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How Oracle Built up Its Human Capital Management Arsenal With Taleo Deal

Almost six months after acquiring Taleo, Oracle is following through on plans to dominate the software-as-a-service industry.

July 20, 2012
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Related Topics: Top Stories - Frontpage, Human Resources Management Systems (HRMS/HRIS), Talent Management Systems, Technology
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In February, Oracle Corp. muscled its way into the cloud-based talent management industry by purchasing Taleo Corp. for $1.9 billion. One of many major acquisitions in the human capital management, or HCM, world this year, the move heralded Oracle's commitment to ramping up its cloud computing infrastructure and tapping into the innovative products that smaller, more-flexible HCM vendors are offering.

It was a good move for the company, according to analyst R "Ray" Wang of Constellation Research. "Oracle was weak in the Strategic HCM space," Wang says. "Taleo plays a key role in fulfilling this missing product line."

The Taleo suite includes recruiting and onboarding, performance management and goal-setting, compensation, succession, and learning and development features. These tools, sometimes called "talent management applications," are considered more strategic to companies than administrative applications such as employee record-keeping systems and benefits management software.

Oracles executives seem to agree. "Human capital management has become a strategic initiative for organizations," says Thomas Kurian, executive vice president of Oracle product development, in a written statement when the acquisition was announced in February. He added that Taleo's talent management cloud technology would be "an important addition to the Oracle Public Cloud."

Cloud computing, sometimes called software as a service, or SaaS, refers to business applications delivered over the Internet and paid for on a subscription basis. It stands in contrast to the on-premise delivery approach that Oracle and SAP have used for years, whereby customers buy a license to use the software and install it on their own machines. Computing in the cloud is seen as allowing for faster implementations and fewer maintenance hassles compared with the on-premises method.

For years, Oracle scoffed at the benefits of cloud computing, with CEO Larry Ellison referring to it as merely a passing trend, back in 2008. However, the purchase of Taleo, along with cloud-based software provider RightNow in October 2011, signaled a change in opinion for Oracle, and has helped catapult the company from a laggard to a leader in cloud-based offerings.

In his June earnings conference, Ellison announced that Oracle is set to become the second-largest SaaS company in the world, behind Salesforce.com Inc., with a projected $1 billion in bookings this year. Much of this growth is being attributed to the company's acquisition of cloud-based companies, and its promises to merge their tools with its Fusion Human Capital Management software.

In June, Oracle finally unveiled its much-touted and long-awaited Public Cloud offering, with a suite of more than 100 Fusion applications, including apps for financials, procurement, project portfolio management, and governance, risk and compliance, along with several human capital management applications.

"The main thing now is to see where Taleo fits into that suite," Wang says. Oracle hasn't yet stated which apps, if any, include the Taleo technology.

Analysts are also watching to see which key Taleo execs will jump ship in the wake of the acquisition. Taleo CEO Michael Gregoire left the company in May, according to his LinkedIn page. And in June Taleo lost two marketing executives—chief marketing officer Shail Khiyara who joined Spigit, a social innovation software and services firm; and Caroline Japic, former vice president of marketing who was hired by Bunchball, a gamification company. Taleo has also lost a smattering of sales and management people in the past few months, but Wang says these losses are neither surprising nor critical.

"Oracle tends to quickly consolidate overhead in the name of shareholder value, and once knowledge transfer has occurred, they eliminate redundancy," Wang says. "If Oracle manages to keep 70 to 80 percent of the people they want, they will be happy, and it appears that most of the people they want will stay."

Sarah Fister Gale is a freelance writer based in the Chicago area. Comment below or email editors@workforce.com.

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