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Miya Knights

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The changing market for HCM applications

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The market for HR applications is in a state of flux as a wealth of systems start coming up for renewal and cloud computing begins to enter the mainstream.

Cloud offerings – where users pay a subscription to access software over the internet instead of licencing and running it in-house at a hefty capital cost – are beginning to change the way that HR directors in medium-to-large organisations procure their human capital management systems.
 
Cloud software has already made its mark in the customer relationship management sector but the HR space is now seen as the next great white hope by vendors as they jostle for position in trying to woo users of SAP’s HR packages and Oracle’s ageing PeopleSoft applications over to their fold.
 
As a result, IDC predicts that, while the global market for HCM applications was worth $7.5 billion in 2011 (less than half the size of its CRM cousin), it is likely to experience a compound annual growth rate of 8.1% until 2016, helped largely by the growing adoption of so called “on demand” cloud-based systems.
 
Lisa Rowan, the researcher’s HR, talent, and learning strategies programme director, believes that, when it comes to end-to-end HR systems, which include HR recordkeeping, benefits administration, payroll and talent management, the SaaS delivery model has only really just started to have an impact on the HCM applications space, even though it has been around for as long as its CRM counterpart.
 
Consensus from other analysts, including Forrester and Gartner, indicates that the HCM sector will see the heaviest SaaS adoption until about 2015.
 
 
“SaaS in HCM all began with talent management applications. The move to SaaS was first seen in recruiting over 10 years ago, where employers saw the benefit of keeping the network-intensive candidate processes off their own systems and network,” Rowan explains.
 
Watershed moment
 
But as employers started to roll out more talent-related applications over time, it made sense for them to consider SaaS too.
 
Finally two years ago, a watershed moment was reached when electronics giant Siemens replaced its SAP HCM and talent management software with offerings from SuccessFactors. With 400,000 users in more than 80 countries, it became the largest cloud application deployment in the world.
 
These moves have all helped to create a climate in which “HR buyers are now looking closely at SaaS and are beginning to assume it is the delivery mode of choice” Rowan points out.
 
This situation has led both SAP and Oracle to focus on bringing SaaS HCM products to market “by any means,” Rowan adds. But smaller SaaS-based competitors such as Workday and SuccessFactors, which succeeded in stealing enough business from the market leaders, have been key to sparking an acquisition land grab.
 
As part of the buying spree, SAP acquired SuccessFactors in late 2011 in order to jumpstart its SaaS efforts, while Oracle followed suit by purchasing Taleo.
 
Rowan says that Oracle, which had been working on its next generation Fusion product family for some time, purchased the SaaS-based talent management provider “to fill some Fusion talent management gaps”.
 
Meanwhile, IBM bought cloud-based HR management applications vendor, Kenexa, and even Salesforce.com got in on the act by acquiring social performance software firm, Rypple.
 
But the expense involved would seem to be worth it. As Bo Lykkegaard, IDC’s European enterprise applications research director, says: “Particularly in talent management, it’s fair to say that SaaS today is the dominant delivery model in new deals in Europe.”
 
His rough estimate is that approximately 15% of all revenues generated from the sale of HCM applications in Western Europe in 2011 came from SaaS-based offerings. This proportion has increased rapidly over recent years and IDC expects it to continue growing over the next five years.
 
Increasingly appealing
 
In addition, when IDC carried out a large Western European end-user survey early in 2012, 9% of respondents said that the entire company was using all of the modules of their SaaS-based HCM applications.
 
A further 15% reported “limited usage”, in which one or more departments within the organisation either used the system or modules within it.
 
What all of this would appear to indicate is that SaaS-based applications will have a profound long-term effect on the dynamics of the HCM system market, with a number of emerging SaaS contenders levelling the competitive playing field in a way that very few HRDs can afford to ignore.
 
But Oracle and SAP are still fighting hard to stay on shortlists and to be seen as key players in the SaaS game.
 
For example, SAP’s SuccessFactors recently claimed that a 500-seat implementation of en premise performance management software could end up costing almost three times more than a SaaS equivalent if deployment, licencing, maintenance and upgrade costs over five years were taken into consideration.
 
But Clive Longbottom, founder of IT analyst firm Quocirca, cautions that, because HR departments tend to be conservative in their technology choices, core HR systems are likely to remain on premise for some time as they are considered a “safe bet”.
 
But he also points out that “there are enough companies that separate out the basic HR function from the more advanced HCM function and, for them, going for SaaS can be appealing – no drawn out bidding into the business for more hardware, operating system licences and so on as a platform for installing the HCM software. No problems with IT saying that they are too pressured to take this on, and so on. Just pay your money and you’re up and running on a SaaS model”.
 
It is this ability to help HRDs manage their costs more effectively that Rowan believes will become increasingly appealing. “Along comes a Workday with a modern SaaS approach and the promise of all HR functions under one roof (although it’s not yet there) and the competitive field is dragged along to compete,” she concludes.
 
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