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Redesigning Performance Management
The software and services market for performance management remains hot, as organizations deal with the complexity of redesigning workforce management for strategic advantage. Vendors are moving to fill gaps in their offerings, including through consolidation, which is expected to continue.
The mortgage/credit crunch may be raging, the price of gasoline and food soaring, and the American dollar sinking, but, based on a forecast from IDC, even with today's economic woes, it's a good time to be in the performance-management software and services business. IDC, in a recently released report entitled Worldwide Workforce Performance Management Forecast 2008-2012: Still a Hot Market, forecasts that the market for workforce-performance-management (WPM) software and services will reach $2.55 billion by 2012, increasing at a compound annual growth rate of 10.1 percent. According to Framingham, Mass.-based IDC, consulting services still make up the largest share of spending, mainly because of the complexity organizations face when redesigning performance management for strategic advantage. Under current conditions, IDC reports, WPM remains a relatively new market with plenty of room for growth and innovation. "Despite a potential business downturn, employee retention will continue to be a key concern for HR executives in 2008, given the very real demographic shifts occurring in the workforce," says Lisa Rowan, IDC's program director of HR and talent-management services. "Employers will be seeking ways to both automate and integrate talent functions, with the goal of identifying and retaining top performers. Performance management is a linchpin in this process," she says. The IDC report also found: * Popularity of the Software as a Service model is growing and surveyed vendors report that, on average, 82 percent of their performance-management implementations are delivered via SaaS. * Performance management still has the highest buyer interest of the talent-management products. * IDC advises vendors to pay special attention to every client constituency. In short, there needs to be "something in it" for everyone, especially the employees, for a WPM project to succeed. Leighanne Levensale, director of talent management research for Bersin & Associates, a research and advisory services firm in Oakland, Calif., says that while her firm's estimates are not robust as those reported by IDC, she agrees performance-management software and services is a growth market. For example, Bersin estimates the market for performance-management software (not services) at $500 million for 2008, growing at an annual rate of 30 percent to 35 percent. Also, Levensale says, Bersin estimates that spending on services is about half the size of software market. She says the difference between the IDC and Bersin estimates could be a broader definition of WPM by IDC. "To us, performance management includes performance, succession and career-planning software," she says, adding that overall, Bersin estimates the talent-management systems market (encompassing systems for handling recruiting, performance management, learning and compensation) at $2.38 billion in 2008, growing to $3.5 billion in 2011 (the figures include vendor-provided services). "It's important to look at performance management in the broader context of integrated talent-management solutions," she says. "Performance management is the only application area/module available in every talent management 'suite' on the market today. So it is considered a foundational application or a core application." As testament to performance management's growth potential, Levensale adds that providers from the recruitment-management and learning-management markets have developed or acquired performance-management solutions to extend their total solution footprint. On the flip side, performance-management vendors developed additional applications, such as recruitment -management and compensation-management, in pursuit of the same strategy. Even the ERP vendors have committed to supporting integrated talent management with their HCM applications, she says. "In the last 24 months, we've seen the convergence of the niche or best-of-breed strategic HR solution providers," she says. "Some of this convergence has happened through consolidation activities. We expect more consolidation as solution providers try to fill gaps in their talent-management offering." IDC's findings on the SaaS delivery platform are not surprising, according to Jeff Kristick, senior vice president of marketing at Plateau Systems, the Arlington, Va., talent-management provider. In fact, Plateau's SaaS revenues, including subscription hosting, grew 167 percent during 2007, with more than 60 percent of new customers choosing to deploy through Plateau's SaaS offerings, he says. "The IDC report certainly jives with the significant growth in the SaaS delivery platform," says Kristick. Interestingly, Kristick partially attributes the rise of SaaS to current economic conditions, as employers continue to struggle to retain and reward talent, as well as look for ways to reduce costs while achieving that objective. He cites SaaS' lower up-front and maintenance costs as a key driver. "We're certainly not recession proof, but right now, performance management is thriving," he says. Bersin's Levensale says SaaS is mainly seen as a small- to mid-market delivery platform right now, adding that bias against SaaS offerings in IT departments still exists, mainly due to concerns over a lack of data control and security. But, she adds, several SaaS providers have made inroads with a few large enterprises. These vendors use second-generation platforms based on Service-Oriented Architecture/Web-service standards. "As more and more IT organizations adopt SOA, they will demand their solution providers to comply," she says. Kristick says that, while the SaaS delivery platform is perceived as only applicable with small and mid-market employers, the sector is seeing some large deployments, with 30,000-plus users, taking advantage of SaaS. Finally, on the "something in it for everyone" aspect of IDC's study, Ed Boswell, CEO for The Forum Corp, a talent-management consulting firm in Boston, says the report's findings mean organizations cannot lose sight of the "high touch" side of performance management, even with all the new systems coming down the pipeline. "Apart from the [software] system, the process also means constant feedback and coaching, in the end offering a fair and accurate appraisal of employee performance," he says. "If you don't get employees engaged, then it's not going to work." He adds that the role of leaders/managers is critical, because they are the pivot point at which strategy gets turned into action. "They need to be able to clearly communicate business goals and responsibilities in order to meet performance goals," he says. "[Performance-management software] systems should facilitate the process, not dominate it." Along those lines, Levensale says a few solution providers (Taleo and Saba, for example) enable employees to complete performance-management activities in familiar ways, such as through Microsoft Outlook. "We think this is the next big thing in employee-facing systems and see huge potential benefits," she says. With that technology, employees can view all of their career-development opportunities, use social networking to find and communicate with others in the organization, and find content that will make their jobs easier. Managers will have a dashboard of information about employee performance that will make it simpler and easier to manage, she says. "In the end, employees still want to know where they stand, what they can do to improve, how much merit increase they will receive and what kind of career opportunities they have within the organization," Levensale says. Clarification: Lisa Rowan of IDC comments: I was not contacted for this story. (Editor's Note: The writer attempted to contact Rowan, but was not successful.) IDC's total forecast for performance-management software and services is given but the forecast for software alone was not. In the full study, the forecast for performance-management software for 2008 is $580 million. IDC's forecast is based on proven and rigorous methodologies built on the firm's 40-plus years of research experience. I wish to clarify that IDC's definition for performance management encompasses performance-review management, goals development, competency management, 360-degree assessment, career development, succession planning, and associated analytics and reporting. Further, services associated with performance management are offered not just by the software vendors themselves but by many well known large consultancies and smaller boutique firms. Not all buyers launch directly into software investment but often conduct upfront assessments, process redesign, change management, and engage in advisory services. Demand for all of the latter services is very high. Lisa Rowan Program Director, HR and Talent Management Services IDC
May 20, 2008 Copyright 2008© LRP Publications |
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