A Double Dose of Kenexa

Last week, Kenexa announced Q3 revenues and held its annual analyst relations meeting. Revenues for Q3 2011 were $75.7m, up 59% year-over-year. Subscription services were up 38% to $55m, professional services increased by 102% to $22.2m, and RPO was up 26% at $20m.

The top 80 customers averaged $1.6m in annualized revenues, up $.4m over Q3 2010. Sixty new “preferred partner” clients were added during the quarter (each with over $50k in annual spend), up 50% Y-o-Y. Three large client deals closed in the quarter including Baker Hughes and a life sciences company, all of which Kenexa won against multi-vendor partnerships with its breadth of talent management services available from a single vendor, a differentiating factor.

In addition to increasing its revenues and client base, Kenexa is integrating aquisitions, setting up new partnerships, and doubling down on the pace of new service developments and introductions. The integration of Salary.com is ahead of plan and some of the largest compensation deals in Salary.com’s history were just signed. Its new alliance with SkillSoft provides an enriched option for learning as part of an end-to-end talent management solution, adding to its coverage of one more key talent management base.

The latest “2x” service, Kenexa’s 2x Perform, was launched for early adopters. It is an integrated, enterprise-level performance management, succession, and compensation planning system. The new SaaS service joins the likes of 2x Brass Ring, 2x Onboard, and 2x Mobile. In 2012, 2x Perform will be expanded to all markets and 2x Assess will add to the growing survey and assessment product line. The feature and function basics are also a development priority with enhancements to the user experience underway.

We also heard live from several clients and while each had very different recruiting and talent challenges, each saw the same strengths in Kenexa. The right technology and service bells and whistles are there, but as one client said, “the technology makes you productive, the relationship makes you successful.” And it was the relationship aspects that each client highlighted including a focus on client success from the executives to the account teams.  Part of Kenexa’s high revenue growth is coming from an increase in the number of services sold in new contracts and service additions by existing clients. How do you really know you have great customer satisfaction? When they trust you with a greater share of their wallet.

With good news on all fronts, the management team mood was expansive and the conversations wide-ranging at the analyst event. From the presence of four generations in the workforce and the shortage of talent when and where needed, to the global impact of the economic crisis in Greece, talent management ties in one-way or another to much of what we see happening around us. Expect to see Kenexa there, on the front lines, helping clients around the world create improved business results through the many elements of talent management.

Linda Merritt, Research Analyst, HRO, NelsonHall

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Compensation – a Critical Component of Performance Management (and a Process Ripe for HRO)

Let’s cut to the chase here. While compensation is not always the primary reason people change jobs, I think we’ll all agree we should be appropriately compensated for the work we do. And while it can be challenging and time-consuming for companies to find the data they need to determine market- and role-appropriate salaries, not doing so can lead to loss of top talent. This issue came top of mind to me because of two occurrences this week.

First, Kenexa on September 1 acquired Salary.com for approximately $80 million. Kenexa provides talent management services including RPO and performance management – both software and advisory services – and additional talent management services that help improve employee engagement and retention. In addition, Kenexa’s 2X Perform Platform (which will be available H2 2010) will contain performance managment components including goal setting, appraisals, succession planning and compensation management. Salary.com provides compensation software and content. In addition, it has a database of compensation information across thousands of job positions. The acquisition of Salary.com not only enhances Kenexa’s ability to provide compensation management; having Salary.com’s benchmark database will enable Kenexa to help its clients ensure they are paying their employees market-competitive salaries to aid in talent retention. 

Second, on its September 1 analyst briefing upon completion of its acquisition of Workscape, ADP not only spoke about the merits of Workscape’s benefits administration capability, including health and welfare, but also about the importance of Workscape’s talent management capability, notably its compensation planner. ADP today provides performance management services including succession management and learning management, in part via its partnership with Cornerstone OnDemand, With its acquisition of Workscape, ADP has added compensation management to its performance management offerings portfolio.

The importance and impact of compensation as an integral component of performance management cannot be underestimated. While supervisors are, and will continue to be, ultimately responsible for performance management, including compensation, they need the right tools, technology and insights to effectively do the job. HRO providers that offer the full mix of performance management capabilities – robust tools and technologies, as well as advisory services – are best positioned to support their clients performance management needs. And there is definitely opportunity for growth in this space. According to NelsonHall’s June 2010, “HRO Issues and Opportunities” report, only one-third of buy-side executives have outsourced compensation administration, and it is the second least outsourced service/component of multi-process HRO deals.

My advice? Providers, beef up your compensation management offerings, either organically or via partnerships or acquisitions. And buyers, evaluate your current compensation management capabilities. If they fall short, either due to lack of insights or resources, consider engaging the services of an HRO provider with expertise in this process. You have everything to gain by ensuring talent retention through the right compensation plans.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

More Sass on HR SaaS – Deal the Cards Face-Up

Continuing the SaaS thread my colleague Gary Bragar began in his blog last week, I’d add that SaaS can help address the consistent client call for more innovation in HRO.

One of the advantages of SaaS for HR is the ease of access to updates and enhancements, with minor improvements included at no extra charge to all customers. New service modules come pre-designed as plug and play, and can be added easily and at less cost than trying to integrate new services into a client-customized system.

An example is Salary.com, which maintains a rapid and continuous pace of enhancements and updates to its HR SaaS offerings. Recent enhancements included expanded employee development and career planning, a new interface for employee self-services in TalentManager, and CompAnalyst added advanced merit modeling analysis and new reporting tools.

Know the Table Stakes

Since this is not poker, be sure all the cards are on the table, face-up, before buying in. The buyer beware caveat: it’s critical to understand what updates and enhancements are free and what will cost extra. While SaaS is known for having a lower cost of implementation and less total spend on application maintenance and upgrades, not all is gratis. To ensure they know what they’re buying into, companies considering entering into a contract for an HR SaaS offering should ask the vendors under consideration critical questions including:

• What recent service enhancements were released and included at no charge to current clients

• How service enhancements or upgrades that do cost extra are handled

• The age and planned life span of the service platform and how migration to a new platform, if needed, is managed

• If the services are offered on more than one platform, by client size for example, what happens if a client outgrows the platform’s normal parameters

Watch for Wild Cards

Another wild card in HR SaaS is the possibility of mergers or acquisitions which could severely impact both buyer and provider operations. While the HR SaaS provider under consideration may not be able to answer, potential buyers should ask if there are announced intentions to pursue an M&A, or if the vendor is known to be under a pursuit.

Can the Players Cover Their Bets?

Yet another consideration is the financial stability and ability of the vendor to fund continued R&D and growth. If the provider is private, raise the issue of financial stability and if the company is taking on significant additional debt, pursuing private equity funding or an IPO.

SaaS is already and will only continue to grow as a transformative force in HRO. Throughout 2010 we will continue to explore HR SaaS. What do you want to know more about, and what are you doing that is SaaS-y?

Linda Merritt, Research Director, HRO, NelsonHall