The Parable of IBM and Kenexa: Part II

Linda Merritt, HRO Research Analyst, NelsonHall

It’s common for major HRO announcements to be followed by a conference call, and sometimes one-on-one briefings are also offered for analysts as in the case of the IBM and Kenexa deal.  Naturally, the NelsonHall HRO team including myself, Gary Bragar, and Amy Gurchensky took advantage of both opportunities.  

IBM’s Own View

The initial announcement was largely from the perspective of the IBM Social Business group that will add Kenexa’s HCM capabilities to its combination of social media, content management, and analytics. IBM believes that this creates value through the application of social technology to front office processes and generates ROI by creating social networks of expertise that leverage analytic insights to improve business processes. In sum, a “Smarter Workforce.”

It is the Whole Elephant…

In Part I, I compared the various views of the IBM and Kenexa news to the analogy of the blind men and the elephant. The answer is that all of the following interpretations are rationales of the deal:

• Builds upon IBM’s social media, analytics, and professional services including BPO
• Brings valuable software, HRO expertise, as well as talent management capabilities
• Increases competition and cross-selling to both IBM’s and Kenexa’s base of Fortune 500 customers
• Delivers value to C-suite executives, HR executives, and the whole value chain of management and employees.

…and Much More

The IBM Global Process Service’s HRO team was involved from the start and will be deeply involved throughout the integration process. RPO services will be combined creating an even bigger global footprint with new service centers including three in the U.S. Kenexa’s learning platform will be reverse engineered to support IBM’s learning services. There are also other parts of Kenexa that can be kept or spun off such as compensation services, behavioral sciences surveys and assessments, and middle market customers.

Kenexa will be a wholly-owned subsidiary for the first year to allow time to determine the best options for unleashing the full value of the deal. Kenexa brings innovative and collaborative intellectual capabilities and a portion of the value is greater than the “stuff” that can be divided up. Even with Kenexa’s leadership intact, the decisions will be many, with lots of players due to the matrix nature of the services and opportunities adding to the normal M&A complexities.

IBM’s Smart Workforce incorporates the concept of the boundary-less enterprise that works across the “whitespace” between processes and organizational silos. IBM wants to make human capital management an integral part of business operations by enabling people to unleash their talent when, where, and how it is most needed to create measureable value.

We each see the world through our own lens of experience and expectations, and sometimes the truly new and innovative “elephant” is harder to see. IBM and Kenexa can create the truly new and we should all hope they do. HCM, HR, HRO, HR tech, IT, social media, and more will have to raise their game to benefit from the new technology, services, and consulting opportunities. And that is a good thing!

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IBM Accentuates its RPO and Talent Management Offering by Acquiring Kenexa

Gary Bragar, HRO Research Director, NelsonHall

Although a bit smaller than the $1.9bn Oracle paid for Taleo (coincidentally at $46 per share as well) and the $3.4bn SAP paid for SuccessFactors, I believe that IBM’s acquisition of Kenexa, a cash transaction at $46 per share or ~$1.3bn and closing in Q4 2012, will have a much more immediate and larger impact than the aforementioned acquisitions.

Both Taleo and SuccessFactors were specifically acquired for their talent management (TM) technology. Beyond the strength of Kenexa’s technology, however, is the provision of TM services including:

• Consulting
• RPO
• Employee engagement
• Leadership development.

According to an IBM study conducted earlier this year, 71% of respondents cited “human capital” as the leading source of sustained economic value, above products and services innovation and significantly higher than technology. Kenexa, as a HCM and TM provider, will compliment IBM’s TM offering, which focuses on the full TM life cycle of attracting, developing, rewarding, and retaining talent. Specifically, IBM’s TM offering includes:

• Recruiting
• Learning
• Performance management
• Compensation
• Succession management.

In addition to its multi-process HRO (MPHRO) offering, which includes TM, IBM also specializes in providing workforce strategy transformation, social technology, and analytics to predict and measure performance.

While RPO is part of IBM’s MPHRO offering, it also provides RPO on a standalone basis to GM. Kenexa’s RPO capabilities, however, will accelerate IBM’s RPO market share, making it one of the largest RPO providers globally with clients headquartered in North America, Europe, and Asia Pacific. Kenexa also delivers RPO services in Latin America including South America in ~25% of its contracts.

Kenexa’s BrassRing technology is one of the two most widely used applicant tracking systems in RPO contracts. Kenexa also brings its Kenexa 2x Recruit platform, which in addition to recruiting and learning contains the following performance management modules:

• Goal setting
• Competencies
• Performance appraisals
• Compensation
• Career development and pathing
• Succession planning.

NelsonHall estimates that Kenexa has more than tripled the size of its RPO business since 2006 with brand name clients including Ford and multi-regional contracts with Baker Hughes and Eli Lilly.

IBM’s price of $46 per share is a 42% premium over Kenexa’s August 24^th close, but it will be well worth it. IBM is getting much more than software technology; it is getting assets, including human talent that can make a HCM difference. IBM’s plan is to combine its approach to social business, analytics, and TM to transform business processes to create smarter workforces with measureable business results. Given Kenexa’s record of growth and IBM’s experience with integrating acquisitions, this sounds like a good plan and a great business opportunity for both companies.

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Bridging Talent Management and Workforce Management with HRO

Linda Merritt, HRO Research Analyst, NelsonHall

One of the hottest topics in HR and HRO has been talent management (TM), including everything from recruiting and RPO to performance management and employee engagement. Major ERP vendors have snapped up TM software leaders to strengthen HR product lines, e.g., SAP and SuccessFactors; Oracle and Taleo. Very good moves and very on trend, but let’s not forget about the less flashy powerhouse: workforce management (WM).

TM and WM are both critical components of human capital management (HCM) and depending on definitions and models, there can be a lot of overlap. For my purpose here, TM is about the individual and the capabilities for a specific job position and WM is about groups of workers and managing multiple positions.

TM involves attracting, retaining, and developing people with the required capabilities according to requested volumes and performance management. WM involves workforce planning and forecasting the capabilities and volumes needed and day-to-day scheduling and time and attendance. It takes both processes to have the right number of people, with the right skills, in the right places, at the right time.

Let’s consider two more elements, HR analytics and ROI, that will also benefit from seamless HR systems and processes, which our dear HRO community can enable and deliver. Timely and accurate workforce data is a foundation block upon which HR is built. At least part of the drive for multi-country payroll has been to get better employee data, and there is an important feeder into payroll: time reporting. Today’s leading time and attendance systems offer great flexibility in capturing the detailed data needed for payroll plus analyses of productivity, labor costing, pricing, project billing, workforce planning, etc.

Everybody wants to tie HR and HRO to ROI. Lowering the cost of HR operations alone is not enough. We must show real impact in measurable business results. Simplifying a bit, TM supports improved business results through customer satisfaction and revenues generated; WM supports improved business results through optimizing SG&A via operations and reducing losses.

Many HRO offerings come in basic and advanced levels. HRO providers– ensure you offer both levels of time and attendance, scheduling, and attendance management services. Buyers – take the time to determine whether advanced workforce management services will not only provide better data, but will pay for itself through reductions in overtime and the impact of absences. Also, for many positions and industries, ensuring all customer-facing seats are filled at the right capacity, capability, and time has a direct link to productivity and revenues. Finally, don’t forget about compliance with wage, hour, and labor regulations where accurate records and proactive scheduling are a great defense against fines and losses.

HR and HRO in partnership can be the bridge to strengthen TM and WM across the entire human capital value chain.

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HR, Analytics, and HRO – No Walk in the Park

By Linda Merritt, HRO Research Analyst, NelsonHall

Business intelligence tools, consulting, and services have been around for years, including for HR. Increasingly, one can find analytic solutions from HRO service providers, including those whose business services extend far beyond HRO and those that are pure-play HRO vendors. Every so often I review analytics packages, success stories, and service offerings and each time I am impressed by what can be done with the right tools, technologies, consulting, and data.

One would think that analytic solutions that provide fact-based information to support HR recommendations and then track the business impact of HR interventions and programs would be an easy sell, but it is not.

There are always leaders and early adopters ready to use the most cutting-edge tools and with the internal capabilities to ensure that value is delivered. That group is now getting into advanced HR analytics, but that group is not large enough to sustain a robust market.

Savvy HRO vendors with advanced analytic solutions understand the issue of client readiness and maturity. If the foundations and fundamentals are put in place first, then a vendor can whet the client’s appetite for more useful and usable information. For example:

• Vendors in a consulting engagement for a specific problem should show how its advanced offering can be used along the way
• Vendors should be aware of clients that are dealing with anecdotal data and data silos and who are struggling to get consistent, accurate, and timely data on the workforce basics because this foundation can be built on to support the entry point for analytics
• Vendors providing HR outsourcing should teach its clients how to take full advantage of the metric capabilities, reporting, and data analysis that are already built into the services.

Too often, HR analytic solutions get too advanced too quickly for the average HRO client. HR is already drowning in data and the thought of getting more, even more sophisticated data is not necessarily a perceived plus. What would we do with it? Would we really use it? How will it fit in with all of our other sources of data, reporting, dashboards, etc.? Our standalone applications have built in reports and analytics, why do we need another system? Would it pay its own way as an investment from our limited budget (i.e., ROI)? Even for those with a strong interest, the data and capability to make it dance are often lacking.

As a long-time champion of the use of metrics and analytics in HR, I loving seeing the strength that the use of great data adds to the consulting and relationship skills of HR business partners. There is a whole lot of foundation work needed to prepare for getting full value out of HR analytic solutions. I hope HRO service providers will stay the course because better use of data is a critical part of becoming strategic HR business partners and succeeding in the age of human capital management.

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How Mercer’s HCM Views Impact HRO

Would you build a $4.5bn facility in Africa if you were not sure you could find the skilled workers to run it? That was the comment of a real CFO at this year’s World Economic Forum in Davos. Human capital management (HCM) was one of the hottest topics at the forum drawing C-suite leaders into a full day of discussions. Concern about talent shortages has reached #2 on the risk management list, and top business leaders are recognizing talent as both a key competitive factor in growth and its lack as a risk factor limiting growth, especially in emerging markets.

This was the opening conversation at Mercer’s analyst forum focusing on its Talent, Rewards, and Communications (TRC) consulting practice and its approach to global talent growth. The TRC group is led by Pat Milligan, Senior Partner and President, and it accounts for $600m of Mercer’s $3.8bn 2011 revenues.

The forum was also about Mercer’s approach to its own growth. Mercer has increased its feet on the ground in emerging markets and is adding to its portfolio of services. Having completed seven acquisitions in the last sixteen months, including ORC Worldwide and CENSEO, expect to see more strategic acquisitions in the near future as Mercer leverages its cash on hand to build scale. Mercer’s TRC practice already has a great start with 55% of revenues from outside of the U.S. and 18% growth in 2011, 11% organic.

Mercer is focusing on more than consulting as a standalone service.  It is combining consulting with enabling technology and data to continue to win in its very competitive market space. Along with discussions on talent management, there were demonstrations of technologies and tool kits to gather, monitor, and manage information that helps clients make better people decisions, such as Mercer iknow and Human Capital Connect. 

Most clients cannot afford to immediately “rip and replace” their current tools and technologies, so Mercer will also help clients who say, “make what I have work.”  Its new Belong portal will be the front door to bringing together the information, tools, and applications – whether it’s Mercer’s own or a client’s blend of programs. Offering HR portals is not new, but Mercer is building in data extractors to offer the most needed information, dashboards, and limited functionality within the portal without having to go out to the full application.

There are other critical components to consider. This is where HRO comes in as part of the build and operations team to ensure cost-effective and viable end-to-end HR services for the participants, HR generalists and COEs, managers, senior leadership, and the enterprise itself.

Whether as a single source of consulting, solutions, and services or by using an ecosystem of preferred partners, is your HRO service provider(s) capable of helping you go from strategy to design, build, operate, and improve your HR capabilities and services to deliver full business value?

Linda Merritt, HRO Research Analyst, NelsonHall

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Does HRO Help or Hurt in Achieving Human Capital Leadership?

Can employers be recognized as leadership development advocates and a great place to work and still take advantage of HRO services? Yes—and recent “best companies” announcements provide plenty of examples.

Fortune’s annual 100 Best Companies to Work For list includes a number of companies known to use HRO services. RPO examples include: American Express (Hays RPO), Edward Jones and Intuit (Manpower Group), Microsoft and Novartis (Alexander Mann Solutions), and SAS and Telefonica (Ochre House). Accenture, which provides HRO services, is on the list as an employer.

HRO clients are also among the recognized companies in the 2011 Top Companies for Leaders, another recent Fortune study in association with Aon Hewitt. PepsiCo (Aon Hewitt) and Unilever (Accenture, IBM) are among the multinationals taking the lead in developing leaders. Again we see RPO as a common talent management service selection; Eli Lily and Novartis AG (The Right Thing, An ADP Company), GE and Siemens AG (KellyOCG), and Whirlpool (Kenexa). IBM, another major HRO player, is recognized, as is Wipro. Accenture is noted on the U.S. list and Infosys is on the Asia Pacific list. ADP is included in the 2012 list of 10 Best  Companies for Leaders rankings by the Chief Executive.

Business Today has just released its 11th annual “Best Companies to Work for” in India and top companies include HRO providers such as Accenture, IBM, Infosys, Wipro, and TCS. Honeywell International (SourceRight Solutions) also made the list and is on the U.S. list for Leaders as well.

The lists go on and on and you will find companies that use HRO as well as HRO providers among the best of the best. You can be a pioneer in leadership development and use HRO in critical talent management areas. You can achieve greatness in any region of the world. You can even look to some of the HRO providers to share their own expertise as a “best company” in the human capital leadership arena.

Will HRO automatically make you the best company? No. However, HRO will not slow you down and may even provide a committed partner in accelerating your success.

Linda Merritt, Research Analyst, HRO, NelsonHall

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HRO 2012 Trends – The Evolution of Talent Management

The NelsonHall HRO team is pleased to once again contribute the annual HRO Today thought leaders forecast of trends that will influence the year ahead. ‘Artful Predictions’ covers a range of topics with talent management (TM) as one of the highlighted trends. We have covered the subject of talent management frequently as we see the opportunity for it to become an integral part of HR business process outsourcing.

For some time, I have called talent management a disputed ground and a potentially disruptive force that could shake up the HRO field. Why? This is because TM elements include so much of the human capital management value chain and cross over everything—from HR ERPs, software modules, HRO business process outsourcing, HR consulting and the roles of HR leaders, HR business partners, and internal shared service centers. TM includes performance management, succession and career planning, recruiting and staffing, compensation, and learning. I also include workforce planning and management under the TM umbrella.

In addition to the HR ERP vendors and the specialty TM software providers, there are HRO providers that are also building out their TM capability internally as well as through strategic partnerships and acquisitions.

• Kenexa acquired BHI (Batrus Hollweg) a TM company. Although Kenexa has developed TM expertise internally, the company has also been enhancing its efforts over the past few years through prior acquisitions that have included:
  • Salary.com to strengthen its compensation management capability
  • The Centre for High Performance Development to further strengthen its leadership development and management training offering
  • Gantz Wiley Research to increase its employee survey research capabilities.
• Mercer acquired Censeo Corporation to enhance its TM consulting capabilities and online platform of assessment services.
• Both Kenexa and NGA are partnering with SkillSoft for learning content.
• In July, Talent2 re-branded itself to simplify its talent management focus.
  • It also became a reseller of Cornerstone OnDemand, most widely used for its performance management, including succession planning and learning modules.
  • Talent2 also added advisory services as a service offering to help clients more effectively deploy the capabilities.

With recruiting as one of the core TM processes, RPO vendors are among the early leaders in developing internal as well as external TM service options. NorthgateArinso has been moving in this area as well, coming from the standpoint of bring it all together into one integrated system and services package. With the acquisition of The Right Thing, ADP signals both a stronger move into RPO and its interest in TM.

The HRO Today article also discusses whether HRO has reached the maturity stage of providing ‘true business value’. I believe that talent management evolving into a full-fledged HRO service with technology-enabled tools, data integration across the full suite of HR data, supported by analytics assistance and consulting is critical to HRO providing true business value results for clients and achieving its own full measure of success as an invaluable industry.

Linda Merritt, Research Analyst, HRO, NelsonHall

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ADP Puts HRO Strategy into Action

Strategy is not a plan, it is action. A strategy defines what actions a company will take to achieve its goals. With the just announced acquisition of Asparity Decision Solutions, a privately-held supplier of patented employee benefits decision support tools (DSTs) and analytics, ADP provides a good example of strategy in action.

It is part of ADP’s strategy for growth to expand the depth and breadth of its benefits outsourcing services. It is also core to ADP to provide clients “insightful solutions that drive business success,” and “turn knowledge into insight.”

ADP’s acquisition of Asparity is an all around win-win. This is an excellent fit for ADP, which continues to expand its value proposition by enhancing its benefits and human capital management business process capabilities in a manner well suited to its strengths. Together, ADP and Asparity will be able to provide knowledgeable insights into managing the rising cost of health care and link its services to creating broader business value.

Asparity provides web-based proprietary technology to Fortune 1,000 companies and public-sector organizations, including the Federal Employee Health Benefits program. Its interactive DSTs include personalized data to engage and assist employees in making complex health care and benefits selections. All the more important given the changes and challenges in navigating health options and costs that are increasing for employees as well as for employers. Employers receive in-depth data to analyze employee health care actions and conjoint analysis is available to determine prioritized employee preferences, both of which can help employers manage total health care costs.

The addition of Asparity is one more in the steady execution of its strategy. In 2010 it acquired Workscape and its enriched benefits capabilities. Also, ADP has just formed the new benefits Strategic Advisory Services Group to help mid- and large-market clients maximize the value of the in-depth benefits data and analysis that ADP will be able to provide.

ADP is moving into the kind of consultative service arena that can create business results well beyond lowering HR operating expenses, and enabling it to establish itself as a strategic business partner in balancing the total cost of benefits with the impact on talent management and the bottom line.

According to NelsonHall’s 2010 benefits market analysis ADP including Workscape is among the top ten providers in both participants and revenues. These new strategic moves, if well executed, should strengthen ADP’s growth in a very competitive benefits outsourcing market.

Other HRO vendors that continue to think of ADP as “only” a payroll provider may well be surprised when it pops up as a serious competitor in their market. How aligned are your actions with your strategy?

Linda Merritt, Research Analyst, HRO, NelsonHall

An HRO Provider on the “100 Best Companies to Work For” List… Now That’s Walking the Talk

I was very pleased to see an HRO provider, Accenture, named on Fortune’s “100 Best Companies to Work For” list for the third year in a row.  Last week I wrote about customer service being important to customer retention, so I thought this was an appropriate blog to write about this week, particularly when you are a true believer in the adage that employee satisfaction = customer satisfaction = increased profitability.

Accenture was cited for initiatives including its “Future Leave” program, which is a three-month, self-funded, sabbatical with continued benefits and assurance to be able to return to work when the leave is over.  Accenture also has a number of other programs for employees including:

• Learning and development: A global online learning portal with 20,000 courses available.  All Accenture employees are assigned a career counselor to help them manage their careers
• Flexible work arrangements: Options of how and where employees perform their work to help achieve a better work-life balance

Another HRO provider walking the talk is Kenexa.  Its CEO, Rudy Karsan, recently co-authored a book titled “We: How to Increase Performance and Profits Through Full Engagement.” The book highlights three common factors that drive engagement that I completely agree with:

1. “Growth: We need to feel that we are advancing in our careers or are learning new things.
2. Recognition: We need to feel appreciated and believe that our ideas count.
3. Trust: We need to trust our senior leaders and feel confident about the future.”

More HRO providers are offering talent management services and can help clients improve employee engagement.  For example, Kenexa was recently awarded a contract by Unilever to survey 140,000 employees globally in 2010 and again in 2012 to assess employee engagement.  Kenexa will also help Unilever with action planning for any issues identified to improve employee engagement.

Manpower is another example of an HRO provider, helping companies in Asia to develop effective workforce strategies to improve their competitiveness.

As I’ve written before, as the economy improves and more jobs become available, it will be even harder to retain talent.  HRO providers can help and where needed, implement new employee programs or strengthen existing ones that are not achieving the desired results.  In assessing which HRO vendor to work with on tools and services designed to increase employee retention and engagement consider the vendor’s own human capital management practices. Who better to work with than an HRO partner that walks their own talk!

Gary Bragar, Lead HRO Analyst, NelsonHall

The HRO Need for an HCM Maturity Continuum

HRO service providers need to assess potential and current clients for business development just as clients assess vendors.  Evaluating HR organizational and enterprise leadership human capital management (HCM) maturity would help both buyers and providers select appropriate HRO and technology investments now and in the future.

My hypothesis – HRO vendors have more business development opportunities with a maturing client HR organization and enterprise that values and invests in its HCM capabilities.

For HRO service providers, HR is usually the direct client and knowing HCM maturity of the HR organization and the business is valuable in the initial sale and on-going relationship and revenue growth of the client relationship. Gauging client HCM maturity can guide the HRO services set selection and approach to winning and growing the business – and even determine if the opportunity is worth pursuing.

For HRO buyers, knowing realistically where you are and where you intend to go is important when selecting service providers.  The lowest cost provider of basic HRO technologies and services may meet today’s pressures for cost efficiency, but may not be able to help you improve HCM results and business outcomes in the future.  This can lead to disruptive changes in vendors and technologies or a network of vendors and services that does not sufficiently enable best in class performance for HR or the business.

There are pieces and parts available in many places and in many guises to develop a working HCM maturity model.  A wealth of internal knowledge is waiting to be tapped across the HR and HRO communities as well as within organizations.

Aberdeen Group’s “The 2011 HR Executive’s Agenda” report, which is based on findings from 439 organizations, states that HR is still spending too much time on tactical activities.  At the same time, the uncertain economy and focus on efficiency is the top HCM driver at 52%, which may then focus HR on tactical activities!  HR process standardization and automation are seen as top solutions, providing opportunity for HRO.

The second and third most important HCM drivers at 33% each are also good news for HRO: the return of interest in organic growth goals and perceived scarcity of key skills in the marketplace.  As NelsonHall has reported, increasing spend on RPO has already taken off and there is renewed interest in talent management solutions.

How HR balances conflicting drivers to be efficient and less tactical while investing in growth initiatives and upgrading the talent base may depend on the maturity of the organization itself and the enterprise leadership it supports.  “The 2011 HR Executive’s Agenda” is about and for HR executives, but it is also applicable to HRO and is helpful in understanding elements of HCM maturity.  Are you ready to assess the HCM maturity continuum and align HR service delivery investments with multiple and often conflicting business needs?  If you are, 2011 should be a good year!

Linda Merritt, Research Director, HRO, NelsonHall