Special Report on HR Technology Talent Tools Still Essential

April 27, 2009
Despite the weak economy, fitness firm Town Sports International is still giving its hiring software system a workout. The company, which owns a group of fitness clubs on the East Coast, continues to hire 50 to 75 people a week. That’s down by about half from its typical level, says Jim Rizzo, senior vice president of human resources at Town Sports.

But getting those hires right is crucial to the company’s health amid the recession, he says. Recruiting software from Kronos that assesses candidates for their likely fit in openings including local club management jobs and customer service positions helps ensure that Town Sports maintains its member-friendly feel, Rizzo says. And that culture, in turn, is vital to keeping the company’s 500,000 members coming back despite the tough times.

"We want to make it a difficult decision to say, 'I won’t continue to do this,' " Rizzo says.

Just as Town Sports continues to rely on its hiring and recruiting software, organizations continue to need and buy talent management software tools during the economic downturn, experts say. Hiring is down, but it hasn’t disappeared. And talent management tools can help organizations make better decisions about downsizing. Analysts say there are various ways of squeezing value out of talent management tools, such as using performance management systems more frequently to keep workers focused and relying more on electronic learning to save training costs.

The current climate means companies have to pay more attention to the possibility that software vendors will be swallowed by a bigger competitor or go out of business. Another challenge is that budgets for new HR technology purchases and projects may have shrunk.

But organizations trying to be thrifty cannot afford to give short shrift to their talent needs, says Naomi Bloom, managing partner at Bloom & Wallace, a consulting firm in Fort Myers, Florida.

"It is critically important now," Bloom says. "Who’s going to lead you out of this recession? Who’s going to develop the next product?"

'Dynamic job market'
Talent management software refers to tools for key HR tasks such as recruiting, performance management, succession planning and compensation management.

On the surface, these applications might seem to be of little use to companies right now. Rather than focusing on grooming successors or planning incentive pay programs, many companies are downsizing and freezing salaries. Amid net job losses in the U.S. totaling some 5.1 million in 2008 and the first three months of 2009, hiring also would appear to be a low priority.

But those payroll employment figures mask the fact that the U.S. economy is full of churn even in the downturn, says Al Campa, chief marketing officer for talent management software firm Taleo. Federal data show that in January there were 4.9 million separations, including quits, layoffs, discharges and retirements. But there also were 4.5 million hires that month.

"The job market is so dynamic," Campa says. "That is what drives Taleo’s business."

Taleo said that in the fourth quarter of 2008, a record 27 new customers signed up for its "enterprise" recruiting software--that is, its hiring application designed for large organizations. Taleo, one of the largest recruiting application vendors and a seller of performance management software, says it now has signed deals with more than 660 organizations for its enterprise software.

For service-sector firms with a large number of hourly hires, recruiting software is as important--or more important--than ever, says Steve Earl, director of marketing at Kronos. For one thing, companies save money by automating the process of handling a flood of applications from newly jobless people, he says. And Kronos’ application, with built-in personality assessments, can help companies make the shift from a "war for talent" hiring mentality to one focused on selection from the expanded applicant pool, Earl says.

"How do you choose the best candidates from among this broader, deeper talent pool?" he asks. Wise companies are using the downturn to do such things as improve their career site, says Larry Kleinman, head of the global talent management practice at Kenexa. A beefed-up jobs site and better candidate assessments will give firms a head start when the economy begins to recover, says Kleinman, whose company provides recruiting software and a variety of assessments including skills testing.

"If you’re smart, you’re really preparing for a year, a year and a half from now," he says.

Talent for the future
Zach Thomas, an analyst at research firm Forrester, says companies ought to shift the way they use their recruiting software during the recession. Instead of aggressively advertising jobs, firms should move to "building and cultivating talent pools for the future," Thomas wrote in a February report titled "HR’s Critical Role in Economic Downturns."

"Many recruiting technologies offer lightweight contact management capabilities, and leaders such as Peopleclick offer feature-rich customer relationship management for recruiting solutions as a stand-alone or integrated with the recruiting product," Thomas wrote.

SGS, a 55,000-employee firm that tests toys for lead and provides other inspection services, is using a recruiting system from MrTed to snag candidates who are diamonds in the rough during the downturn, says Kevin Clark, the firm’s director of talent acquisition for North America.

Clark implemented MrTed software in September, and he has compiled a database of 4,000 to 5,000 applicants. Good workers will lose jobs these days, Clark says, and he is hoping to hire some as he fills about 140 openings.

"This is a good time to increase the quality of your people," he says. It’s also a good time to try to decrease your spending on recruiting software, says Jason Moreau, founder and CEO of Cytiva Software. Moreau says his firm’s SonicRecruit product can shave 65 to 70 percent of the costs of using recruiting software from better-known vendors such as Taleo.

"Those are real dollars, real savings," he says.

Cytiva historically has sold its product to midsized firms. But Moreau says his product can handle the recruiting needs of organizations with tens of thousands employees.

Kronos also is trying to save companies money on recruiting software. It recently launched a program that lets new customers pay variable fees based on their hiring volume. "If a company doesn’t hire, they don’t pay," Earl says.

Focus on performance
Talent management tools beyond recruiting are important in the downturn as well, observers say. Companies still must track how employees perform, manage their development and figure out how much to pay them.

"The talent challenges don’t go away just because there’s a bad economic climate," says Jim Holincheck, an analyst at research firm Gartner.

Mollie Lombardi, an analyst at consulting firm Aberdeen Group, says firms can raise employee engagement these days by using their existing employee performance and development software. Detailed conversations about performance and learning goals prompt workers to care more about their firm, she says.

While many companies review employee performance just once a year, Forrester’s Thomas recommends moving to quarterly performance reviews. "During an economic downturn, it’s imperative that you institute more frequent reviews where employee goals are similar across similar roles, are tied directly to revenue generating tasks, and are reviewed consistently," Thomas wrote in his February report.

He also argues that talent management applications can help make smart and defensible job cuts. "You can mitigate risk by having data to substantiate workforce decisions," Thomas wrote.

Talent management vendors agree that their tools allow for better choices on who stays and goes when jobs are cut. "If you’ve got a good performance management system, what does it do?" asks David Ludlow, vice president of solution management at SAP. "It enables you to identify who your high performers are and identify who your low performers are."

Vendor SuccessFactors recently introduced a tool called Stack Ranker, which is designed to let managers see top players and low performers in real time. SuccessFactors CEO Lars Dalgaard says his firm used the tool as it trimmed its own workforce last year. "Did we cut into any of the A-players?" Dalgaard said in a conference call with analysts this year. "We did not. And so that’s kind of the key. You are left with the absolute top performers."

Workplace planning
Software firm Zapoint also offers to help firms rank employees. Based on an analysis of employee résumés, along with manager input, Zapoint’s application provides a more objective way to compare workers, says company general manager Keith Woodward. "It’s a good time for our product," he says.

Leighanne Levensaler, an analyst with research firm Bersin & Associates, also says talent management products can allow for wiser workforce cuts. But few firms are using the tools along these lines, Bersin research suggests. In a recent Bersin study, just three of 10 organizations trimming jobs were able to use their talent management systems in sophisticated ways, such as taking into account employee competencies and future organizational needs.

On the other hand, companies are buying performance management systems, Levensaler says. Spending on performance and compensation management systems totaled $520 million last year and should grow 26 percent this year to $655 million, Bersin estimates. Companies hope to move to data-driven downsizing decisions, Levensaler says, but haven’t generated enough information in their systems or spent enough time doing such things as identifying pivotal roles and developing talent pools to fill those.

"They’re not ready yet," she says. "That’s where people want to get."

As organizations prioritize which talent management tools to focus on, Bloom recommends workforce planning. Despite the economic uncertainty, she says, organizations can use planning tools to do such things as determine what share of their employees is eligible to retire within five years, and take steps to groom or hire key replacements. Now is also a good time to try to map the workforce to corporate growth strategies, she says, such as deciding whether the organization should be hiring more people with a particular language skill.

Learning management systems are another area receiving attention these days. The systems can help firms create electronic coursework and track employee progress and certifications. SAP’s Ludlow says there is still a significant interest in e-learning management software. Such tools "help companies reduce travel, production and facility costs," he says.

Thomas says companies should be frugal about learning technologies and foster the "informal learning" that happens outside of classes. "Leverage the technologies you already hav--don’t buy virtual classroom software for group learning, use Web conferencing instead," he wrote. "Promote informal learning through social networking, blogs and wikis."

Sales slowing?
Even if managers wanted to make an ambitious investment in a talent management system, their companies may not provide the funds these days. Gartner’s Holincheck says organizations have grown more cautious about pouring money into new talent management software projects.

"We do see fewer companies looking at big, multiyear, multimillion-dollar programs," he says.

There’s evidence sales are slowing in the talent management market, which has been among the fastest-growing corners of the business software world. Bersin initially forecast that talent management software spending would rise 20 percent in 2008 to $2.3 billion. But the final tally was just shy of $2 billion, representing 16 percent growth, Levensaler says. For 2009, Bersin predicts a rise of about 14 percent to $2.26 billion.

Talent management vendors are feeling the pinch. SuccessFactors, which saw revenue grow 77 percent overall in 2008, trimmed its workforce by 22 percent in the fourth quarter of last year. Authoria and Kenexa also have cut jobs. In January, SAP, one of the giants in the HR software field along with rival Oracle, announced plans to shed 3,000 employees, or about 6 percent of its global workforce, by the end of the year.

Analysts say the lean times mean customers have to pay more attention to the ability of their software providers to survive and to take steps to mitigate the shutdown or sale of an HR software vendor.

"There are some that are definitely going to struggle with viability," Gartner’s Holincheck says. "In a down economy, to some extent the strong get stronger and the weak get weaker."

SAP stands to benefit from concerns about viability, Ludlow says. Despite its recently announced job cuts, SAP is one of the world’s largest software companies, with close to $17 billion in revenue last year. Many vendors of talent management applications are much smaller firms taking in less than $200 million in annual revenue.

"I have to think we’re placed a little bit better to weather the downturn," Ludlow says.

Kronos, which was bought by private equity investors in 2007, also claims durability. It has been around since the late 1970s, and has ranked third to SAP and Oracle in HR software revenue.

Rizzo of Town Sports says his firm took viability into account in deciding to go with Kronos hiring software, which it put in place in April 2008. He likens Kronos’ staying power to that of payroll processing powerhouse ADP.

Not having to worry about the stability of Kronos allows Rizzo to focus on the stability of Town Sports’ customer base by providing them great service. Town Sports, which does business under brands including New York Sports Clubs and Boston Sports Clubs, competes against both high-end fitness operations and discount gyms. With the help of its hiring software, Town Sports is hanging tough during the difficult times.

"We’re holding our own," Rizzo says. "Believe it or not, people still exercise.

Workforce Management, April 20, 2009, p. 20 -- Subscribe Now!