And despite the downturn, investments are being made in HR software vendors and technologies that could lead to new capabilities when the economy eventually recovers.
Josh Bersin, head of research firm Bersin & Associates, said private equity money is “just being poured into this market” these days.
“In the long run,” he said, “it’s going to help the market grow.”
Applications to manage human resources tasks range from traditional core HR systems for tracking employee data to talent management tools for key functions such as recruiting, performance management and employee development.
In recent years, HR software has been one of the fastest-growing categories of business applications. But the economic downturn has taken its toll on the industry.
Bersin said talent management software spending in the first quarter of this year was up 10 to 15 percent from the fourth quarter of 2008. The rate of growth slowed in the second quarter, he estimates. Compared with the first three months of the year, talent management software spending probably rose 5 to 10 percent in the second quarter, Bersin said.
Paul Sparta, CEO of talent management software firm Plateau Systems, said sales cycles have lengthened from a range of 30 to 70 days to 40 to 95 days. Companies are taking a harder look before deciding on tools such as learning management systems.
“We’re doing more lengthy demos,” Sparta said.
Companies also are asking about vendors’ health, said Jason Corsello, vice president at consulting firm Knowledge Infusion. The tough economy raises the prospect that weaker firms will go out of business or be swallowed up by a competitor, which can mean the demise of a favorite product.
“Today, vendor viability is an important discussion for many buyers in the market,” Corsello said. “I anticipate increased market consolidation in the second half of 2009 and into 2010.”
Still, companies are inking deals for HR software. Knowledge Infusion predicts talent management software spending will grow this year by about 8 percent.
Workday, the software firm founded by Dave Duffield, is among the vendors taking in new business. Chief technology officer Stan Swete said Workday’s headcount has risen to more than 350 people, from about 280 at the end of 2008.
A key selling point during the recession is Workday’s embrace of the software-as-a-service model, Swete said. Software as a service, which involves delivering applications over the Internet on a subscription basis, promises lower upfront costs and fewer maintenance headaches compared with the traditional approach of charging firms a license fee and installing the code on internal computers.
“We’re just seeing increased interest in the upside of” software as a service, Swete said.
Plateau, which also offers the software-as-a-service approach, expects to increase revenue this year. Helping to fuel the growth is the fact that big firms that restructure or merge have to figure out what systems will manage their new-look workforce, Sparta said.
Private equity interest in HR software could be seen in recent years in deals involving Kronos, Authoria and SumTotal Systems. Bersin said he’s aware of additional deals in the works involving private equity.
Chris Forman, chief development officer at recruitment outsourcing provider The RightThing, said investments in recruiting technology are likely to lead to advances in the field in the near future. Better tools for tapping social media for recruiting could be among the innovations, he said.