Can traditional HCM vendors compete with SaaS HR?

Experts say mergers among vendors of human capital management software have created mix-and-match choices in both on-premises and cloud HCM.

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A David vs. Goliath matchup is brewing in the world of human capital management (HCM) software between large vendors of traditional enterprise resource planning (ERP) systems and smaller specialty providers. That's nothing new -- IT managers have long weighed the pros and cons of integrated application suites against "best of breed" software. What's different today is where these battles are taking place -- namely, in the cloud. And...

Software as a Service (SaaS) is the main arena.

The good news is that IT and human resource managers may be the beneficiaries of this new wave of acquisition activity and competition. Industry analysts say that enterprises have more choices than ever, thanks to cloud services such as SaaS HR, whether the goal is to fill out the HCM services available to HR departments or to take a fresh look at the entire platform.

SaaS HR soars

One reason large ERP vendors are squaring off over HCM is that the SaaS model is proving to be especially attractive to human resource managers. A recent report by Saugatuck Technology Inc., a research and consulting firm based in Westport, Conn., noted that HCM is one of the top software categories that organizations are considering for SaaS deployment. According to a Saugatuck survey, 22% of organizations currently use a SaaS-based HR and talent management product, while another 30% plan to do so this year or next. The consulting company also sees changes in the attitudes of companies that subscribe to SaaS HCM services. They're looking beyond just filling gaps with point solutions and taking greater interest in integrated SaaS HR suites.

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Workday, which offers a full, exclusively SaaS HR information system for midsize and large enterprises, is among the vendors benefitting from this interest. In investment research issued last spring, PiperJaffray called Workday "a force to be reckoned with," and estimated that the company's market share was on track to grow more than five-fold in the next three to five years.

But ERP players traditionally in the on-premise space aren't conceding the cloud to competitors. Last year, SAP purchased SuccessFactors, a company with a cloud HCM offering, to strengthen SAP's talent management capabilities. A few weeks later, Oracle Corp. snapped up Taleo, a competing SaaS talent management platform. Both of the acquired companies were listed as leaders in technology researcher IDC's most recent MarketScape Integrated Talent Management Vendor Assessment. And just this month, Oracle further expanded its cloud HCM roster with its purchase of SelectMinds, a recruiting package.

Another large vendor that couldn't resist the urge to merge was IBM, which announced this summer that it would acquire Kenexa Corp. and its cloud talent management software. Even firms outside the HCM market are making moves: Salesforce.com acquired Rypple, a maker of cloud-based performance management software.

Analysts don't expect this cloud HCM acquisition activity to subside anytime soon. "There are so many small companies out there that do one thing well, but it's hard for them to survive," said Fabia Bourda, transformation director at Tata Consultancy Services, which is based in Mumbai, India. "An Oracle, SAP or Workday will look for ways to get ahead of the game with these types of acquisitions."

Top questions to ask HCM vendors

The acquisitions plugged some feature gaps for the large enterprise software vendors. But the additions don't eliminate two fundamental questions facing IT and HR managers. First, should they move some or all of their HCM solutions to the cloud? And if the answer is yes, should IBM, Oracle, or SAP shops remain that way or take a clean-slate approach and consider all other options?

Not surprisingly, there isn't a one-size-fits-all answer, so enterprises need to take a calculated approach to finding the best option for their requirements.

The potential benefits of SaaS in general apply to a specific area like HCM. The service delivery model of cloud computing enables enterprises to quickly roll out new services, such as talent management, industry analysts say. In addition, if divisions within larger organizations use a different HCM platform than headquarters, SaaS HR software can help them consolidate and standardize solutions, Bourda said.

In both cases, the implementations can be funded from operating budgets instead of requiring significant capital expenditures. "So one question to consider is where is your funding coming from and how will you manage it over the long term?" she said.

Bourda also advises organizations to take a fresh look at the market if they’re considering new SaaS HCM services. "We tell clients that when you look to do something new, it's healthy to see what else is going on in the marketplace. Staying with the status quo is not the best answer all the time."

Larger vendors have at least one advantage over cloud-only upstarts: multiple delivery models consisting of both on-premises and cloud HCM services. This may be an especially important consideration for large organizations with a number of departments or divisions. "[Multiple models] allow you to be flexible about how services are delivered throughout the organization," Bourda explained. "One division may go with one deployment model, others may go with a different model."

But the flexibility of clouds also means that IT managers don't have to face tough either/or decisions with vendors, either. Some organizations may take a mix-and-match approach to choosing their providers of HCM software, Bourda said.

David and Goliath never looked so chummy.

This was first published in September 2012

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