The Month IT & ERP Permanently Changed

Summary:It's been a busy month of software events. But, taken together, they point to several major and permanent changes that will shape IT and ERP for decades. This seven part look at these changes spans hardware, HR software, the ERP leaderboard, changing buyer sophistication and more.

Part 3 – The Structural Changes in HR/HC/TM

I’ve covered HR (human resources) applications for decades. Originally, I did so as part of my responsibilities for Accenture’s (nee Andersen Consulting’s) global Software Intelligence Unit. I’ve also done this as I’ve re-written a couple of payroll applications over the years. I’m well acquainted with the space.  And, this space is going through a lot of change: people changes, culture changes, technology changes, ownership changes, venture funding changes, etc.

 

Culture Changes

The culture of several human capital software firms is in for a shock. Some of the largest talent management solutions in the market have been acquired by firms with very different cultures. Some hip, single-product family, entrepreneurial firms have been gobbled up by large, bureaucratic, command and control firms. For some people in these acquired firms, they’re going to feel like the poor souls in the fictitious firm showcased in 1999’s movie “Office Space”. They’ll be subjected to consultants interviewing them, the loss of some newly redundant folks, and the movement from one cubicle to ever more hideous office locations all the while trying to hang onto their red stapler.

Another culture change is occurring within the pure-play firms, too. Many of these are undergoing significant organic growth. As a result, they have to supplement their team with new talent, many of it from competitors. The new talent brings new, different cultural components to the mix. And this change, like any good change management professional will tell you, has the potential for introducing conflict.  But, the real culture hit comes when a firm brings in a better executive over the one who’s toiled at the firm since its startup days. I’ve had a conversation or two lately with some people on both ends of those kinds of deals.

 

Investment in HR Technology

Venture money into the human resources/human capital/talent management space appears to be undergoing change, too. Money may no longer be pouring into the cloud-based talent management (TM) solutions much anymore. Investors like spaces where they can put money in and get a liquidity event out in a couple of years. With SAP’s acquisition of SuccessFactors, Oracle’s acquisition of Taleo and Salesforce’s Rypple deal, who is left to do an acquisition? Infor? The list of potential M&A suitors has dropped a lot lately and this would give investors cause for pause.

dreamforce 09 2012 012
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Another exit strategy for venture capitalists (VCs) is the IPO (initial public offering). Workday has now gone public and SilkRoad is drafting right behind them. How many more public talent management firms will Wall Street support? Probably not many more.  When Wall Street gets interested in a space, the VCs will likely move on – if they haven’t already.

Workday s-1
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The only other exit strategy is the rollup. Here the venture firm convinces 2-3 similar firms to combine into one larger firm. The combined firm gains in customer count, internal efficiencies, etc. and is better able to compete with larger firms. In theory this works but often the combined firm faces daunting integration issues for years as it must rationalize all of the different development tools, product lines, etc.

Where money may be flowing is in the niches – especially niches that utilize technology beyond the big three: cloud, mobile and social. Money certainly seems to have found its way to video interviewing firms. It’s also going into HR analytics. For these firms, I’d recommend taking all the VC money they can get, while they can get it. And, in a year or two, when a bigger HR or ERP vendor offers to buy your firm, take the offer.

 

Structural Changes

There are a lot of other changes underfoot in the architectures of HR/HCM (human capital management) software. More than a couple of vendors are considering changes to their SOA stacks, user interfaces and/or other components. Here are some of the interesting changes:

SumTotal has completely revamped all of their architecture this year to a single, common environment. This is no small accomplishment given how many different HR technologies they have acquired over the last few years. Now, the company is in a position to dramatically scale new functionality and can assimilate other niche products with ease.

NorthgateArinso has created BPaaS - a business process as a service world. Here, the company has a variety of products for handling a number of payroll, HR and other processes on a client and geographic need basis. This is already on top of their ability to run a functionally enhanced, improved user interface, multi-tenant version of SAP’s HCM solution.

Northgate Arinso BPaaS
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-  Several firms are considering new PaaS (platform as a service) changes. Force.com and Microsoft Azure environments are getting a serious look-see although it’s too early to tell where the market may move here.

Social technology seems to be a big area of interest in every solution provider. Sadly, while interest is high, details and thinking on the incorporation of social media and social data seems wanting for now.

The other big structural change appears to be in the area of sales effort and market focus. While a number of talent management vendors were successful in landing some impressive Fortune 500 sized accounts, the real push to displace HR systems, payroll systems and more is just now underway. Dislodging incumbent (often ERP) vendors is no easy task. But, it’s happening. More firms are bringing in more professional sales team personnel and are amp-ing up their marketing efforts. The installed base in HR systems is clearly under siege now.

 

Bottom line: These changes (structural, cultural, capital, technical, etc.) are impacting human resources technology firms in a big way. But, they'll also hit other cloud based software firms, too. Growth, acquisitions, a changing technology landscape, etc. will require all manner of software companies to adapt. The question is: Who will weather these storms the best?

(Continue to Part 4 -  The New Deployment Variants ERP Must Provide)

 

Topics: Enterprise Software

About

Brian is in a unique position to diagnosis the winners and the losers in technology and services. He was the longest running (10 years) and most senior director of Andersen Consulting's (now Accenture's) global Software Intelligence unit - a position that required him to pick the best possible software solutions for hundreds of clients gl... Full Bio

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