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Spate of Acquisitions Cuts Across Talent Management Software Firms

October 15, 2010

Consolidation in the talent management software field has grown in recent months, as vendors aim to please customers eager for an interconnected set of people management tools.

In the past several weeks, SumTotal Systems Inc. acquired Softscape Inc. (financial terms were unavailable), Taleo Corp. snapped up Learn.com for roughly $125 million, and Kenexa Corp. acquired Salary.com for about $80 million. The tie-ups come on the heels of mergers completed earlier this year, including SuccessFactors’ acquisition of Inform Business Impact and the combination of Peopleclick and Authoria after Authoria’s parent company bought Peopleclick for $100 million.

In each case, the acquiring company came closer to a complete package of human resources software. Among other things, for example, SumTotal gained a hiring tool with Softscape, while Taleo added a learning management system.

In part, the vendors are jockeying to be the biggest players in a fast-growing field that is attracting investors’ dollars, says Josh Bersin , CEO of Oakland, California-based HR consulting firm Bersin & Associates. Talent management software firms also are answering the call of customers looking for a comprehensive set of talent management tools that talk to each other.

“The market is redefining itself as a market of integrated talent management,” Bersin says.

A Bersin study last year found that only about 15 percent of companies would be willing to sacrifice features in their talent management software for potential benefits of integrated software. This year, the number jumped to roughly 35 percent.

Talent management software refers to tools for key human resources tasks, such as recruiting, employee performance management, compensation and learning management. The advantage of tightly interlocking software tools is that they can more easily lead to business insights, such as which job boards contribute the highest-performing workers or how different bonus pay levels lead to performance differences in subsequent years.

Growth in the market for talent management software slowed in 2009 but has rebounded, in part because companies are trying to boost the engagement and productivity of their workforces. Sales of learning management, talent acquisition, and performance, succession and career management applications totaled nearly $2.2 billion last year and are on pace to climb to $2.5 billion this year, according to a preliminary estimate from Bersin.

Even with all the consolidation, the talent management software arena remains crowded. It includes specialists that focus on one or two product categories as well as software giants such as SAP and Oracle Corp., which offer HR tools as part of a wide array of business applications.

With its acquisition of Learn.com, Taleo now can offer recruiting, performance management, compensation and learning management software—the main talent management pillars. Not all Taleo software is closely integrated, however.

Shail Khiyara, Taleo’s senior vice president and chief marketing officer, said the company has been working to weave together its unified recruiting and performance products with its compensation management application, which Taleo picked up when it acquired Worldwide Compensation Inc. earlier this year. Taleo is doing the same thing with the Learn.com technology, Khiyara says. “We’re well on our way down the integration path,” he says.

Plateau Systems boasts a set of closely meshed learning, performance and compensation software tools. Until recently, Plateau didn’t see the need to offer its own recruiting software product. That is changing, says Jeff Kristick, Plateau’s senior vice president of worldwide marketing. “We have been re-evaluating applicant tracking,” he says. “It’s clear that it needs to be part of an integrated talent management strategy.”

As a result, don’t be surprised to hear about a Plateau acquisition. “We’re certainly looking,” Kristick says. “There’s a race to get the suite.”

Historically, talent management niche vendors have let the larger, soup-to-nuts business application companies like Oracle, SAP and Lawson take care of a central piece of HR software: the human resources management system that tracks basic employee data such as name, title and manager. But increasingly, smaller talent management specialists are expanding their offerings to include what some call “core HR” systems. By acquiring Softscape, for example, SumTotal added such a product.

But Larry Dunivan, senior vice president of human capital management products at Lawson, portrays the SumTotal-Softscape combination as less than ideal for customers looking for a comprehensive HR software suite. “You still don’t have a proven vendor of HRMS,” Dunivan says.

Christopher Faust, vice president of global marketing for SumTotal, disagrees. “Our core HRMS has been proven with large global enterprises for years, including many organizations with over 50,000 employees,” he says. About 60 customers use the product, which hit the market in 2004, Faust says.

The merger of software vendors can be a plus for customers in the form of a more financially stable supplier and superior products. It also can result in headaches as vendors steer clients to software they didn’t choose. Whether a company is a current customer of a vendor that’s been acquired or merely shopping for HR software tools from a newly merged supplier, wariness is crucial, Bersin says.

“It’s important to get a good briefing and understanding of the acquirer’s new product road map as soon as you can,” Bersin says.

Although the latest wave of consolidation is disruptive for both customers and vendors, not all companies have been shaken. EThority Inc., which makes a product for analyzing HR and other business data, does not see the recent deals as threatening to their business, says company president and CEO Mike Psenka. Talent management vendors may expand their offerings, but the analytic tools they provide typically don’t capture all the data companies need for a complete strategic picture of their business, such as financial information, Psenka contends.

“Does the customer have all of this data in one system?” Psenka says. “There’s always an outside source to integrate.”

Paradoxically, the acceleration of mergers among sellers of talent management software may put the brakes on spending in the field, says Lisa Rowan, analyst with research firm IDC. Too much turmoil could cause companies to delay buying decisions until the vendor landscape settles down, she says. “We could start to see a little bit of a market slowdown,” Rowan says.

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