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Expect vendor relationships to be in a permanent state of change.
The telephone calls began soon after Oracle Corp. announced in February that it would acquire Taleo Corp., the vendor of a cloud-based talent management suite.
"As a Taleo customer who is not using Oracle for my HR information system, my phone started ringing with calls from Oracle," says Jacqueline Kuhn, manager of people processes and technology at Beam Inc., a Deerfield, Ill.-based maker of alcoholic beverages with 3,200 employees in 23 countries.
These were not phone calls to welcome her to the family or to reassure her that all would end well for Taleo customers such as her who are not using Oracle's database. The calls were sales pitches for Fusion, Oracle's cloud-based suite of business applications, which include talent management. Fusion competes with Taleo but lacks a recruiting module. In part, Oracle bought Taleo for its talent sourcing and acquisition capabilities.
What the overlap between Fusion and Taleo in other talent management areas might mean for customers of either California company is just one of many uncertainties surrounding recent HR software mergers. The HR software market experienced an onslaught of consolidations in 2010 and 2011 with more expected in 2012, creating thousands of situations like Kuhn's.
Kuhn also finds herself in the awkward position of using the HR information system (HRIS) from Oracle's main rival—SAP AG, based in Walldorf, Germany. To complicate matters, in December 2011, SAP acquired SuccessFactors Inc. a San Mateo, Calif.-based vendor of a cloud-based talent management suite and rival of Taleo and Fusion.
Kuhn estimates that she has at least 18 months before Oracle takes any actions that would impact Taleo. For now, SAP and Taleo still meet Beam's strategic HR needs, and "we will continue our plans to use SAP and Taleo," Kuhn says. "These new deals are so large that any major change will take a long time."
James Holincheck, human capital management analyst at Gartner Inc., a technology advisory firm based in Stamford, Conn., believes Kuhn's approach is a sound one. "I don't think there is any reason to panic short term," he advises. "Get the value from the investments you have made." When merged vendors develop track records, "see what your move is next."
The New Normal
Given the recent wave of HR software mergers, Kuhn's situation might seem familiar. If you have not been affected yet, just wait. The merger mania is not expected to end soon.
"There are a lot of changes," says Naomi Bloom, a strategic HR technology consultant and managing director of Bloom & Wallace in Fort Myers, Fla. "There will never be a quiet time."
Another key merger was Salesforce.com Inc., best known as a cloud-based customer relationship management vendor, acquiring Rypple in December 2011. The move signals entry of Salesforce.com into talent management. Rypple's cloud-based social performance management application replaces traditional performance reviews with a social and collaborative approach so employees are accountable for achieving their goals.
All these changes are the natural outgrowth of a long period—a decade or more—of HR software innovation. Recruiting, learning, compensation planning, performance review and other talent management functions became proof concepts for—and beneficiaries of—the software-as-a-service model (SAAS). In SAAS, the customer leases an application that resides in the cloud instead of buying a license and operating the software on its hardware.
As the idea of cloud-based enterprise applications took hold, talent management was perceived as a relatively low-risk way to give the cloud model a try. In reaction to SAAS, enterprise software vendors tried but often struggled to offer cloud-based models. Thus, it is only natural that after a decade of developing and testing applications and winning market share, Taleo, SuccessFactors and others would become acquisition targets.
This latest round of consolidation merely represents the largest fish eating the big fish: SuccessFactors, Taleo and other SAAS vendors went on their own acquisition sprees before they were bought.
What concerns should customers have?
"The first thing we tell our clients is not to panic," says Jason Averbook, chief executive officer of Knowledge Infusion, a Minneapolis-based consulting firm. "Companies like Oracle and SAP buy competitors because they want the customers. In some cases, they also want the talent. In some cases, they also want the technology. But for the most part, they want the customers."
Understand the technology and integration road maps of the acquiring companies.
Averbook's calm comes with caution. "Continue down the path you are on, but at the same time ask what these mergers mean strategically to your company and your HR efforts. After buying Taleo, Oracle now has five different HR products, which means five different code lines. It is time to understand which they are integrating, which they are continuing to invest in, and ask if that matches your long-term strategy."
If it doesn't, he says, "start figuring out what your migration path is going to be."
Waiting for Road Maps
Before making migration decisions, HR professionals should understand the technology and integration road maps of the acquiring companies. But good luck finding information anytime soon.
"There are no road maps as of yet," says Rich Berger, senior director of global HR information management at Citrix Systems Inc., based in Fort Lauderdale, Fla., which develops virtualization, networking, collaboration and cloud computing software. With more than 7,000 employees in 38 countries, Citrix uses SAP for its HR information system and products from Peoplefluent for talent management. Peoplefluent, based in Raleigh, N.C., and Waltham, Mass., is a merger of equals—Peopleclick and Authoria in 2010.
Berger's concern: What does it mean that SAP has acquired SuccessFactors, a direct competitor of Peoplefluent?
One can gather a general notion about Oracle's and SAP's plans based on their cloud efforts to date, what analysts and customers say, and some of their own public statements.
Oracle has worked on its cloud strategy for six years, adapting some applications and modules from earlier acquisitions, including PeopleSoft, and building entirely new applications and modules to include in Fusion. Oracle made Fusion generally available in October 2011 in on-premise and Oracle-hosted cloud versions. It seems unlikely that all of Taleo's offerings are destined to become part of Fusion, although Oracle is expected to integrate Taleo's recruiting and candidate sourcing modules into Fusion. Besides offering one of the leading recruitment applications, Taleo has built up one of the largest candidate databases.
"Oracle has a cloud platform in Fusion," Averbook says. "So it raises the question of what will happen to Taleo long term." He and others note that PeopleSoft customers had concerns when Oracle acquired that company in 2005. Oracle has not invested heavily in PeopleSoft but has kept it going. Oracle did not respond to requests for information about its plans.
In a webcast in late April, Oracle and Taleo executives spoke in generalities about the future features of the Taleo product, but probably not at the level of detail that would help customers like Kuhn. Neil Hudspith, Taleo's chief customer officer, whom Oracle has hired, reassured current Taleo customers that the merged company will continue to engage Taleo support personnel. He suggested that more details about the future road map for products would be available at Taleo's annual conference in September.
In contrast to Oracle, SAP likely views its acquisition of SuccessFactors "as much more strategic. SAP has made a commitment to move all HR products to SuccessFactors," Averbook says. SAP gave SuccessFactors CEO Lars Dalgaard the job of leading SAP's broader cloud-SAAS strategy.
While this might thrill customers lucky enough to use both SAP and SuccessFactors—who are probably the big winners—it concerns Berger. "We are an SAP shop. It is our back end for enterprise resource planning and HRIS, but we don't use any SuccessFactors products," Berger says. "When one looks at that combination, it is in direct conflict now with things we use from Peoplefluent."
Berger, vice chairman of the board for the International Association for Human Resource Information Management, says that, for now, marketing hype exceeds real analysis. "They haven't had time to create a comprehensive road map. From the perspective of an internal HRIS leader, we are still in a state of flux with these mergers and it is disruptive."
According to SAP spokesperson James Dever, the company planned to release more details, including a road map, last month. Dever said SuccessFactors will operate as an independent company and attempt to meet customers' needs, whatever diverse products they choose.
Disruption Likely to Continue
Holincheck predicts that SAAS acquisitions will create contract uncertainty for customers of the acquired vendors for at least 12 months.
The acquisitions "are a sure sign the SAAS application business market is entering a disruptive consolidation phase," he wrote in a Gartner brief in February co-authored by colleague Robert P. Desisto. The analysts urged HR professionals to factor this into their software strategies and suggested pre-emptive measures to take when entering into a SAAS agreement.
Among their recommendations:
Add language to any new SAAS contract that ensures enforcement and exit clauses if the contract is not adhered to by any vendor that acquires the SAAS provider.
If you have business requirements that must be met during the next three years, do not wait for a SAAS application suite to emerge from a single vendor across all domains—finance, candidate relationship management and human capital management. Pursue a best-of-breed strategy.
"History tells us once a market starts to consolidate it can accelerate very quickly," the analysts conclude. "Though consolidation can promote longer-term stability as large vendors with strong viability mitigate the risk of smaller vendors, it will create turmoil over the short term."
Turmoil does not upset Kuhn because Beam has done what the Gartner analysts suggest. "We already have contracts and agreements we expect our vendors to live up to," she says. Her future concern is that Oracle might change its cost model and the way it integrates a non-Oracle product with Taleo.
"Customers whose contracts with these vendors are expiring in the next 12 months or so may want to wait to see what happens. You may not want to extend your contract fully for three years or longer until you have more factual data about the road map. Do a one-year renewal instead," Kuhn advises. Don't let mergers "keep you from moving forward in your initiatives with HR," she adds.
Merger mania among HR software vendors underscores the need for HR executives to think strategically and to pay close attention to trends that might impact their ability to support their businesses. Business needs should drive talent strategy, and talent strategy should drive the licensing of supporting software.
Gathering "rigorous, competitive intelligence on your key partners is part of your responsibility day in and day out," Bloom says. "You can wake up tomorrow morning, and there can be disruptions not just in ownership but in leadership and strategic direction of those vendors."
An HR strategy that supports business strategy, combined with an HR software road map that supports HR strategy, can prove to be a shelter in turbulent times. Amid constant change, "step back and find some sanity and stability. That's where you need the strategic business plan," Bloom says. "Even as the moving parts or tactics keep changing, you must stay focused on where you are trying to get to."
This is what Kuhn means when she says Taleo and SAP still meet Beam's strategic needs. Beam has an HR strategy aligned with business strategy.
Whether this is broadly true of HR organizations is not clear. Researchers at CedarCrestone Inc., an Alpharetta, Ga.-based provider of consulting, technical and managed services, shed some light on the subject.
In a 2011 survey of 727 respondents worldwide about technology systems, full-time HR professionals were asked "Where do you spend at least 25 percent of your time?" Respondents could choose more than one answer, and the third most common answer, chosen by 47 percent, was "HR system strategy."
Asked that way, it is not possible to determine if the other 53 percent spend less time on it or none, notes Alexia Martin, CedarCrestone's director of research and analytics. She surmises that about half of HR organizations understand the importance of having an HR technology strategy and spend time working on it.
But it also suggests, Martin says, that "a sizable portion of HR organizations are not spending much, if any, time on HR system strategy."
The author is technology contributing editor for HR Magazine and is based in Silicon Valley.
SHRM article: How to Get Satisfaction from SAAS (HR Magazine)
SHRM article: Looking Under the SAAS Model’s Hood (HR Magazine)
SHRM article: Vetting, Carefully (HR Magazine)
SHRM article: Using a Road Map for HR Technology (HR Magazine)
Blog: In Full Bloom (Naomi Bloom)
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