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The Power Panel

The Industry Analyst Panel at the most recent HR Technology Conference® featured wide-ranging discussions on everything from talent management to outsourcing.

Monday, January 8, 2007
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When it comes to talent-management suites, where should companies invest their money first? These and other questions were debated last fall in Chicago at the HR Technology ConferenceĀ®'s Industry Analyst Panel, a long-standing fixture of the conference that features four top analysts and a moderator. (For details on next year's conference, go to www.HRTechnologyConference.com.)

The panel gives conference attendees the opportunity to hear firsthand what experts who study the HR technology space for a living think about the key issues of the day. In addition to talent management, this year's panel discussed Oracle Corp.'s long-term plans for its PeopleSoft products, vendor consolidation and HR business-process outsourcing (commonly defined as the outsourcing of four or more HR functions to one vendor).

This year's panel included Naomi Bloom, managing partner of consulting firm Bloom & Wallace; Jim Holincheck, research vice president for HR applications at Gartner Inc.; Paul Hamerman, vice president of enterprise applications at Forrester Research; and Lisa Rowan, program manager for HR and talent-management services at IDC. The panel was moderated by Bill Kutik, HRE's technology columnist and conference co-chair.

Kutik: How important is it that most of the [HR business-process outsourcing] providers don't seem to be making any money yet? Is anyone making money at it? Should potential buyers wait until they do make money? And, what will it take for this industry to survive and thrive?

Rowan: To address the first part of Bill's question around how HR BPO is faring -- well, I think it depends upon where you sit. From the perspective of the early clients, for the most part, the early adopters are reasonably happy with the results so far. 

However, I also think we're facing a bit of a capacity problem at the top end of the market. The vendors in that space have had some problems in terms of achieving solid profit margins due to the sheer complexity of many of these deals. Some of that complexity has resulted from some of the earlier deals, in which the method by which the provider took over the clients' systems consisted of what we used to call "lift and shift" -- those deals have not been particularly profitable. 

In fact, these days we're starting to see -- call it "HR BPO 2.0" -- more of a "transform and then transition" approach, in which the vendors are being rather selective with who they're willing to take on as a client and, at the same time, they're being more rigorous in terms of how they're taking on responsibility for the clients' systems. They're also building up their capabilities around economies of scale. All of this means that HR BPO will eventually become more profitable, but it's going to take some time.

Kutik: Thanks, Lisa. Our next question is for Paul Hamerman, who is going to talk about something of intense interest to everyone in the room who uses software from Oracle, PeopleSoft or JD Edwards. Here's the question: Oracle has these two programs called Applications Unlimited and Lifetime Support -- are these simply Madison Avenue names for programs that don't quite deliver what they seem to promise? And, what is the state of Oracle Fusion, and what should Oracle's three different sets of HRMS customers be doing about it today, other than waiting and wondering?

Hamerman: I think Oracle has been doing some good things lately, particularly with respect to Fusion and Applications Unlimited, although the maintenance program continues to be a pain point for customers. 

So let me start with Applications Unlimited. In May of 2006, Oracle announced that it would support and enhance its existing products indefinitely, without forced migrations. I think this was very good news for customers in that it relieved some of the pressure associated with the notion that they would have to upgrade to Fusion.

As for Lifetime Support, I think that's really a marketing misnomer, because there's actually a diminishing level of support as you get into the later years of a maintenance contract with Oracle under its Lifetime Support package. And there's actually no corresponding decrease in price. In fact, the prices actually go up in year six and year seven of the contract. Oracle raises the prices, and then it reverts to something called "sustaining support," which is really very little support. It's just the privilege to upgrade the package when you choose to do so. 

So I think the bottom line here is that Oracle is charging a bit too much for its maintenance, and I think they risk losing some customers to other vendors or some of the third-party maintenance providers. I think Oracle eventually is going to need to change its support policy in the way it packages the various components of services that it offers under this maintenance program, and I'd like to see them unbundle those components. For example, give customers the freedom to pay for upgrades when they need them, rather than paying for the upgrades all along and perhaps not even using the them. 

As for Oracle Fusion, we did a study earlier this year that we called "the battle of the architectures" in which we compared Oracle Fusion to SAP Netweaver. We found that Oracle's middleware architecture has actually come a long way and is more open and more standards-based than Netweaver is right now. So they've made some very good progress here in building the middleware layer. 

Now, they still have a lot of work to do on the applications themselves. The next generation is called Oracle Fusion Applications, and I think it's a promising strategy to move the applications forward to a service-oriented architecture, but the benefits really aren't quite so clear yet. I think we're looking at a few more years before we actually see stable products come out under the Fusion applications banner. So our advice to customers is to not make any migration plans now, to wait until the products are truly ready to implement, and also wait until you really understand the benefits of migrating to Fusion.

Kutik: Naomi is going to address a question that's really central to HR today, which is, have we finally reached the point that technology can help HR departments help their organizations make more money? How can it help increase revenues and improve profitability?

Bloom: I don't believe technology has been the real barrier to our making more money through human resource management in many years. The problem is us. 

If we don't really know what kinds of compensation-plan designs incent the desired behaviors, then the fact that we have brilliant compensation-planning software that can execute the plan doesn't help us very much. If we don't know what the competency profile looks like of our ace salespeople, then having a fabulous talent-management suite to help us find more, move them around, incent them, appraise them and so on doesn't help us a lot. The heavy lifting was, is and will be in the hands of the HR community, no matter what we in the technology world do for them. 

What is happening is, with the technology having advanced so far, it really illuminates the missing piece, the analytical heavy lifting that remains to be done. So companies that have always done a good job in these areas and were hampered by poor technology should pat themselves on the back, get some good technology and use that intellectual property, that analytical work, that they've already done. 

For those of you who are HR professionals and are working in organizations where you haven't done the heavy lifting, there's nothing on this conference's showroom floor that's going to do it for you. 

Kutik: Let's move on to the talent-management suite, something that most customers do not seem to be buying in a single gulp, but rather in bits and pieces. 

Jim, for an organization with limited resources, where would you recommend they invest their money in a talent-management suite -- in succession planning, competencies, recruitment, compensation planning, learning management -- to supplement their existing HRMS? Since there's no one universally right place to start, how should an organization decide?

Holincheck: The questions HR needs to ask are, What are the business problems -- not HR problems -- that they need to solve, and then, How can they apply talent management to solve those problems? 

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When I talk to clients, I see them starting all over the place. In some cases, they already have systems in place for certain things, and they want to leverage those. In other cases, they have specific issues that they're trying to address, so they start there. 

There are indeed some natural starting points, where it makes sense to maybe sequence one thing before another. It's a lot easier to sequence doing performance management before compensation because, logically, you want to have performance-review information to drive that compensation process. But sometimes that's not the right answer. Sometimes the comp process is a lot more broken than the performance-review process, so it makes sense to start there. 

I was at a client a few months ago listening to some of their business units talk about their plans in terms of what they were going to do with HR technology for the upcoming year, and they did a great job of talking about what's happening in their business and what the drivers are for the business. Then they did a great job talking about their HR technology plans, and they had all the right buzzwords. 

And I'm sitting back listening to this, and at the end they ask me, "So, what did you think of what we were presenting?" I told them it was really good stuff, but I didn't see the linkage. They obviously have a great understanding of the business, but how have they linked what they're doing from a talent-management perspective to what's going on in the business? 

I gave them a very simple example. One of their business units wanted to develop its global product managers. It needed people who were responsible for products on a global basis. And so it was doing a lot of things around talent management, and I just said, "Well, why don't you connect those two things together? Start with those global-product managers you're trying to find and develop and what you can do in terms of identifying the ideal profiles for those people -- how do you change your hiring practices, how do you change your development practices -- to get people prepared to be those global-product managers? 

A lot of times when I'm talking to clients, they're not connecting those dots. They're thinking about the things -- and the right things -- that they need to do for the business, but not necessarily for the right reasons. 

Kutik: We've seen a lot of consolidation among HR vendors during the past year: ADP buys Employease, Kronos buys Unicru, recruiting-vendor acquisitions are expected very soon. Jim, is this vendor consolidation good or bad, and should prospective customers be concerned about it?

Holincheck: We need to take a step back and look at why consolidation is happening. A lot of it has to do with the maturity of the markets -- the more mature the market, the more consolidations you'll have. 

Some of the niche markets, like recruitment, are pretty mature. We've had applicant-tracking systems for a long time, so it certainly has more maturity than, let's say, performance management and broader talent management. And some of the bigger players are trying to get even bigger and gain critical mass within that market. 

The other consolidation driver is for vendors to get to that talent-management suite, to be able to provide clients with an integrated set of talent-management applications, and one of the ways to get there is through acquisition.    

When clients ask me about this, I suggest to them that one of the things to try and determine is whether your potential provider is more likely to be an acquirer or to be acquired -- because there are certainly vendors that have already shown their propensity to be acquirers. And could they be acquired themselves? Certainly, but is it much more likely that they're going to be acquiring other companies? Probably. 

If somebody is a smaller vendor in a space where there are a lot of other bigger vendors, it's certainly something to look out for. But even if your vendor is likely to be acquired, it's not something to be scared of. You shouldn't halt decisions because of it, but you need to manage it appropriately. You need to have the appropriate contract terms and conditions in there to protect yourself in case things don't go the way you want them to in an acquisition, but I don't think it's something that should stop decision-making.

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