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HCM Vendor Scene Heats Up

Industry watchers predict a year of HR tech vendor deals in the wake of SAP's SuccessFactors acquisition.

January 11, 2012

Game on.

SAP's $3.4 billion deal for SuccessFactors was the shot heard 'round the human capital management world, one that industry watchers predict will put other talent management companies in play as rivals scramble to keep pace in a human resources technology world moving to Web-based computing.

Reverberations from the deal will color the opening quarters of 2012 and beyond as Oracle and other SAP competitors plan their next moves, HR consultants, analysts and other observers maintain. "Oracle and SAP are at war," says Josh Bersin, president and CEO of HR industry analyst Bersin & Associates. "You can bet the guys at Oracle are plotting something to account for this."

The year promises to be interesting, and not only because of what SAP set in motion. Analysts predict more human capital management, or HCM, spending, a tantalizing prospect for a vendor contingent that includes SAP and Oracle Corp., but also Automatic DataProcessing Inc., better known as ADP, Infor, Kronos Inc., Ultimate Software and WorkDay Inc.. Over the next few years, the global HCM market is expected to grow 6 percent annually, hitting $8.1 billion in 2015, according to industry researcher IDC. In addition, smartphones, iPads, mobile apps, social networks, collaboration software and other technology innovations will continue transforming the workplace and the HR department. (See related story "2012 HR Technology Forecast.")

After months of waiting, in late December shareholders approved Oracle's $1.5 billion acquisition of RightNow, the Web-based customer relationship management software developer. Predictions abound that, to keep up, Oracle will buy a privately held talent management company, with Taleo a top candidate. "They're certainly the likely one," says Jim Holincheck, a managing vice president at Gartner and head of the firm's HCM software practice.

However, SuccessFactors' purchase price makes other talent management vendors more valuable on the open market. That could lead talent-management vendors who previously wouldn't have been interested in being acquired to change their minds for a big enough payout, according to Holincheck and other analysts.

But Oracle could be starting the year under a cloud, missing analysts' revenue and earnings estimates for the quarter ended Nov. 30 after customers delayed orders. In the waning days of 2011, Oracle also was dealing with continued fallout from a 2010 sexual harassment scandal involving former Hewlett-Packard Co. CEO Mark Hurd, now an Oracle co-president.

ADP starts 2012 promoting its home-grown Web-based HCM suite called Vantage HCM introduced in October 2011. The $9.9 billion payroll processing market leader also has its hands full integrating recruitment process outsourcer The RightThing, acquired in October 2011, into its operations and salesforce.

Other HCM companies aren't standing still, with WorkDay and Ultimate Software earning near universal kudos for native Web-based HCM systems that continue to win market share.

As for SAP, the company now must incorporate SuccessFactors into its sales efforts. "There are a lot of platform questions to work out, and they'll have to do a good job of communicating that to their client base," says Steve Bogner, managing partner at Insight Consulting Partners, a Cincinnati-based consultant that helps Fortune 500 clients install HR information technology systems.

Other industry watchers foresee SAP having trouble persuading the estimated 86 percent of SuccessFactors customers who don't use SAP for HCM to switch to SAP. On the other hand, SAP now can sell SuccessFactors' talent management platform to its 170,000 customers that until now haven't had access to a more cutting-edge talent management offering, says Bersin, the HR analyst.

Keith Strodtman, HR services consultant with HfS Research in Minneapolis, believes the SAP-SuccessFactors deal could entice more private-equity firms to buy privately held talent management and other cloud-based HR software vendors, following in the footsteps of KKR, which owns NorthgateArinso, and Hellman & Friedman, which owns Kronos. "It's piquing the interest of firms to invest in early-state companies and bet on the opportunity to cash in on those themselves," Stodtman says.

Michelle V. Rafter is a Workforce Management contributor based in Portland, Oregon. To comment, email editors@workforce.com.