With many M&A discussions in process and deal announcements continuing, such as the Kronos acquisition last month of Unicru, technology vendors throughout the human capital management space are once again re-evaluating their options. Rapid growth among the vendors, and enterprises desire to expand their HCM and talent management investment, is creating a ripe opportunity for consolidation within the market.
The question ultimately that all HCM software vendors must answer is…do we buy, build, or partner in the respective talent management and workforce management towers currently missing from our offering? So here are my thoughts are the respective options:
Building is what I would consider as the best option for most vendors for many reasons. The talent management suite market still does not have a clearly defined market leader and time is not necessarily a critical success factor…yet. Core capabilities for process like applicant tracking and performance management is quickly becoming commoditized and as such will be fairly easy to build quickly and cost-effectively. Building allows vendors to focus on the feature/function priority that provides the best integrated capabilities with existing solutions. It additionally allows companies to create unique differentiation in their products through enhanced usability and streamlined integration.
Buying will be the likely option for many of the larger more established vendor with access or availablility of cash to spend. Some of those companies include ADP, Kronos (although I don’t see them active in M&A for the next few months), Lawson, Oracle, SAP, Monster and even potentially even a dark horse like Salesforce.com. Buying provides a quick market entry and immediate market share gain. For publicly traded companies it also shows investors the willingness to enter new markets and spend their cash wisely (in most cases).
Partnering is the least expensive but most difficult option to execute. Partnering requires limited integration and defined rules of engagement . The challenge with partnering is that both parties want to own the customer. In the talent management suite, the most likely partnerships will occur in the learning tower as most vendors will not want to invest R&D dollars in a LMS/content management system and the content itself, whereas it can easily be supported by a partner. Today, some performance and learning partnerships today generate 5-10% revenue for both parties.
A few months ago in a report titled, "Fueled by Strong Demand, Worldwide Talent Management Market Will Surpass $2.3 Billion in 2006", I discussed the market consolidation…
"…Yankee Group predicts continued consolidation of talent
management vendors for at least the next 2 years. Consolidation will occur in
two areas: one to increase market share in a certain category and the other to
expand capabilities that compliment existing capabilities and fill gaps in the
integrated talent management approach. As we noted [in Exhibit 2], 2005 saw more
than 12 mergers and acquisitions in the talent management space. Yankee Group forecasts
that number will increase in 2006, with increased acquisition activity from vendors
that no longer have the capital resources to survive as an independent solution