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Talent management is the most important component of a human capital management system, according to Nucleus Research's first-ever Technology Value Matrix for Human Capital Management, which ranked SAP SuccessFactors and Oracle Taleo the predominant leaders of a 20-vendor pack.
"The way we see it, [human capital management] HCM also provides other HR technologies, but the core or most critical part of HCM is definitely talent management," said Gabriel Gheorghiu, principal analyst at the Boston-based company, and one of the analysts who worked on the matrix. "Talent management is important so you make sure you find not only the right people for the job but those that can help the business."
However, Gheorghiu also said that talent management is not necessary for every business to have. He recommended that companies approach HR software purchases with specific needs in mind and avoid falling prey to the hype of the latest technology.
"I think the best time to buy any type of software is really when you need it," he explained. "If your core HR system -- even if it's a legacy system -- works well, and you're not in one of these industries that desperately needs talent, I don't think you need HCM."
Talent management is king in HCM
HCM is defined in the report as "generally comprising core HR (payroll, benefits and personnel management), workforce management and talent management functionality (career development, succession planning, learning and training)." The report explains that these functions could be spread across different products from the same vendor. Products were assessed on functionality and usability.
Vendors are dispersed fairly evenly on the matrix among the "leaders," "facilitators" and "experts" categories, with just two -- SAP ERP and Bond Talent -- placed into the "core provider" quadrant. Leaders scored highly on both usability and functionality. Facilitators are skewed towards usability, experts towards functionality, and core providers received low scores on both measures.
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The two predominant leaders according to Gheorghiu are SAP SuccessFactors and Oracle Taleo. Other leaders include SumTotal HCM, PeopleFluent, ADP Vantage HCM and Infor, based on its acquisition of Lawson.
While Workday is one of most highly ranked vendors on usability, it is one of the lowest on functionality, placing it in the facilitators section. Gheorghiu said that this positioning is due to the product's weak talent management capabilities. "Workday is not as strong as Taleo or SuccessFactors, or even smaller vendors," he said.
He cited Workday's announcement that it will build a recruitment platform for release in 2014 as evidence of its functional deficiencies. "Talent acquisition and recruiting are pretty much core in other HCM or talent management systems, so I know they're doing a lot, but we don’t see them as a leader -- not yet," he said. Saba and Kronos Workforce Central were also identified as facilitators.
While Gheorghiu said social recruiting and succession planning are currently the two most important functions of talent management, he expects learning capabilities to increase in significance in upcoming years.
"I believe in a proactive approach to talent management rather than a reactive approach," he said. "A proactive approach is finding talented people that you train and encourage to grow with the business. A reactive approach is to go out there and see who is extremely qualified and has a lot of experience -- buying talent rather than growing it."
In Gheorghiu's opinion, learning is an essential component of a proactive approach. "With Generation Y and younger people, I believe that if you can really get them on your side by investing in them -- and that's what learning is -- then they will stay with you." This emphasis on learning is reflected in Lumesse's inclusion in the report's "vendors to watch" list.
The report points to talent management integration issues as a sticking point for HCM systems. "One of the major challenges HCM vendors face is the integration between talent management solutions or modules and core HR, along with other business software types, like ERP or CRM," the report said.
But in regard to SAP and Oracle's acquisitions of SuccessFactors and Taleo, Gheorghiu said it's unrealistic to expect integration to happen overnight. "We cannot expect software vendors like [Oracle] JD Edwards or SAP ERP to easily integrate with other complex solutions like SuccessFactors and Taleo," he said. "It's an ongoing process, and I think they're on the right path."
Is it time to invest in talent management software?
Although talent management is the principal piece of HCM, Gheorghiu said it's not necessary for every business to have, simply because some industries do not need high-value talent as much as others.
"HCM including talent management is something that is used a lot by large enterprises and that is because talent for them is more important. To put it bluntly, if you have a warehouse management business you do need qualified personnel, but you won't invest a lot in retaining them because you know some will leave and others will come," he said. "It's a pragmatic approach if you think about it."
However, larger businesses that need workers that are highly in demand, such as engineers, are not in the same situation. "If you're a high-tech company, you can't afford to do that," Gheorghiu said.
Gheorghiu suggested some questions to consider before purchasing talent management software. "I think there are several things you need to ask yourself. Does my legacy system do what I need to for core HR? Will my company grow so much in the next 5-10 years and will I need so many talented people that an investment in talent management is justified?"
Gheorghiu's last word of advice was to take a gradual approach to HR software purchases. "I don’t think you should buy HCM for the sake of buying what's trendy and what's new," he said. "Sometimes companies look at a package HCM suite and they say, 'Wow, lets buy everything.' The problem is it's expensive, and you may not need everything."
"Start with what you need and you can add other things later," he said.