Integrated or connected, what is the difference?
In the world of enterprise software, the term “integrated” is used liberally to describe systems that “connect” and pass data to each other. But the word integrated suggests these systems are actually woven together, which is rarely the case. At Bulger Partners, we debate these nuances frequently, and most of what we see in software today are connections, not integrations.
Every software sector has experienced, and continues to experience, some level of consolidation. Often, as we’ll discuss below, the consolidation is driven by the desire or need to expand product capabilities and deliver additional solutions to customers. Every organization evaluates build versus buy strategies, and often there are compelling reasons to acquire an existing platform rather than build it from scratch.
An interesting case study can be found in the Human Capital Management (HCM) industry, where rapid and increasingly expensive consolidation occurred between 2005 and 2012. While this consolidation created connectivity between offerings and has no doubt improved the offerings of the HCM industry, new demands from vendors will require enterprise software companies to take the next step towards true integration.
HCM Consolidation 1.0
The initial phase of HCM consolidation is commonly recognized as taking place in late 2011 and early 2012 with three of the largest enterprise software vendors acquiring best-in-class, publicly traded HCM vendors. It started with SAP acquiring SuccessFactors in December 2011 for $3.4 billion, followed by Oracle acquiring Taleo in February 2012 for $1.9 billion, and finally IBM acquiring Kenexa in August 2012 for $1.3 billion. These transactions expanded the platform offering for these vendors, creating a new definition of enterprise.
In reality, consolidation for HCM began long before these acquisitions. The initial phase of HCM consolidation can be traced back to 2005 when Taleo, Kenexa, SuccessFactors, among others, began acquiring point solutions to create full talent management suites. These initial, smaller transactions set the table for the headline transactions of 2011 and 2012.
Taleo: Taleo started expanding its platform in March 2005 with the acquisition of Recruitforce.com, an SMB focused applicant tracking system (ATS). Two years later in March 2007, they made their next acquisition, JobFlash, an interactive voice response (IVR) and interview scheduling platform targeting hiring of hourly employees. Taleo’s first major acquisition was in May 2006 when it announced a deal with Vurv Technology for $129 million. This transaction was less about rounding out the talent management suite and more about the customer base, as Taleo and Vurv were directly competitive. Taleo completed its acquisition binge with purchases of Worldwide Compensation in September 2009, and finally, Learn.com in September 2010 for $125 million. The final transaction, at least on paper, completed Taleo’s talent management suite with end-to-end SaaS capabilities extending from hiring to management of employee performance, compensation and learning.
Kenexa: Kenexa was the first to make a major move in the talent management landscape when the company deepened its hiring capabilities by acquiring BrassRing for $115 million in October 2006. The company then acquired assessment solutions provider Psychometric Services Limited in November 2006 and then continued to expand its recruiting reach by picking up a pair of recruitment process outsourcing (RPO) companies, StraightSource and Quorum International, in June 2007 and April 2008, respectively. Kenexa’s most notable horizontal expansion came in September 2010 with the acquisition of Salary.com for $80 million, adding a well regarded compensation management offering. Kenexa continued to improve their learning management capabilities by acquiring Outstart in February 2012, which effectively completed the company’s talent management suite.
SuccessFactors: SuccessFactors was last to the consolidation game but caught up quickly. Its first acquisition occurred in February 2010 with the purchase of Inform, a provider of workforce planning and analytics software, for $45 million. This was quickly followed by the May 2010 acquisition of CubeTree, a social collaboration vendor. Inorganic expansion continued with two acquisitions in 2011, beginning with the March acquisition of Jambok’s collaborative learning platform. The second was Plateau in April 2011 for $290 million, by far the most meaningful acquisition for the company as it gained a well-regarded and mature LMS capability. The final addition to SuccessFactors’ suite was the acquisition of recruitment marketing platform Jobs2Web for $110 million, announced the same day SuccessFactors was acquired by SAP, setting off the next consolidation wave.
Integration vs. Connectivity
Many assume that the HCM consolidation discussed above led to product integration, where capabilities such as applicant tracking, performance, compensation and learning management were integrated into other applications such as ERP and CRM. That would be a logical conclusion given the breadth of solutions now found within IBM, Oracle and SAP. However, after taking a closer look at the evolution of those systems, we believe connectivity, not integration, is a better characterization of what actually exists today. In fact, integration has been greatly misused in this context (and many others).
What in fact has happened with many HCM products is they have been connected to other enterprise applications. By this we mean that data stored or originated in an HCM application has become available in ERP, CRM, and other enterprise applications.
This connectivity typically involves synchronizing data between systems. For example, a connected ERP and HCM system will synchronize an employee record when it is first created and when it is updated. If HR personnel create a new employee record in an HR system, that information will be synchronized (nightly or in real-time) to the ERP system.
The latter has involved loosely coupling the products. It is not uncommon to have links on one application that take you to the other. Sometimes those links are smart, and they take you to the other application “in context”. For example, consider a sales manager reviewing one of her teams in the CRM system. A link in the CRM system might display “review team performance” and may take the manager to a portal in an HCM system where she can view her team members’ performance reviews or assessment data.
Both of these forms of connectivity have served customers well over the past few years. However, new demands are emerging that will require vendors to move beyond just connecting, particularly when they involve people-oriented businesses. Service businesses, Professional Services in particular (consulting, engineering, IT services, etc.), push the envelope on HCM requirements because their businesses are oriented around people. Like a distribution company buys and sells products, a Professional Services company buys and sells people (hires people and sells services that utilize those people). So HCM is as important to these companies as Supply Chain Management (SCM) is to a distribution company or manufacturing company.
An example of these requirements is apparent in the recent Accenture announcement. Accenture disclosed in July that it was eliminating annual performance reviews. In Accenture’s business, employees are matrixed amongst the many project managers they might work with in a given year. It is those project managers that have the most important input regarding employee performance. Why not review each employee in a lightweight review process immediately after each project? This agile approach provides more relevant and timely feedback, fits with already existing project post-mortem processes, and is in fact the model Accenture adopted.
However, few HCM systems would be able to handle this type of requirement. Furthermore, what managers really want is a review capability that is integrated with their ERP and Project Management systems. Simply connecting the systems doesn’t enable the necessary workflows or make the information available where, when and how you want it.
If a system provided this capability, the key metrics regarding an employee’s performance wouldn’t be a link away, but rather dashboard summaries from the Performance Management system would be visible in screens within the Project Management system. When an Accenture manager visits a report on Project Profitability, the relevant metrics about the employees on the team should be right there in summary form, not three clicks and two login screens away. Correlating project profitability to employee performance would be possible because that information would be where you want it, when you want it, and displayed how you want it. When products are merely connected, the information is there, but rarely accessible, and never actionable.
HCM Consolidation 2.0
When we fast forward and think about what HCM 2.0 might look like, we see the vendors in the ecosystem building on the requirements of the Accentures of the world and beginning to truly integrate their applications, both organically and inorganically.
In particular, new use cases are possible once vendors go beyond connectivity and innovate through integration. Take the example of a provider of workforce management solutions specializing in the hospitality industry. This vendor’s solution ties customer satisfaction to workforce scheduling and staffing. Imagine a hotel that is experiencing customer satisfaction challenges. Through connectivity, the workforce management solution can conceivably pull customer satisfaction data from the CRM system and correlate it with HR data, producing analytics around which workforces or shifts are delivering the happiest customers.
With integration, however, the system can pull the data right into the workforce scheduling and performance review interfaces, enabling a manager to seamlessly review customer satisfaction relative to specific employees, shift teams and overall staffing levels.
Integration can work in the other direction as well. A customer service manager working in a CRM application while servicing a client could have integrated access to information about the staff members who engaged with that client. While taking a request and recording it in the CRM system, that representative might know something about the quality of the staff assigned to service the request. The integrated view might indicate a 5-star employee is being assigned to the request, and the manager might be able to pass that fact on to the customer. In this instance, the fact that the employee has a 5-start rating is being pulled from the HCM system but integrated seamlessly into the CRM interface. No need for the user to click three times, open one window, and move another. The information is where he wants it, when he wants it, and displayed how he wants it.
Over the past ten years, HCM software has evolved from mostly administrative to highly strategic applications. There’s no question that organizations can drive both competitive differentiation and service excellence based on the way they hire, develop, engage and retain their employees, and the technology they use to do so.
Connecting the various HCM applications to themselves and other enterprise software solutions (HCM Consolidation 1.0) has resulted in a meaningful step forward in operational efficiency and data clarity, however, this is just scratching the surface of what is possible. In the next wave of consolidation, CRM, Project Management and other ERP systems will finally come together, both organically and inorganically, and enable accessible, actionable intelligence based on the correlation of all of this data. Who will fire the first shot?
[This post was co-written by Jeffrey Vogel, Douglas Melsheimer and Zach Drexler of Bulger Partners.]