The HR Software Round Up: Setting the Stage for 2012

In the last two weeks, VC funds have been flowing into the human resources software market, with large investments in SmartRecruiters and iCIMS. This activity comes on the coattails of two significant acquisitions in this sector at the end of 2011: SAP’s whopping $3.4 billion purchase of HR and talent management software bigwig, SuccessFactors (which acquired learning management software provider Plateau last spring), and Salesforce’s acquisition of Rypple, a startup acclaimed for bringing a social component to performance management. Things are clearly heating up in this sector, and investors have taken note.

This activity is pumping new energy into the continued expansion of HR solutions into the Cloud, as well as further integration of social media functionality into HR applications. Accordingly, I expect 2012 will see more large software companies making strategic acquisitions as they fight for the biggest piece of the pie. To that end, this article takes an in-depth look at what SAP and Salesforce stand to gain from their HR acquisitions, how it will impact this dynamic software market, and where other contenders in this space might make moves of their own.

The Opportunity for SAP in HR: It’s All About the Data

HR and talent management is a priority for every company and, according to Ed Newman, Chief Analyst at Inside Talent Management Technology, “Having capability in this market is important, especially at the enterprise level.” However, HR departments have had trouble getting over one major hurdle in establishing themselves as a vital business partner: delivering the data executives value most, such as ROI, performance metrics, and productivity analyses.

This is where SAP can most impact the HR market. Over the years, SuccessFactors added analytics and reporting capabilities to their product, in part through the acquisition of Inform Business Impact (previously InfoHRM) in early 2010.

“The ability to create some telling analytics will set one vendor ahead, because that’s what it’s going to take to give HR a seat at the table,” says independent HR technology consultant Tiffani Murray.

With SAP’s vast resources and experience delivering hard data in the ERP space, there’s a great opportunity here to further develop an HR analytics tool the market craves. If SAP is successful, we might expect to see more acquisitions at the intersection of HR and analytics in 2012.

Why HR Makes Sense for Salesforce’s Social Enterprise

Salesforce’s acquisition of Rypple aligns perfectly with their strategy to carve out a space in which social can thrive in the enterprise. There’s a lot of overlap between relationship management in CRM and talent management. “It’s not a far cry to take customer relationship management principles and apply them to an employment relationship management program,” says Kristie Evans, CEO of HR Logistics. Also, social tools have seen the most widespread adoption in these two markets, as CRM and HR have historically been the first business sectors to adopt new communications tools.

With the evangelist support of Salesforce CEO Marc Benioff and John Wookey (previously of Oracle and SAP) heading their HCM unit, Salesforce is in a strong position to help HR departments extend social media functionality across their various applications.

“This new blood drives innovation, which energizes the market,” says Murray. “It will drive the market in a new direction.”

Three HR Software Areas to Watch in 2012

The majority of movement in 2012 will likely be a continued drive toward the Cloud. Beyond that, though, there are three types of applications in the HR market that I think offer the greatest opportunity for strategic growth through acquisition in 2012: talent management software, applicant tracking and recruiting software, and analytics and reporting applications.

Talent Management Software. Talent management continues to experience rapid growth, especially in the Cloud. Business leaders increasingly see the value in a system for developing their workforce, tracking performance, and managing succession plans. There’s been a lot of movement in this sector, as the big guns grab up best-of-breeds in learning management and performance management, in particular.

Many analysts are watching Taleo–a competitor for SuccessFactors. They’re no stranger to acquiring competitors (remember Vurv?), and it would come as no surprise if they began flexing some muscles in the space as SuccessFactors makes the transition from privately held company to the newest member of the SAP family.

In addition, I’d keep an eye on U.K.-based Lumesse (previously StepStone Solutions), which has seen great success in developing mobile capabilities and just moved to a larger U.S. headquarters here in Austin, Texas as a result of its growing US customer base. Also of interest: SilkRoad Technologies, which has experienced tremendous success in Asia. They’ve nailed onboarding software and are making strides in adopting social media capabilities with their new “enterprise social solution,” SilkRoad Point.

Applicant Tracking and Recruiting Software. As a business function, recruiting has always been quick to integrate new technologies to keep ahead of competition and maximize results. A lot of the social capabilities and tools relate to the core functions of applicant tracking and recruiting software, and it makes sense that you’ll see more social capabilities evolving in this area first. Though these applications fall under the umbrella of talent management software, the influx of VC funding into this sub-category makes it stand out.

There are a few vendors to watch here. First, Jobvite is hailed for their seamless integration of social into the process of sourcing, recruiting and tracking applicants. Bullhorn–a leader in recruiting software–is also breaking into social with their new product, Bullhorn Reach. Currently in its infancy, I see a lot of potential in this product. And, of course, SmartRecruiters–with its innovative approach to social recruiting–is poised for continued success in 2012.

Analytics and Reporting Tools. Think business intelligence, specifically for human resources and recruiting. Your ability to identify and track trends in your retention rates, boosts in productivity, and benchmark performance will set your HR department apart from your competitors. And though HR has never had a problem with gathering data, HR software is recently making great strides in delivering technology that allows them to use that data. eThority's Workforce Analytics is currently the cream of the crop, and Kronos' Workforce Central also shows promise.

Customers Should Prepare for Moving and Shaking in 2012

Exciting as acquisitions are for analysts, they can certainly be intimidating for customers. How will this all affect the people who actually use these systems? Worries over disruptions in service, changes in pricing or contractual agreements, and vendor contact staffing changes are a real concern when a vendor changes ownership. When evaluating human resources software or talent management products, ask pointed questions about a vendor's financial and strategic viability, and lock-in rates and service or maintenance terms. This can save you a headache down the line.

The increasingly diverse needs of organizations big and small demand myriad options in human resources and talent management software solutions. As legacy vendors continue their age-old ERP battle, and as innovative companies like Salesforce continue to dazzle, the moves made by these (rather different) business management providers have certainly set the stage for an exciting 2012. Customers and analysts alike would be wise to pay attention to continued movement in the market in the coming months.