This morning, SumTotal announced it had acquired two more human resources technology vendors. This deal got my attention for several reasons, not least being that I've covered all three firms before. But, this deal also warrants some reflection on how this and similar deals are reshaping the HR/human capital software space.
THE HR ARMS RACE - For over a decade, one could always find 250-300 vendors at the annual HR Technology Conference. The vast majority of these companies were small HR or human capital software firms that offered up niche solutions to the tire-kickers walking the exposition hall. Many of these buyers come to these shows just to find a single point solution (e.g., a 360 degree evaluation product) and try to get that purchase done. Yes, there were also big firms there looking to buy big HR and/or ERP suites but the niche buyers and solutions ruled the roost.
Niche HR solutions are rapidly becoming endangered. The M&A pace in this space started heating up big time just as the economy started to show signs of recovery. SumTotal has bought several firms (I recall Softscape and GeoLearning to name but two). Others have made a lot of deals, too.
What first emerged in this M&A frenzy were vendors trying to fill in gaps in their "Talent Management" solutions. The scope of talent management is big and most vendors had lots of holes in their product roadmap to fill. Talent Management solutions usually included all kinds of hire-to-retire applications except for Payroll and Benefits. Those functions belonged to the ERP and specialty payroll provider world (e.g., Ceridian, Paychex, Patersons and ADP).
Even acquisitions to fill-in Talent Management (TM) suites were insufficient on two fronts. First, some firms bought other Talent Management suites to get the customer base (and remove a competitor). SaaS solutions led the charge here as they made it easy for an acquirer to get customers and eventually migrate them to the surviving solution. The second reason that more acquisitions occurred is that bigger suites still needed Payroll, Benefits and other functions if these TM suites were to be able to claim that their products truly held the "Employee Book of Record".
The HR software arms race now is one with four categories of combatants: ERP vendors, HR/TM suite vendors, payroll providers, and, fewer small niche players.
The ERP vendors may have incumbency on their side for now but their lack of innovation and robust SaaS multi-tenant solutions is a BIG liability for them. Interestingly, these ERP vendors should have been the ones buying the Accero's, CyberShift's, SoftScape's, etc. They are the mega-vendors with poor SaaS credentials.
The HR/TM suite vendors will have a tough time getting CIO's and others to give up their ERP solutions. Sure, many of these products may be expensive, long-in-the tooth and creaky but they are 'the devil these customers know'. Inertia will keep a lot of this business in place. That said, when potential deals do come up, these HR/TM firms will definitely grab material market share.
These HR/TM suite vendors also have some integration challenges before them. Not only must they integrate disparate acquired apps together, they'll need to reconcile divergent SaaS technology stacks and integration requirements. Integration of these solutions to various customers' ERP solutions will also expose some less than elegant interim integration in the short-term but I'm fairly confident HR/TM vendors will lick this ASAP.
The big payroll firms will likely accelerate their product footprint expansion plans. They have to. (You can also expect some of the staffing firms to get aggressive here, too.)
Global solutions and true SaaS (multi-tenant SaaS that is) are the next battle grounds in HR software. Global payroll is still a very elusive goal as it requires functional capability in over 200 countries, countless provinces/states/counties and cities. Scale is the key here and the biggest firms will have the inside track. Even with that, global payroll from a single provider may still be a decade away, if ever.
If your firm is looking at new HR solutions, look at the solutions from Ultimate, Taleo, Kenexa, Workday and SumTotal, to name a few. The size & scope of the offerings are growing and changing daily. Decide whether you want solutions that:
- evolved organically (i.e., were internally developed)
- were inorganically added (i.e., via acquisitions)
- come from your current ERP provider
- have a multi-tenant SaaS basis
(Readers might also get value from Josh Bersin's post on this merger).
We're still in the early days of this market's consolidation. Do your homework on any HR software deal you do as the owner of the application could (and change and change....).