There are plenty of software companies, large and small, competing for the same business, leaving HR buyers with a difficult choice to make. As the HR technology market stablizes, who will be left standing?
The HR technology war is in full swing. With so many options, HRO buyers have a tough decision to make. We’ve all heard of the big leaders in HRO software technology—SAP and Oracle—but what about the little guys?
Over the past two years, we have seen two major vendors, PeopleSoft and J.D. Edwards, swallowed up within the Oracle fold. So what is the fate of other smaller players? The list includes SSA Global, SAS, Kronos, Lawson, Sage Software, Vurv Technology (formerly Recruitmax), and Workbrain, to name a few. As the market settles down, smaller organizations have carved out a niche for themselves. Some concentrate particularly on the mid-market, some on specific HRO functions such as talent management, and others are regionally focused. We are also seeing big-name, traditional BPO providers enter the technology market as well. In 2003, Fidelity Investments acquired HR Access, and three years ago Hewitt got into the race with Cyborg, adding a strong payroll service to its suite of offerings.
But before getting ahead of ourselves, we have to ask: How do buyers choose the right provider? HRO customers interested in improved technology solutions need to first decide whether to build out their own software arm instead of looking to partner exclusively with a software provider. Making this decision is not easy, according to industry analyst Phil Fersht.
“I do certainly believe, in this outsourcing generation, that the onus on owning and maintaining the technology is leaning more to the vendor or service provider and away from the buyer,” he said. “With HR applications, the buyer is thinking more about the quality and value of how they’re being serviced. So we’re seeing a lot more people go down the route of getting hosted applications managed directly by their software or outsourcing provider.”
So what do buyers want? Fersht said he believes many buyers, especially in the mid-market, are not interested in big-name technology players. What they care about is efficiency of service and a platform that works and fits all their needs. BPO directors at SAP and Oracle say functionality is key.
HR Access Solutions’ Eric-Xavier Barrere, the head of global marketing, agrees. In the past, Paris-based HR Access stayed away from being heavily involved in the outsourcing market. Most of its customers were large, European companies that ran platforms internally. Since last year, however, HR Access has developed an outsourcing platform, recently signed a major hosting agreement, and is gradually expanding its portfolio of services for new and existing customers interested in outsourcing.
“HRO best practices requires a dedicated approach,” said SAP’s Director HCM BPO, Synco Jonkeren. “It needs to be a proven solution; it obviously needs to be a user-friendly solution so users can work with it easily, and it needs to be cost effective and value adding because those are ultimately the objectives customers need to satisfy.”
Cost cutting and flexibility are just as important. Buyers want someone who will take their existing technology needs or preferences into account. They want a provider who is not only qualified but also proven in the marketplace.
HR technology offerings play a major role in the decision-making process. According to Fersht, the ability to combine multiple, best-of-breed applications that can be automated and integrated under the common umbrella standard of web services is very tempting. This is known as a service-oriented architecture platform or SOA. If you are happy with different applications you currently run for payroll, compensation, recruitment, or performance management, for example, you can keep your preferred packages and have them all work using the common language of web services—provided they are built using web services-compatible technology, which includes the vast majority of today’s applications. For the higher-end, enterprise-level customer, SAP and Oracle ERP suites often act as an underpinning platform when combined with a best-of-breed application.
Fersht explained, “The old model was where you would use an end-to-end ERP, and you’d be pretty much locked into using applications that were compatible with the ERP. Now it’s much more open so you can use your SAP or Oracle underpinning application infrastructure and deploy a whole bunch of other applications over the top. This helps you manage your workforce data and analytics better using the best applications available in today’s market.”
ORACLE’S NEAR FUTURE
In recent years, Oracle and SAP have gone head-to-head for market leadership. Oracle’s strength lies in its acquisitions of pure technology players such as PeopleSoft, J.D. Edwards, and Siebel Systems. It has approximately $13 billion in revenue and 49,000 employees worldwide, compared with SAP’s 33,000 employees and $10 billion in revenues. Faced with past criticism, Oracle is now placing more emphasis on technology development and less on size. For instance, the Oracle Fusion application suite will be Oracle’s way of combining its technology with PeopleSoft and J.D. Edwards and now Siebel applications. Ron Hanscome, vice president of HCM applications marketing at Oracle, explained.
“The Fusion applications are meant to pull together the best capabilities from all four of the product lines and put that on the new technology architecture that is more service-oriented and operates on Fusion middleware,” he said.
The Fusion middleware he refers to is Oracle’s latest offering meant to tide customers over until Project Fusion is completed. While it is slated to be rolled out in 2008, some industry experts are skeptical of this date. So far, the web-based PeopleSoft Enterprise ePerformance module has proven to be a strong component of Oracle’s offerings.
Revenues from Oracle’s acquired applications have not been lost on company management, and its developers will surely find more ways to incorporate the best components of its offerings into one streamlined application. According to Fersht, Oracle is building a major new level of applications based on business process execution language or BPEL and web services, but the company has been somewhat quiet recently because of some doubts in the industry over Fusion’s performance.
“It is a work in progress, and they actually have a very similar strategy to SAP in componentizing their software,” said Fersht.
Oracle’s BPO Director Roger Turnham said BPEL will increasingly become important to BPO because it will serve to orchestrate different systems to provide a complete solution to the BPO provider and its end customer.
When Oracle acquired PeopleSoft in January 2005, critics predicted PeopleSoft customers would jump ship. According to a Yankee Group study conducted before the deal was made public, 45 percent of PeopleSoft users expressed a desire to switch from their current applications, and it was uncertain if they would choose Oracle. To allay fears following the merger announcement, the software giant told customers that significant changes would not take place. Applications customers used at the time would still be available at least until 2013.
Hanscome described Oracles strategy this way: “We’ve made a commitment to long-term support of product offering—in fact, a longer support path than PeopleSoft had committed to their customer base. Part of the time was spent reassuring people and putting out a roadmap for the applications, so that the customers had a better idea of where the applications were going moving forward.”
Oracle has new software releases scheduled this year for J.D. Edward customers, and the same plan is in the works for PeopleSoft version 9.0 and for other Oracle products as well, leading up to the finalization of Project Fusion.
In addition to new products, Oracle clients can expect a shift in pricing. Fersht pointed out that the company is changing its strategy because Wall Street is keen to see Oracle move towards a subscription-based model and away from a more traditional maintenance model.
“SAP has become much more flexible at repricing SAP software to make it more friendly towards people going down HRO and FAO, and Oracle is looking at doing that, but they have a bit of catching up to do,” Fersht noted.
DEVELOPMENTS AT SAP
So that takes us to SAP, which has a very different outlook on the market. With all of Oracle’s acquisitions, you have to wonder if SAP now feels somewhat handicapped. Leaders there reply with an emphatic “no.”
“We were never concerned about this. What we are seeing is a lot of technology confusion in the market because the future path of Fusion is uncertain. And particularly when you look at outsourcing, you’re talking about long-term investment, long- term partnerships, and the minimum you need is a stable technology platform,” Jonkeren said. “That’s what the SAP BPO program provides.”
He pointed out that SAP continues to be the market leader in HRO from a standardized platform perspective and is better positioned to serve the outsourcing market. Unlike conventional corporate buyers, the HRO market is particularly selective when it comes to platform. He said it requires a greater partnership mentality because customers are partnering with a service provider and a technology center over the long term. Jonkeren contended that SAP has a stronger track record of partnerships. One indication of SAP’s greater reach is that its recent fourth-quarter software license revenues rose 18 percent.
Following the Oracle/PeopleSoft merger, SAP looked to establish itself with potential new customers wanting to switch over from PeopleSoft. SAP’s Safe Passage program was implemented for this purpose. PeopleSoft customers can safely switch their licenses over to SAP. In addition to migration support, SAP launched TomorrowNow, which provides support for J.D. Edwards networks and PeopleSoft applications.
SAP is not only reaching out to dissatisfied PeopleSoft and J.D. Edwards customers but also partnering with BPO providers as well. Big outsourcing players such as EDS, IBM, ADP, Convergys, ExcellerateHRO, and Accenture have adopted SAP’s platform.
“Our partners for BPO have a similar approach to Safe Passage. So that means that customer organizations can choose to exchange their PeopleSoft license
for an outsourced SAP license. That’s been made very attractive by combining the migration and service expertise of these selected service providers with SAP’s platform strengths so that ultimately the outsourcing customer enjoys all the Safe Passage program benefits,” he said, adding that customers don’t have to undertake the migration process by themselves, build new internal skill sets, and face operational disruptions because outsourcing providers do all the work.
Offering users the opportunity to switch from other platforms through Safe Passage has brought SAP some measure of success. Jonkeren added that some companies are taking a wait-and-see attitude to determine whether Oracle lives up to some of its promises. However according to a recent company statement, approximately 200 organizations have migrated from Oracle in a 14-month period.
Still, what about the criticism that SAP is a more costly option compared with other offerings in the market? Jonkeren contended that cost comparisons should consider SAP’s partnership with service providers, because certified companies are most adept at deploying SAP’s technology. This approach ensures best practices by country and functionality, flexibility, and standardization, which ultimately affect operating costs.
THE REST OF THE PACK
Smaller vendors are uncertain that the two big players can handle everyone’s tecnology needs.
“SSA Global solutions are flexible, scalable, and quicker to implement, resulting in lower cost and quicker ROI,” said David Vanheukelom, senior director of solutions management at SSA Global. “There is no ‘forced march’ to upgrade; we continue to support earlier versions to protect our customers’ investment in our products.”
Similarly, HR Access’ Barrere said that mergers and acquisitions in the vendor community are generally good for everyone, especially for HR. Because of globalization, there is a need for standardization in HR software and management. However, commenting on Oracle’s many acquisitions in recent years, he expressed concern about the software giant’s dominance of the market.
“I don’t feel that the big concentration is very positive, because my feeling is that they are different brands, different lines of products, and one day or another, they will have to choose on which platform they want to really develop the next release of software for HR,” he said. “I think this is reinforcing SAP because SAP is seen as much more integrated han Oracle is. I think Oracle has a great challenge to ensure their customers that there will be some continuity from the software that they’re currently running to the next version of software.”
Barrere thinks that SAP and Oracle serve different market segments because they deliver ERP and customer relationship management (CRM) solutions; human resources is only a small portion of their software solutions in comparison with a company such as HR Access, which is largely focused on HR. The company is making an effort to address all service offerings needed for HRO including pure hosting, managed payroll services, single process services such as benefit administration, and even full BPO. HR Access’ new product line, HRa Pack, addresses mid-market needs and is associated with hosting services.
THE MID-MARKET PHENOMENON
There are indeed many software vendors serving HR exclusively. Many are seeing success on a regional basis and in the mid-market. SSA Global, which has a strong manufacturing and healthcare customer base, provides mid-market BPO vendor Savista (now part of Accenture) financial management and HR solutions.
Other vendors to watch, according to Fersht, include Northgate Information Solution’s payroll-centric HRMS platform for the U.K. market; Sage Software (which was Best Software in the U.S.) offering mid-market accounting and payroll applications in Europe and the U.S.; and Workday, which is also carving out a niche.
“The buyers in the mid-market are thinking, ‘How can we get a platform that services the needs of our employees and gives our management the information necessary to manage our employees better?’” said Fersht, who pointed out that other offerings such as self-service tools to help employees and managers manage their job needs themselves are in demand.
Just about all vendors are starting to take notice of the mid-market these days. Some, however, like SAP, have been tuned into this segment for a while. BPO programs offered through SAP include a number of providers that specifically focus on the mid-market. Jonkeren stated.
A common misconception is that technology solutions for the mid-market are easier to deliver in comparison with larger, enterprise client solutions. But some observers point out that it’s not true. On top of addressing organizational complexities, smaller buyers must do so with fewer resources.
Oracle said it is meeting mid-market needs through different offerings. According to Hanscome, “Organizations are looking for the ability to get this capability into their organizations faster, quicker, with faster time to benefit, a less-expensive implementation process, and a lower total cost of ownership.”
One solution is called the Configuration Workbench, which incorporates a set of tools to help the user configure and modify a system to reduce total cost of ownership.
AN EXTRA SERVING
Once a technology solution is in place, there is still the issue of self-service deployment, which Fersht described as one of the most overlooked areas in HRO engagement. A major issue is getting management and staff to effectively use the implemented technology tools. Also, who is responsible for training employees? In outsourcing, the provider is responsible for instilling change management. In situations, where the customer is dealing directly with the software vendor, the vendor is then responsible.
“More and more as we talk to customers, what they want to do is put into the project plan the ability to put in the core applications; and then as soon as possible thereafter, go up on employer manager self-service. We’ve seen the trend moving from standalone self-service offerings and more into offerings that are integrated with the core platform, and that only makes sense,” said Hanscome.
Self-service can be a challenge, especially if the majority of employees are not sitting behind a desk. This affects manufacturing and the retail industry specifically. How will the employee access a web-based solution if they don’t have a computer, and who will train them to use the system? The work involved isn’t insignificant, but the need for effective implementation and applying the right amount of time and effort is important.
For Oracle, one of the benefits of the PeopleSoft marriage is having access to its proven technology. PeopleSoft has proven self-service solutions, and Oracle is not afraid to build on that.
Turnham said, “One of the things that we’re doing with all of our future releases for the various different solutions, as well as the Fusion applications, is trying to take advantage of the design principles for the user interface that PeopleSoft created so that we can create an environment where there is a much lower training cost associated with the deployment of our applications.”
While many of those interviewed shared similar views about the HR technology market, the most noticeable area of dissent is standardization. Jonkeren is a fan. He said he believes if a user has a standardized platform, it will be easier to switch providers or continue the solution internally. To proliferate its standardized platform, SAP relies on its relationship with a number of BPO providers. According to Jonkeren, the providers are SAP certified, which offers buyers a degree of assurance.
Turnham stated that cost considerations in BPO decisions were determined by whether a standardized platform or a customized solution was offered.
“A lot of the issue there has to deal with if I’m supporting variance by customer, then how do I manage and maintain the interfaces that are necessary. How do I deal with the orchestration necessary between the different systems?” he questioned.
Vanheukelom also mentioned that SSA Global customers are moving away from customized towards standardized systems integrated with service-oriented architecture. Oracle is also utilizing SOA widely. Weaving disparate applications together into a seamless function not only creates fewer headaches, but it also saves the BPO providers money as well.
Fersht, however, has a slightly different view. He believes that an increasing majority of clients are choosing to go down the route of having the best products available to support their business functions—and this is especially the case in HR, where there are many niche products available that do not form part of a standardized platform suite.
He adds, “While standardization is becoming increasingly commonplace—especially in the mid-market—the increasing need to have the best tools to manage workforce data is driving organizations to look beyond simply implementing standardized software platforms to achieve the functionality they need. Many companies going down the HRO route are demanding specialized best-of-breed HR applications to their standardized base platforms, and the HRO providers are responding, by forming partnerships with leading HR software specialists such as Kronos, WorkBrain, Taleo, Vurv, PeopleClick, and Successfactors.”
He warned buyers: “Make sure you have full knowledge of all the applications out there and the ability to pick and choose your own solution and not necessarily be force fed something that is very standardized and fails to deliver the rich functionality you need to build out a more sophisticated HR function.”
HR Access’ Barrere said that standardization is more commonplace in the mid-market, but on the high end, the trend varies sector by sector. On the public side, he believes it is still customized, but in the private sector such as retail, the standardized approach will flourish.
Another big question is where the HR technology industry is headed. Jonkeren said there is increasing interest in talent management and integrated solutions. Barrere stated that users are looking for more application assistance and guidance on the business side. For its part, Oracle said it is continuing to configure its products based on customer input so they can tailor the capability of the system to their unique needs.
Onboarding is another area Oracle is undertaking. Hanscome said more focus will also fall on “some of these more cutting-edge, strategic aspects of HR and this whole notion of talent management and being able to seamlessly link recruitment, performance management, learning, and compensation together in a way that manages the talents of the organization through the various lifecycles.”
With the spotlight on Oracle, everyone is interested in to see how this market jostling will play out. The market continues to keep an eye on a few service providers that offer HRO underpinned with a strong technology platform. Providers such as Ceridian are building out their functions powered by Softscape’s payroll engine. ADP is another big player rolling out its own technology, GlobalView, on an SAP platform. In the mid-market, Trinet has a lot of backing behind it and is making a few waves in the market. Employease, Gevity, and Genysys are others to watch as well. In 2004, Mercer acquired Synhrgy HR Technologies as a base to deliver HR services. And U.S.-based Lawson offers ERP solutions for the upper mid-market.
HRO buyers faced with choosing a technology platform need to think deeply about their needs. Are they a large or small organization? Will they need a complex solution or something simpler? Fersht recommends using a platform that is flexible. If you choose a higher-level ERP route offered by SAP or Oracle, you will have the ability to integrate other best-of-breed applications into the mix. Having the freedom to choose will be a value-add for customers.
There are a lot of options out there; research is an important part of the decision-making process. Asking the right questions to make sure your needs are met is your best option. Sourcing consultants and analysts can also help you make the right choice. Remember, only fools rush in.