Talent Management Software: The Category Takes Hold

This last few weeks has been a season of meetings with talent management software providers. As we work to complete our 2011 Talent Management Systems research (which should be published in June), I want to mention an important trend which seems to have radically changed this market: redefining the category itself. The independent markets for applicant tracking systems, performance management systems, and learning management systems are now rapidly going away – replaced by the big market for “integrated talent management platforms.”

Over the last ten years, talent management software grew up from a set of small software markets which automate HR processes like performance appraisals, applicant tracking, employee assessment, training administration, e-learning, HR self-service portals, and more. Each of these important processes was served by software companies which sold tools (originally PC tools, now web-based tools) which are used to automate and streamline these programs.

Around 2005, companies like Authoria and Softscape started the wave toward integrated suites. These vendors (both of which have been acquired now) pushed companies to think about buying a new category of HR software called a “talent management suite” – which integrated many of these core recruiting, performance, succession, compensation, and learning functions into one package. It turned out that most companies liked the idea, but they “couldn’t get there from here.” Companies already had an ATS, an LMS, a comp system, or other tools so over the last five years they replaced them one by one with new vendor solutions.

Now the market has shifted. Suddenly, after at least ten years of slow market consolidation, vendors have rapidly consolidated and the top talent management software companies offer most of the major modules in some type of integrated fashion. Granted, many of the vendors lashed together their offerings through acquisitions – but over time these acquisitions get integrated and you as a customer can buy an entire suite of talent software from one place.

We as analysts have traditionally viewed each market (applicant tracking/recruiting, performance/succession/compensation, and learning) separately and will continue to doso for the next few years. But as we look at the data for 2011, we find that fewer and fewer vendors sell standalone solutions and nearly all play in the integrated platform market. Just like the market for “sales force automation” evolved into a market for “customer relationship management,” so have the independent markets for recruiting, performance management, and learning evolved into a market for “talent management systems.”

This is not to say that all the vendors have reached the end state. Taleo has yet to ship a robust compensation and enterprise-class learning solution. SuccessFactors had to acquire Plateau to enter the learning market. Cornerstone and Saba do not yet play in the recruiting or applicant tracking market. Workday has yet to deliver recruiting or learning. And there are many more holes to fill (our upcoming research will point out all these holes).

But even give these gaps, the trend is very clear. This market has shifted – companies with standalone functional modules must now look to serve vertical or specific application segments or be acquired in order to survive. And you, as a buyer of these systems, should now shift your attention toward a small number of providers that can deliver an end-to-end talent management system.

Our most recent research on customer satisfaction systems shows that the #1 area of frustration for buyers continues to be data and systems integration. 34% of all buyers are now willing to sacrifice functional features in any given module for the benefits of an integrated set of applications. And more and more companies are now realizing that talent management software is not really here to automate, but rather to deliver insights and make decision-making easier.

Our research will shift to accomodate this trend. While we will continue to publish independent research on the recruiting, learning, and performance management markets, starting this year we will also start to look at the market as a whole and help you evaluate vendors based on the capabilities of their entire end-to-end solution.