I was recently getting caught up on some blog reading and noticed Josh Bersin’s post on the Talent Management Software Slump. I’m not sure if I’m just a pessimist, but I thought I’d post a reply. (granted, Josh wrote his post in early May…
Despite this difficult Q1, we believe the market is going to come roaring back in Q2 or Q3 of 2009. Most of the private companies we talk with (Plateau, CornerstoneOnDemand, Learn.com, GeoLearning, Halogen, and others) tell us that while they had a weak Q1, they have seen tremendous growth opportunities in Q2.
First, the mid-market and small enterprise segment of talent management is starting to grow rapidly.
Fourth, there is still tremendous demand for talent management software. In today’s rapidly changing workforce (from layoffs to restructuring to rapid growth), the value of this set of software is greater than ever. While Q1 was tough for vendors, most buyers only postponed their purchases – giving themselves more time to evaluate options and improve their own businesses. In Q2, Q3, and Q4 these companies will buy these systems.
So my thinking on the slump basically reflects back to 2001 when the dot-com bubble “burst.” When that happened, basically, HR technology spending totally dried up. It actually took about 3 years for HR technology spending to come back, and when it did, spending came back with a vengeance. My theory on this was that when spending cuts happened in 2001, HR technology was among the first to be cut. Then as the recession ended and things got better, neglected business critical technologies were upgraded, implemented, and restored. Things like CRM or supply chain that didn’t get needed upgrades for months or years got the first funding dollars.
As we all know (or think), in most companies HR funding is a lower priority than other business functions. I don’t see any reason to see this to be any different as the economy recovers this time. As organizational revenues recover, employees will be rehired or returned from furloughs, business critical applications will be maintained first, and budget cycles will still lag a year behind needs. Before an organization goes out and spends $100K or even $1M on any HR application including talent management, there are a whole lot of other unspent business critical dollars that will probably come first. HR budgets that got slashed in 2009 will still remain slashed in organizations with any governance at all. Perhaps some organizations will get dollars in their budgeting cycles at the end of this year, making dollars available in 2010, but I’m guessing that 2010 budgets will focus in other areas than HR.
Perhaps Josh is a better judge than I am though. It may indeed be possible that certain talent applications will actually fare better than most other HR technologies. Performance and Succession ran such high profiles in the last few years that we can only hope executives remain enamored with those technologies. I’m not a big fan of looking at vendor pipelines for guidance on future sales. Every vendor (application, outsourcing, or consultancy) has great looking pipelines right now. Salespeople seem to be sandbagging as much questionable prospecting into their pipeline portfolios as they can right now, as much to remain optimistic as to try and keep their jobs. Pipelines are also more robust in number of prospects, but smaller in terms of deal size. The mega deals that have kept vendors going for years will be slower to rebound. I think that most organization will have to deal with the technologies they were able to install in the last couple of years and hope they continue to work for a couple more years.
10 responses to “The HR Software Slump”
Perhaps the title should read “HR Slump” not “HR Software Sales Slump?” Even though these are tricky times and getting approval for funding is tough, it’s not that tough. It all comes back to a common thread which we’ve seen in good times and in not so good times…Having a seat at the table. When HR has credibility, HR can make the case for change. Period. End of story. Unfortunately, many HR departments do not have the requisite “juice” to make it happen. And even among those that do, have largely been conditioned into thinking they would be crazy to ask for money for a new HR technology gizmo. And perhaps even crazier if they asked for money to do a business case (cost/benefit study).
While all of this is true, there are options. Today’s tough times call for operational efficiency. One of the tenets of operational efficiency is to leverage assets. In this case one untapped asset is the healthcare claims budget (warning – the following concept only applies to self-insured plans, which are typically for employers with 500 plus employees).
Everyone knows that healthcare cost containment has largely been elusive for most employers in spite of the huge sums of money spent with consultants from big HR consulting firms. Well, it doesn’t have to be that way. With today’s data mining-driven dashboard technologies with “real time” compliance and analytics functionality, it’s not uncommon for an employer to reduce healthcare costs by 5% or more annually. These savings could be easily used to fund other HR initiatives, including new HR technologies.
The good news is this opportunity applies to employers of all sizes in all industries particularly since Benefits reports to HR. Whether it be Talent Management or core HRMS technologies, if you turnover the right stone, the money is right there.
Perhaps the title should read “HR Slump” not “HR Software Slump?” Even though these are tricky times and getting approval for funding is tough, it’s not that tough. It all comes back to a common thread which we’ve seen in good times and in not so good times…Having a seat at the table. When HR has credibility, HR can make the case for change. Period. End of story. Unfortunately, many HR departments do not have the requisite “juice” to make it happen. And even among those that do, HR executives and managers have been conditioned into thinking they would be crazy to ask for money for a new HR technology gizmo. And perhaps even crazier if they asked for money to do a business case (cost/benefit study).
While all of this is true, there are options. Today’s tough times call for operational efficiency. One of the tenets of operational efficiency is to leverage assets. In this case one untapped asset is the healthcare claims budget (warning – the following concept only applies to self-insured plans, which are typically for employers with 500 plus employees).
Everyone knows that healthcare cost containment has largely been elusive for most employers in spite of the huge sums of money spent with consultants from big HR consulting firms. Well, it doesn’t have to be that way. Today’s data mining-driven dashboard technologies have “real time” compliance and analytics functionality. It’s not uncommon for an employer to reduce healthcare costs by 5% or more annually. These savings could be easily used to fund other HR initiatives, including new HR technologies.
The good news is this opportunity applies to employers of all sizes in all industries particularly since Benefits reports to HR. Whether it be Talent Management or core HRMS technologies, if you turnover the right stone, the money is right there.
For fun, I track stock prices. Wish I’d bought SABA at the first of the year!
http://www.google.com/finance?q=KNXA+orcl++SABA+sap++SFSF+sumt+slry+TLEO++ulti+
Great post Dubs. I, too, side with you in that I don’t predict buyers will return in a vengeance in 2009. That doesn’t mean that companies aren’t pushing forward with their talent management initiatives. In fact, we are still predicting market growth this year around 8% (down from 20+% the last few years). Companies just need to deliver on lower cost, quicker-win projects and the money will be there to build off of them.
I think you are right about the revival after the present software slump being related to the speed of economic recovery. My take on the UK situation is that software budgets are being challenged and realigned as potential outsourcing budgets. The boardroom level conversations are around – who can do it better, at lower cost, with more useful management information. In some cases multi-tenanted HCM systems are going to look very attractive if they break the major capital investment, licensing, upgrade and maintenance costs associated with what is often regarded as a non-business critical system.
Subscription-based services for both niche SaaS solutions and broader integrated HR service delivery are looking good in today’s market. I wonder where the potential evolution of “the cloud” will take this next?
I agree with Howard that this post should probably be titled “HR Slump”. As a performance management system vendor we have seen a number of small to medium sized companies drop their HR department altogether. However, we have still had a very strong Q1 and it looks like Q2 will be just as strong. Since employees are a company’s most important asset, now is the time to make sure they are performing to the best of their abilities and companies are recognizing this and pushing through the tough economic times and still investing in HR software.
I’m not sure that the HR software market is going to roar back with avengeance, but will remain steady after the economy has put the importance of employees into perspective.
[…] selection and implementation. HR Technology Vendor News – Tuesday, June 30, 2009 READ MORE The HR Software Slump I was recently getting caught up on some blog reading and noticed Josh Bersin’s post on the […]
Great post – I agree with you and Jason to a greater extent. I do not think HR spend will even start to fully recover until mid 2010 or later. That said, we are observing some pretty interesting trends in the marketplace. I wrote a blog post recently to support these observations here: http://www.newtonsoftware.com/blog/2009/07/13/why-the-recession-is-good-for-you-the-buyers-of-software-3-emerging-trends-from-the-fishbowl/
We are seeing 3 key trends:
1. move to simplicity – more demand for intelligent point solutions
2. Out with massive customization – customers that can get spend approved, need tool / systems to work from the first login
3. Friendlier contracts from vendors – there seems to be a movement from vendors to do business in a more “frictionless ” fashion ie. more flexible contracts, etc.
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