these companies to make a bigger play into this part of the market, which is a natural extension for their current product portfolios.

* Both companies have effectively expanded their offerings into mid-market as well as global enterprises.  Despite this, however, each company has very different “core markets.”   In our recently released Talent Management Systems Customer Satisfaction research, Taleo’s average customer size was nearly twice that of SuccessFactors – showing Taleo’s deep experience serving very large companies.  While both companies appear to serve companies from small to mid to large, Taleo’s experience with large global enterprises is deeper.

*  Both companies have built excellent client support and service organizations.  While we position SuccessFactors as a company in the mid-enterprise market and Taleo as a vendor in the global enterprise market, both achieved leadership positions in many of the customer satisfaction indexes we studied this year.

* Both companies have a lack of experience and focus on the core HRMS part of enterprise software.  While today this particular area has not become a major focus of talent management software, we clearly see the writing on the wall:  todays’ “talent management” software will rapidly become “people management” software which will eventually collide with the corporate HRMS.  Most larger companies are not ready to replace their legacy HRMS systems, yet more and more viable alternatives are now available.  (Workday, Silkroad, Salary.com, Softscape, Ultimate, Oracle, PeopleSoft, Lawson, and SAP are all releasing major HRMS upgrades this year.)  I think 2010 will not only force both companies to strongly review their strategies for the LMS market, but will also force them to think seriously about offering a more complete “single system of record” for their mid-market clients.

I do not mean to use the word “gorilla” in a negative way – in fact the emergence of these two companies as leaders has been very positive for this entire marketplace.  Taleo and SuccessFactors are both very well run companies with a deep bench of senior leaders.   Their emergence as gorillas has been very positive for the entire market:  investors have great confidence in this space;  other vendors use Taleo and SuccessFactors as models to emulate;  customers now understand the role of talent management software and can cost-justify the acquisition;  and many engineers, sales people, consultants, and service people are now well trained in this market and these people can go out and support clients.

And while Taleo and SuccessFactors now have the scale and war chest to throw their weight around, there are still many fast-growing, innovative companies in this space which will be around for years to come.  The space is still highly competitive and many of the private companies have reached revenue rates of $50 Million and greater and continue to deliver outstanding customer value and client satisfaction.

For more information on this vitally important market, we encourage you to read our comprehensive analysis of the vendors, market dynamics, and customer satisfaction:  Talent Management Systems 2010.

And mark your calendars for April 6-8, 2010 to join us at our annual research conference:  IMPACT 2010:  The Business of Talent®.  This is our third research conference and we will have many active discussions between vendors, buyers, and senior HR leaders about the changing role of talent management systems in total business strategy.  I encourage you to bring your team to gain a comprehensive perspective on the latest best-practices, trends, and solutions in enterprise learning and talent management.

After almost a year of effort we just released our first-ever Talent Management Systems Customer Satisfaction research. We will be publishing this annually, with next year’s results to coincide with the HR Technology Conference in Fall of 2010.

If you are a talent management systems owner, buyer, or vendor I recommend you read this – it is filled with important information about the state of customer satisfaction, what drives vendors to deliver higher results, and analysis of various considerations for selecting and implementing a system. (You can purchase the report independently or packaged with our big Talent Management Systems 2010 Industry Study. Research members have full access to both reports in the library.)

Preface:

The Talent Management Systems market (which we define to include software platforms for performance and succession management, recruiting and applicant tracking, compensation management, and learning management) is over $2.8 billion this year and growing at over 20%.    There are more than 40 providers of such systems, and we publish market share and vendor details in our research.

We know from our Talent Management Factbook® research that these systems can be used to drive tremendous business value.  Companies with superior talent management processes (measured as the top 10% in process maturity among 62 different processes) generate 26% greater revenue per employee and show many other benefits as well.  While Talent Management Software does not DO talent management (managers do this), these systems are now considered fundamental to the automation and global rollout of strategic talent programs and they generate tremendously high ROI.

A Few Customer Satisfaction Findings:

Our research studied more than 900 implementations across 20+ different vendor solutions.  Without disclosing too much detail (we encourage you to read the report), we found the following:

• General customer satisfaction across all vendors and all markets is medium to low.  Across all dimensions, on a 1-5 scale (where 1=highly satisfied and 5 = very dissatisfied) buyers rate their systems between 2 and 3. Buyers are fairly happy with product features and functional capabilities but often struggle with implementation services, support, and integration with other HR systems.
• The biggest area of dissatisfaction is with “data and systems integration,” a problem caused by the immaturity of the market and newness of the SaaS offerings.  The ERP vendors (Oracle, PeopleSoft, SAP), surprisingly, scored the lowest in integration satisfaction.   Vendors are working to build more end-to-end suites, which will somewhat alleviate this problem.  In larger organizations, however, the essential problems companies face is the existence of several older HRMS systems and now several talent management systems (typically a recruiting system, a learning management system, and a newer performance and succession management system).  Most buyers struggle to integrate these important systems into a cohesive solution.
• Satisfaction with product features and functionality is relatively high.  The highest rated area of these systems is the products themselves.  The reason for this is that most buyers cannot ever use even a fraction of the functionality provided.  They key here is to identify the few critical features you need and select a system which offers these features.
• Customer satisfaction varies widely by vendor.  Our research shows that vendors which focus very heavily on one core market (mid-sized, enterprise, or global enterprise) tend to outperform their peers.  We also find that different suppliers have very different “philosophies” of client service:  some focus heavily on product excellence; others focus heavily on sales and marketing;  others take an end-to-end solutions focus to their customers and are now developing vertical solutions.  As this market grows and matures, our research shows that vendors that take the latter strategy will outperform the others (both financially and in terms of customer satisfaction).

I encourage you to read this research, it is filled with important insights about these systems and this important and rapidly growing market.

It’s here, our Corporate Learning and Talent Management Predictions for 2010.  Each year for the last six years we have published an in-depth report on our predictions for the coming year.  This year we have 12, and they are described in detail in this free report.

1. Integrated talent management will reach the boardroom.
2. The HR function will start a major transformation from “strategic HR” to “business-driven HR”.
3. High impact leadership development programs will focus on first line management.
4. Organizations will dramatically shift their focus from “e-learning” to “we-learning.”
5. Learning & development leaders and practitioners will have to learn new disciplines for success.
6. Deep Specialization will emerge as a winning talent and business strategy.
7. “Talent Mobility” strategies will drive your succession and talent programs.
8. Talent acquisition will shift even more rapidly toward social networking approaches.
9. Talent management systems will become more integrated and many standalone vendors will be acquired.
10. Learning management systems will remain important but evolve rapidly into talent and informal systems.  Collaboration and content management will drive the next major evolution in learning technology.
11. Innovation, Engagement, and Diversity will become “hard disciplines” in HR and business.
12. Measurement of HR and L&D will once again become an important priority.

In 2010 we are dramatically expanding our research program into many exciting new areas including one we call The High-Impact HR Organization®.

You will see some of these discussed in this 35 page report.  As always, we welcome your feedback and comments.

I just finished a research member roundtable with some of our major clients and want to share five big issues we see emerging for 2010:

1.  Diversity as a talent management strategy.

Nearly all of our clients mentioned that their talent management strategy now includes diversity.  The definition of diversity is broad:  it includes age, gender, culture, physical capabilities, education, and even diversity of thought.  One of our clients (a major retailer) mentioned that they see store-level diversity as critical to being an employer of choice and providing an attractive place to shop among different cities.  A major defense contractor, which has a major diversity program, mentioned that they have studied the relationship between diversity and engagement and have proven that a more diverse workforce creates a more engaged and high-performing team.

Nearly all major organizations are now global, multi-cultural, and multi-generational:  in 2010 we must consider diversity a part of our strategy to build a world-class organization.  This means it now belongs in the talent management strategy.

2.  Leadership assessment as core to the leadership strategy.

The top HR priority in nearly every company we speak with continues to be leadership development (at all levels).  One of our members, a very sophisticated leadership development organization (one of the Fortune top 25 in leadership), told us that they use a variety of assessment tools to identify HIPO (high potential) leaders:  Learning Agility (assessed through a Lominger tool), Decision Styles (assessed through a Korn-Ferry tool), 360 assessments, and developmental experiences.  They actually study the work history of their top 100 leaders to see what types of assignments have created their best leaders and then make sure that each HIPO has a plan to obtain these types of experiences.  By working with Lominger and Korn-Ferry (same company), they not only have assessment tools but also have the developmental aids, performance coaching tools, and behavioral interview questions to use this model across all potential leaders.

How do you assess high-potential leaders?  In 2010 you should strive to create a repeatable, business-driven model which can scale.  This is a ready-made approach to building a Level 2 or Level 3 leadership development program.

3.  Expanding career development beyond promotion.

As we have written and studied in much of our research, many of our clients are now implementing software-based performance management tools.  These companies quickly realize that they must give their employees and managers a career development model which enables people to work with their managers (or “sponsors” as one client puts it) to improve their performance.  Today’s career development options are not only vertical:  they may include a lateral move, an in-place developmental opportunity, a special assignment, an exploratory assignment, and even an assignment outside of the company.

Our research also shows that “deep specialization” drives competitive advantage.  In 2010 you should consider building a real career development model which incorporate all of these options, driven from your performance management process.  While this may not seem new to some of us, our research shows that fewer than 30% of all organizations have any form of corporate-wide career development models in place.

4.  Focus on the HR generalists and field training teams.

The fourth topic which came up among many of our members is the need to build skills, focus, and capabilities among the field HR and L&D teams.  While most HR organizations are now going through a transformation (consolidation in many cases), there will always be a need for generalists and trainers.  These people wear many hats:  one day they are a coach, the next day they are a consultant, and the next day they are an administrator.  Many of them entered the profession without deep levels of training.  If you want any of your strategic talent and L&D programs to roll out with success, these people must be fully engaged, trained, and ready.  (Our 2010 research membership program will have new features and offerings specifically designed for this audience, please call us if you’d like more information.)

5.  First line management continues to be the weak link.

In fact, we still hear many companies tell us that their weakest job role is the first line manager and supervisor.  One member, a major manufacturer of helicopters, told us that after years of leadership development programs they still find that supervisors do not honor or understand their role as managers.  I believe this will be true forever.  Remember that most supervisors and first-line managers learned how to manage from another manager.  Yet they are the troopers which make your organization succeed.   Many of our members have built performance-excellence, coaching, and in-place development programs to make sure first line managers get the support they need.

In 2010 think about taking some of your top-level leadership development dollars and building more tools and programs for first line leaders.  These types of programs payoff many times over, and they become the backbone of your leadership development, training, engagement, and employee performance program.

Each quarter for the last several years we have published TalentWatch®, a comprehensive look at talent trends in organizations around the world. This report, which is only available to research members, looks at several key topics:

• Business performance against plan
• Expectations for future growth
• Job openings and expected growth
• Talent readiness by job role
• Leadership readiness by levels of leaders
• Key organizational initiatives
• Changes in HR and L&D spending patterns
• Key HR and L&D initiatives this quarter.

We just finished analyzing the findings from Q3 of 2009 and I want to share some important findings.  (TalentWatch® is currently a Bersin & Associates research member-only publication.)

1.  Tipping Point in Expectations.

First, business outlook has shifted from that of capitulation to that of optimism.  In our Q2 findings we felt that organizations had reached a point in their budget and business forecasts that they were resigned to lower expectations for growth and had stabilized their job and budget cuts.  This quarter we see optimism on the rise.

One of the indexes we analyze is current business outlook.  In the Summer of 2008, before the credit crunch, the index was +.29, indicating a slightly positive outlook for the future.  During the last 9 months the index dropped to -.3 and lower as companies continuously lowered their expectations for growth.  This quarter, for the first time in over a year, the index became positive.  37% of respondents now see growth and 4% see significant growth above plan (four times higher than last quarter).   This corresponds with only 23% of organizations seeing any growth at all last quarter.

2.  Business and Talent Leaders are Planning for Growth in 2010.

Second, organizations are forecasting more significant growth in the coming six months.  In prior quarters expectations for growth were negative and actually declining.  This quarter, again illustrating a turnaround, the number of organizations citing “accelerating growth” shot up from 23% to 40%.

This second finding is particularly important, since so much of the world’s economic activity is dependent on human expectations.  When business leaders believe their organizations will grow, they invest.  Investment creates demand for capital, talent, and ideas.  This increases economic demand.  Hiring eventually follows (discussed below).

3.  Business Leaders are Getting Focused on Innovation and Customer Roles Again.

Third, there is significant uptick in focus on new topics in corporate talent and leadership.  Over the last 18 months respondents have been very focused on issues like downsizing, restructuring, and replacement or change in top leadership.  This quarter, again marking a tipping point, business and Human Resources leaders cite “innovation,” and “globalization” as top growing concerns.  Almost 30% of respondents told us that one of their top three challenges today is driving greater innovation into their workforce.  This, also, signals a major shift in perspective.

4.  Hiring is Still Flat, but Growth will Come in 2010.

Fourth, hiring and budget trends are still flat.  This quarter’s data shows no evidence that HR, L&D, or other budgets are being increased – and organizations still have flat to negative headcount plans from the prior quarter.  But when asked about projected headcount needs in the next six months, the index has turned around, and 37% of respondents tell us they see some expansion in hiring (up significantly from only 17% last quarter).  This tells me that by mid 2010 we will be back into an economy of job growth and competitive hiring.

5.  Leadership Capabilities are Waning, Hurt from the Recession.

Fifth, leadership skills and capabilities continue to be flat.  It appears, in fact, that businesses today feel “less ready” to execute than 18 months ago.  One of the indexes we track is a business execution index, where we ask leaders to rate their workforce in their ability to execute across different job roles.  The data for Q3 2009 shows almost a 12% drop from one year ago, indicating that the layoffs and restructuring of the last 18 months have cut real muscle from organizations.  State and local governments, pharmaceutical companies, manufacturers, and retailers in particular have shown significant drops in “business execution” capabilities.   This tells me that investments in hiring, development, and other forms of talent management will increase dramatically in the Spring when leaders realize that they need more talent to compete for growth.

6.  Talent Priorities are Shifting in New Ways.

Sixth, there is a significant and marked change in talent priorities.   All our research, including TalentWatch®, points to a shift in attention toward employee engagement, alignment, multi-generational diversity, and development of a global culture as major topics within HR.

Organizations of all sizes (even small companies) now exist in a global, multi-generational, women-empowered, multi-cultural workforce.  Most large businesses also see their growth markets in Asia first, and then the recovering US second.  And almost all organizations (including government and non-profits) have undergone painful downsizing which affects employee confidence and commitment.  So we believe HR and L&D priorities in 2010 will focus more heavily than ever on the topics of engagement, diversity, and globalization.

We will be publishing our 2010 predictions for Enterprise Learning and Talent Management soon.  Stay tuned for more…