Analyst Perspectives

Consolidation activity increased in the market for applications in talent management or what I call workforce performance management as ADP announced and now has closed the acquisition of Workscape. ADP is a $9 billion outsourcing provider that is well known for providing employer and payroll services; the company has been expanding its breadth of services for employers by responding to demand for software as a service (SaaS), a deployment model that does not require significant involvement from the customer’s IT staff.

Following the acquisition, ADP will need to rationalize its multiple offerings and partnerships for talent management. Recently it has been advancing its offerings in the midsize market and for large companies through a partnership with Cornerstone OnDemand. Workscape has products for performance management, compensation management and manager self-service that overlap with these, especially with the reselling of Cornerstone OnDemand. This partnership is clearly at risk; ADP could have moved to acquire Cornerstone, but its decision to acquire a different provider indicated challenges in the partnership – most likely Cornerstone’s demand for a larger payout than ADP was willing to give.

ADP also will have to reconcile its market segmentation: It has approached small, midsize and large businesses while Workscape focused on the larger two markets. Actually Workscape primarily aimed its talent management suite – which I recently reviewed – at the largest of organizations and had been expanding into the midsize market. Workscape has been successful in recent years  and received the Hot Vendor award in the 2009 Ventana Research Value Index for Total Compensation Management because of its high ratings for products and customer assurance. The largest concern I see for customers of Workscape is that ADP will lump them into its product offerings for human resources and leave the former Workscape as just another marketing and sales page on its Web site and brochures. It is not clear yet how strategic a role Workscape will play in broadening the ADP portfolio, but over the next year if we do not see the Workscape Web site still existing and most of its current employees working for ADP then there is room for concern. On another front, ADP needs to address gaps in its offerings in learning, recruitment and even workforce analytics and planning capabilities. That’s what it will take to make it a full-service provider of software to HR organizations like its new competitors including Softscape, SuccessFactors, Taleo and others.

This acquisition, Kenexa’s of salary.com that I assessed and Taleo’s acquisition of learning management system provider Learn.com, all in the last week, demonstrate the volatility of the software industry for HR applications. Also important is that HRMS and ERP providers such as Infor, Lawson, Oracle and SAP are no longer the center of focus for HR organizations as they were over five years ago. ADP is becoming a heavyweight in HR applications that could be the one for everyone to watch. The ability to provide simpler access for business through the cloud computing approach of renting software as a service is changing the way the software industry operates, and HR leaders, working with CFOs, should assess its efforts to make products cost-effective but also determine whether this is the best software to help them utilize their talent fully.

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Regards,

Mark Smith – CEO & EVP Research