Making Leaders Successful Every Day

September 24, 2010

HRM Solutions: Traditional Models Clash With Next-Generation Processes And Technologyby Paul D. Hamerman and Claire Schooleyfor Business Process Professionals

© 2010, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. To purchase reprints of this document, please email clientsupport@forrester.com. For additional information, go to www.forrester.com.

For Business Process Professionals

ExECuTivE SuMMARyHuman resource management (HRM) applications — consisting of six categories of solutions ranging from core transactions to strategic talent management — represent a market in transition. In this $8.7 billion software market, talent management stands out as the fastest-growing solution segment, and SaaS revenues are increasing rapidly as on-premises licenses stagnate. The diverse array of HRM processes challenges enterprises to find a one-stop shop for HRM applications, even with the breadth of solutions offered by market leaders SAP and Oracle. Yet blending multiple HRM solutions presents architectural and integration challenges that affect the cost of ownership. Business process professionals should innovate their HRM processes and applications strategies by considering the architectural tradeoffs between comprehensive packages and best-of-breed specialists, while leveraging the appropriate deployment model choices combining SaaS, outsourcing, and on-premises methods.

TABlE oF CoNTENTSSix Major HR Components Define The HRM Market

Economic And Technology Trends Drive Change In HRM Processes

Vendor Consolidation Delivers Breadth And Viability

SaaS Fuels HRM Solutions Market Growth

The Battle Between Comprehensive And Point Solutions Continues To Rage

RECoMMENDATioNS

Process, Information, And Deployment Models Drive HRM Apps Architectures

WHAT iT MEANS

Competitive Companies Will Innovate To Empower Their Workforces

Supplemental Material

NoTES & RESouRCESForrester interviewed 20 vendor companies, including ADP, Ceridian, CERTPoiNT, Cornerstone onDemand, Geolearning, Kenexa, Kronos, lawson, learn.com, NorthgateArinso, oracle, Plateau Systems, Peopleclick Authoria, Saba, SAP, SuccessFactors, SumTotal Systems, Taleo, ultimate Software, and Workday. in addition, we spoke with more than 100 user companies in 2010 via Forrester’s client inquiry process.

Related Research Documents“The Four Pillars of Talent Management” April 26, 2010

“TechRadar™ For Business Process Professionals: Human Resource Management Apps, Q1 2010” January 6, 2010

“Building your HRM Applications Strategy” December 19, 2008

September 24, 2010

HRM Solutions: Traditional Models Clash With Next-Generation Processes And Technologyby Paul D. Hamerman and Claire Schooleywith Connie Moore and Ralph vitti

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SIX MAjoR HR CoMPonEnTS DEFInE THE HRM MARkET

Organizations continually invest in business processes that are essential to maintaining their workforce, particularly in areas that allow workers to work productively to drive the business forward. For the purposes of this report, we categorize the breadth of HRM processes into six primary categories:

· HR management systems (HRMS) are the backbone for records and compliance. HRMS includes payroll, personnel management, benefits administration, position management, basic compensation, and compliance. This is the system of record for managing employee records and transactions as well as records of other affiliated individuals, such as contractors, temporary workers, volunteers, interns, etc.

· Workforce management (WFM) processes focus on activities of the hourly workers. These activities include time and attendance, forecasting and scheduling, and absence management. These tactical activities allow companies to pay workers according to time worked and also meet governmental compliance and labor contract obligations.

· Talent management processes drive performance and planning. Talent management processes include performance management using goal setting and metrics-based appraisals, succession planning, multi-rater appraisals, competency management, and career planning. With talent management processes, employees have specific goals to meet and know the opportunities and career choices available to them in the company.

· Learning management systems (LMS) enable employee development. These processes enroll, track, and report on live and on-demand learning sessions. This information links to the learner’s individual learning plan, which specifies on- and offline courses, modules, or other learning activities; the time frame; and the percentage of activities completed.

· Recruitment systems automate the acquisition and onboarding of talent. These include applicant tracking systems that move the candidate through the application process, and once the candidate is hired, provide an onboarding process enabling employees to become part of the culture and reach full productivity faster.

· Compensation and benefits build loyalty and retention around rewards programs. As more companies adopt a philosophy of pay-for-performance throughout the workforce, more sophisticated processes are required to align goals and rewards programs. Additionally, benefits processes enable companies to enhance retention via health and welfare, retirement, and other programs.

The first two categories, for the most part, represent the transactional backbone of HR systems — managing employee records and executing payroll and compliance. The last four categories represent what Forrester refers to as the “four pillars of talent management” (see Figure 1).1 All of these processes can be automated using point solutions or enterprise suites that reside on premises or in the cloud.

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Figure 1 HRM Solutions Footprint

Source: Forrester Research, Inc.47580

HRMS Learning Recruiting

Human resource management

• Payroll• Employee

records• Salary

administration• Compliance• Jobs and

positions• Shared services• Self-service

Workforcemanagement

• Time andattendance

• Absencemanagement

• Workforcescheduling

Talentmanagement

• Performance• Succession

planning• Career planning• Goals• Organization

charting• Competency

management

• Coursemanagement

• Virtualclassroom

• Mentoring• Learning

contentmanagement

• Applicanttracking

• Workforceplanning

• Sourcing• Onboarding• Social

recruiting/networking

• Pay-for-performance

• Stock-basedand deferredcompensation

• Incentivecompensation

• Marketcomparisons

• Benefitsadministration

• Enrollment andcommunica-tions

Compensationand benefits

EConoMIC AnD TECHnoloGy TREnDS DRIVE CHAnGE In HRM PRoCESSES

Business, societal, and technology trends dominate the landscape and influence the management of human capital, especially in today’s changing economic environment. Specifically:

· Businesses strive to integrate the components of the employee life cycle. Technology for recruiting, learning, performance, and compensation and a single HRMS as the central system of record will give managers a single view of employees and will become more seamless to employees. Because of economic constraints, companies will emphasize internal recruiting, going outside only when in-house skills don’t exist or the company needs a change in direction or approach. Employee learning programs will tightly integrate with company goals, keeping employees’ skills sharp and helping them gain new knowledge for potential advancement. Performance will determine learning activities coupled with succession and career development, and success will be rewarded through pay-for-performance.

· Companies will continue to face the challenge of managing a changing workforce. Although Baby Boomers have not retired in predicted numbers (because of the economic slowdown), these older workers still seek options that will allow them to work in less demanding positions or to work fewer hours or on a staggered schedule. Mentoring will grow as a way for seasoned employees to communicate knowledge to the new, and often younger, worker.2 Work/life balance will be more important for all employees as they seek more customized work that fits their needs and allows them to be more productive.3

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· The unstable economy will continue to influence HR retention practices. Employee retention efforts will include carefully crafted onboarding programs to acculturate employees and help them reach full productivity quickly. A choice of career paths, appropriate learning, and on-the-job training will help engage employees. Employees will continue to work hard, but collaboration, social media tools, and flexibility in work locations and work hours will help them manage the workload. With an economic turnaround, executives fear employee loss. But with good retention practices, business will experience greater employee loyalty.

· Companies will embrace social media throughout the organization. Technology enables employees to get work done faster and more effectively from multiple locations. Employees will need anytime access to productivity tools to complete sales, find information, take employee training, locate the expert, and so on, no matter where they work or what device — mobile or connected — they use.4

· Mobile technology will reinvent the notion of employee self-service. Increasingly, users access information they need on the spot through smart devices, collaboration tools, or social media. For example, before a product discussion with a customer, a sales professional may access learning content about the five most important selling points of the product or watch a video to review a procedure they are about to perform. In addition to learning, additional mobile process opportunities are emerging in areas from time reporting to talent management, increasing process effectiveness and employer-to-employee service.

· SaaS will become the deployment model of choice for HRM solutions. SaaS adoption will continue to increase across all six categories of HRM applications. HRM vendors in areas such as LMS and compensation have seen their ratio of licenses to subscription deals reverse in the past two years, from 80% license to 80% SaaS. Pure-play SaaS vendors, including SuccessFactors, Ultimate Software, and Workday, are seeing the highest levels of growth. IT will continue to show greater confidence in SaaS across the HRM applications due in large part to the elimination of upgrade headaches.

VEnDoR ConSolIDATIon DElIVERS BREADTH AnD VIABIlITy

The four HRM pillars of talent management — recruiting, performance, compensation, and learning — provide a useful lens to predict how vendors will make acquisitions or develop functionality. Large vendors believe that HR business process professionals want an integrated approach from one vendor rather than continuing with a number of point solutions. Big outsourcers are also getting into the act. In addition to acquisitions (e.g., ADP acquires Workscape), outsourcers and system integrators (e.g., ADP, Ceridian, Infosys, NorthgateArinso) are becoming a significant reseller channel for HRMS and WFM solutions on a hosted, subscription (i.e., SaaS) basis. Acquisitions remain a constant force market, as evidenced by the following recent deals:

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· SuccessFactors acquires Inform and Cube Tree. Inform adds workforce analytics and strategic workforce planning to the portfolio and advances SuccessFactors’ strategy toward its new mantra of business execution. Cube Tree provides social business software that integrates communication, content sharing, and collaboration into one platform.

· Authoria and Peopleclick combine for breadth across recruiting and talent. Authoria provides a talent management application, and Peopleclick is known primarily for recruiting. Both are mature companies, and by joining forces, they increase their viability and scale in HRM.

· ADP acquires Workscape to enhance total rewards. Workscape is known for its benefits and compensation offerings for enterprise customers. This acquisition complements ADP’s strong payroll and benefits outsourcing business, as well as extending capabilities of its core HRMS offerings.

· StepStone Solutions acquires MrTed to gain a leg up in global recruiting. This acquisition allows StepStone Solutions to increase its share of the talent acquisition market by leveraging MrTed’s enterprise capabilities for multinational companies.

· Taleo acquires Learn.com as its fourth pillar. Following the acquisition of Worldwide Compensation and the development and launch of a successful performance management application, Taleo announced its intent to acquire privately held Learn.com on September 1, 2010.

· Kenexa elevates compensation capabilities with Salary.com. Kenexa also adds the fourth pillar of talent management with its acquisition of financially distressed Salary.com, announced on the same day as rival Taleo’s acquisition of Learn.com. The acquisition of Salary.com’s compensation tools and content complements Kenexa’s recruiting and assessment, performance, and learning capabilities.

SAAS FuElS HRM SoluTIonS MARkET GRoWTH

The market for HR/HCM applications currently reaches $8.7 billion (2010 forecast) in product revenues (i.e., licenses, maintenance, and subscriptions). Forrester expects this market to grow at a composite rate of 8.3% through 2014, hitting almost $12 billion (see Figure 2). Subscription revenue is growing at 15%, in contrast to software licenses, which will decline by 1.5% over the period. Software maintenance, the lifeblood of on-premises enterprise apps vendors, will grow by 6% during the period as a result of scheduled price increases and license add-ons, offsetting some customer attrition to SaaS HRM solutions. The breakdown of this market into the key segments yields more insight into growth patterns and market trends (see Figure 3 and see Figure 4 and see Figure 5):

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· The HRMS segment is mature and remains tied to ERP. HRMS accounts for the largest segment of the overall HR/HCM market at $4.3 billion, growing at 8.2%. This segment encompasses 49% of the overall HRM applications market, with ERP vendors Oracle and SAP holding large shares. Licensed on-premises software remains the dominant deployment model in production, but SaaS is in the mainstream at 18% of the segment revenues. Smaller, independent SaaS vendors (e.g., Ultimate Software and Workday) are gaining share, but most multinationals remain on the ERP HRMS solutions due to the extensive language and localization support (including payroll) in these on-premises packages.

· Workforce management rests on time and attendance. The WFM segment currently hits $1.5 billion with a 5.4% annual growth rate, accounting for 17% of HRM. Kronos is the leading software provider in this segment, with its dominance in time and attendance. Workforce scheduling, however, is a highly fragmented subsegment, with many vendors offering industry- specific solutions for optimizing the workforce. Absence management also makes up a portion of this category. On-premises deployment of WFM has been the traditional model, but hosted and SaaS deployments now account for 38% of the revenues.

· Talent management sees explosive growth. Talent management is clearly the hottest segment of the HRM market, with current-year revenues of almost $640 million (7% of HRM) and an annual growth rate of 16.5%. The segment is seeing strong activity now as more companies adopt metrics-based performance measurement processes, succession planning, and career management. Talent management solutions are predominantly deployed via a SaaS model (58%), often via best-of-breed vendors to supplement the core HRMS.

· Learning management has made the transition from on-premise solutions to SaaS. LMS currently has $483 million in product revenues (6% of HRM) with a growth rate of 7.9%. The SaaS model currently accounts for 46% of product revenues in LMS, and leading vendors indicate that new deals coming in are heavily weighted to SaaS. Streaming media and mobile technology may add velocity to this segment in the next few years.

· Recruitment is recovering following the economic downturn. Recruitment applications represent nearly $1 billion in product revenues (11% of HCM) with an annual growth rate of 8%. Recruitment solutions are overwhelmingly delivered via the SaaS model, with subscriptions accounting for approximately 86% of the market’s revenues. This market segment has seen a significant vendor consolidation during the past two years, and it has also weathered the effects of the downturn, as hiring ground to a halt in 2009.

· Compensation and benefits closely align with core HRMS systems. Compensation and benefits solutions account for $835 million in product revenues (10% of HRM), with an annual growth rate of 7%. This solution segment is closely aligned with — and often part of — the core HRMS solution, but many companies choose best-of-breed functionality in pay-for-performance programs, incentive compensation, market pricing, and benefits enrollment.

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Figure 2 Forecast: Global HRM Market Growth, 2009 To 2014

Source: Forrester Research, Inc.47580

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2009 2010 2011 2012 2013 2014 CAGR

Subscriptions 15.0%

License -1.5%

Maintenance

Subscriptions

License

Maintenance

6.0%

$2,859.48

$1,714.04

$3,459.86

$3,213.03

$1,821.08

$3,753.31

$3,711.05

$1,832.01

$3,989.77

$4,286.26

$1,777.05

$4,229.15

$4,950.63

$1,688.20

$4,415.23

$5,747.69

$1,586.90

$4,627.17

Total $8,033.37 $8,787.42 $9,532.82 $10,292.46 $11,054.06 $11,961.75 8.3%

Source: company reports, vendor surveys, Hoovers, and Forrester estimates

($US millions)

© 2010, Forrester Research, inc. Reproduction ProhibitedSeptember 24, 2010

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Figure 3 Forecast: Global HRM Market Growth By Product Category, 2009 To 2014

Source: Forrester Research, Inc.47580

2009 2010 2011 2012 2013 2014 CAGR

HRMS

Recruiting

Total

$3,979.77

$1,371.08

$555.50

$440.67

$905.66

$781.69

$8,034.37

$4,348.32

$1,497.52

$636.85

$482.76

$986.65

$835.32

$8,787.42

$4,739.67

$1,572.40

$738.74

$526.21

$1,055.72

$902.14

$9,534.88

$5,118.84

$1,635.30

$864.33

$563.04

$1,150.73

$965.29

$10,297.53

$5,477.16

$1,717.06

$993.98

$602.45

$1,231.28

$1,032.86

$11,054.80

$5,915.33

$1,785.74

$1,192.78

$644.62

$1,329.79

$1,094.83

$11,963.10

8.2%

5.4%

16.5%

7.9%

8.0%

7.0%

8.3%

Source: company reports, vendor surveys, Hoovers, and Forrester estimates

Workforcemanagement

Talentmanagement

Learningmanagement

systems

Compensationand bene�ts

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000 HRMS

Talent management

Workforce management

Recruiting

Compensationand bene�ts

Learning managementsystems

($US millions)

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Figure 4 HRM Segment Analysis

Source: Forrester Research, Inc.47580

HRMS49%

Workforcemanagement (WFM)

17%

Recruiting11%

Compensation andbene�ts

10%

Talent management(TM)7%

Learning managementsystems (LMS)

6%Talent management (TM) 16.5%

HRMS 8.2%

Recruiting 8.0%

Learning managementsystems (LMS) 7.9%

Compensation and bene�ts 7.0%

Workforce management(WFM) 5.4%

Overall 8.3%

Source: Company reports, vendor surveys, Hoovers, and Forrester estimates

Growth rate by product category4-2Segmentation by product category4-1

Figure 5 Subscriptions As A Percentage of Product Revenues

Source: Forrester Research, Inc.47580

Recruiting 83%

Talent management (TM) 58%

Compensation and bene�ts 52%

Learning management systems (LMS) 45%

Workforce management (WFM) 38%

HRMS 18%

Overall 37%

Source: Company reports, vendor surveys, Hoovers, and Forrester estimates

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THE BATTlE BETWEEn CoMPREHEnSIVE AnD PoInT SoluTIonS ConTInuES To RAGE

In speaking with dozens of Forrester clients regarding HRM applications strategies and vendor choices, we find that the predominant application architecture consists of a number of best-of-breed solutions arrayed around a core HRMS solution, either on-premises or hosted. The most common business process areas served by the non-core point solutions include time and attendance, learning management, talent management, and recruitment. Core HRMS vendors continue to invest in these solution areas via internal development, particularly in talent management, and report improving results in attach rates (percentage of customers adding the non-core solutions).

The momentum of best-of-breed vendors in HRM, and the increasing acceptance of SaaS as a deployment model, means that core solution vendors will be unlikely to make significant inroads in the point solutions space. In fact, talent management vendors, including SuccessFactors and Softscape (acquired by Sumtotal Systems on September 20, 2010), are adding core employee record functionality to their solutions. Even as historically specialized vendors broaden their portfolios, most customers will retain a portfolio of HRM solutions to optimize processes, trading off core system integration.

Best-of-breed point solutions persist for good reason — the security of deploying recruitment outside the firewall, since it is externally facing, is one example. The architectural complexity of LMS for content and multimedia, which is difficult for HRMS vendors to master, is another. Clear market leadership has been established in several areas, and innovative players are also worth watching (see Figure 6). While Figure 6 indicates primary leadership areas, some vendors have strength in other segments, as well.

Figure 6 leaders And innovative Players By Segment

Source: Forrester Research, Inc.47580

HRMS WFM LearningTalent

management Recruiting

Leaders (listedalphabetically)

Innovativeplayers to

watch (listedalphabetically)

• ADP• Lawson• Oracle• SAP• Ultimate

Software• Workday

• ADP• CyberShift• Infor• Kronos• Oracle

• CornerstoneOnDemand

• GeoLearning• Plateau

Systems• Saba• SumTotal

Systems

• Aruspex• Dayforce

• CERTPOINT• Learn.com

• Halogen• Success-

Factors• Softscape• Taleo

• Kenexa• Peopleclick

Authoria• StepStone• Taleo

• Lawson• SilkRoad• Sonar6

• Jobs2Web• SelectMinds

• bswift• Varicent

Compensationand benefits

• ADP• Benefitfocus• Callidus• Mercer• Salary.com• Synygy

© 2010, Forrester Research, inc. Reproduction Prohibited September 24, 2010

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R E C o M M E N D A T i o N S

PRoCESS, InFoRMATIon, AnD DEPloyMEnT MoDElS DRIVE HRM APPS ARCHITECTuRES

As a business process professional, educate yourself in the human processes essential for business success and help your company decide the best approach to HCM by:

· Examining the six solution categories and prioritizing the importance to your organization. Address the most critical need first, i.e., performance or succession, but examine the vendors’ offerings in other HRM categories. Save money and effort and have a better user experience by standardizing on an application that addresses more than one strategic or core category.

· Making talent and learning processes drive solution choices. Core components are becoming commoditized, whereas the strategic offerings in talent and learning still have significant differences in their applications. Examine each offering carefully to determine which application best fits your business processes and company culture.

· Having a clear plan for managing employee master data. Since a one-stop shop for HRM solutions is an elusive goal, and because employee data is used pervasively throughout the enterprise, a master data strategy for employee data is essential. Define process integration scenarios around the core system of record and use standards-based integration technology (SoA) to optimize timely integration.5

· Selecting a deployment model that provides cost of ownership transparency. in most cases, this will be SaaS, but consider other models as well, including fully managed cloud deployments.6 Reassess iT policies that require employee data to be locked down inside the company firewall.

· Embracing mobile and social technologies to build loyalty and innovate processes. Especially with the tech-savvy new workers and the consumer popularity of mobile and social networking, these tools will let users communicate more easily inside and outside the organization, as well as allow them to find the information they want when they need it.

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W H A T i T M E A N S

CoMPETITIVE CoMPAnIES WIll InnoVATE To EMPoWER THEIR WoRkFoRCES

The workforce is changing, the way employees work is changing, and the way we do business is changing. look for these process or workforce changes in the next year to 18 months.

· Workforce stability will depend on growth, development, and compensation offerings. Companies face increasing retention issues as the job market recovers — the result of lean staffing, delayed replacements, and employee fatigue. As the job market evolves, innovation of performance, learning, and rewards programs will ensure that loyalty and employee satisfaction is retained or restored. Business process pros can expect a significant focus on HR processes as the economy recovers.

· Social networking will become a key resource for collaboration. The continued emphasis on the speed of doing work will require the broader use of tools for immediate response. Companies will address security, privacy, and business issues by establishing policies in these areas. Business process pros can expect social networking to become a core part of HR processes.

· leaders will empower employees to innovate. Rather than give detailed orders, leaders will state performance expectations for the organization and expect employee creativity (within reason) and hard work to meet these expectations. leaders will put high value on resourcefulness, imagination, and alternative ideas that result in outcomes that give the company an edge on competition. Business process pros should expect a significant focus on and investment in talent management processes and innovation within the business.

SuPPlEMEnTAl MATERIAl

Companies Interviewed For This Document

ADP

Ceridian

CERTPOINT

Cornerstone OnDemand

GeoLearning

Kenexa

Kronos

Lawson

Learn.com

NorthgateArinso

Oracle

Peopleclick Authoria

Plateau Systems

Saba

SAP

SuccessFactors

SumTotal Systems

Taleo

Ultimate Software

Workday

© 2010, Forrester Research, inc. Reproduction Prohibited September 24, 2010

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EnDnoTES1 Companies are more aware today of the importance of managing talent with the assistance of technology

and the criticality of having a complete integrated solution that includes recruiting, talent management, succession planning, learning, and variable compensation. See the April 26, 2010, “The Four Pillars Of Talent Management” report.

2 Today mentoring is experiencing a resurgence because business leaders not only recognize the benefits of transferring knowledge among employees — they also have access to mentoring technology that fosters and manages large numbers of mentoring relationships. See the August 6, 2010, “Drive Employee Talent Development Through Business Mentoring Programs” report.

3 For many years, busy workers have struggled to find “work/life balance,” that elusive state of harmony between professional obligations and personal needs which, we are told, will promote both better performance at work and a happier life at home. See the March 20, 2009, “Embracing Chaos Is Smarter Than Seeking An Elusive Work/Life Balance” report.

4 Sixty-five percent of firms have adopted at least one Web 2.0 technology, but businesses are focusing on a subset of tools: wikis, discussion forums, and blogs. See the April 28, 2010, “Business Web 2.0 Buyer Profile: 2010” report.

5 A variety of tools for enterprise data integration are available, though none are purpose-built for HR data. For a definition of these tools, see the February 4, 2010, “Forrester TechRadar™: Enterprise Data Integration, Q1 2010” report.

6 Hyped by applications vendors, cloud computing is often confused with SaaS. SaaS is a subset of the broader cloud computing realm, which includes platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS). For a discussion of evolving deployment models and cost of ownership implications, see the July 23, 2010,

“Packaged Apps In The Cloud: Cost Of Ownership Models Evolve Toward The Transparency Of SaaS” report.

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