Kenexa’s Analyst Day and 7th World Conference – A Winner: Part 1

Gary Bragar, HRO Research Director, NelsonHall

Kenexa’s October 16^th analyst day included:

• A conversation with CEO Rudy Karsan
• Product overviews
• Business unit highlights
• A customer panel
• One-on-one meetings with executives including Rudy and CMO Tim Geisert.

IBM’s acquisition of Kenexa, which is expected to close by the end of the year, could only be talked about in limited discussion. Kenexa employees will be integrated during 2013. Initially, IBM’s RPO business will be integrated into Kenexa’s RPO business and will be named IBM Kenexa RPO. The group will report into Rudy, who will then report into Alistair Rennie of IBM. Phase 1, occurring through 2013, will be business as usual with IBM as a new source of business for Kenexa, a very large channel. Phase 2 will be integration into IBM.

In addition to RPO, key assets Kenexa brings to IBM include SaaS, innovation, and the ability to get big data into IBM’s warehouses (e.g., Kenexa has 100m employee touches a year globally). Kenexa’s 2015 revenue projection will be doubled with IBM’s added social capabilities and analytics (IBM will demo this at its conference in January 2013).

Below is an overview of Kenexa’s new products and services that were presented by the respective product manager. The presentations also included videos and a one-page user-friendly brochure.

• RapidHire: 2x BrassRing’s high-volume hiring module (ideal for the retail, restaurant, and hospitality sectors)
• 2x Onboard: used in ~50% of contracts (including many global deals for cost savings and compliance), improves the employee experience (with mobile access available) by:
  • Making introductions before the employee’s first day
  • Helping new hires understand the culture
  • Conducting employment eligibility verifications for new hires
  • Providing new hire surveys, which can be scheduled at any time
  • Assisting internal employees and contractors who have been transferred
• 2x Perform: includes performance, succession, and compensation management
• Learning: includes a new social LMS, content management, and Hot Lava to develop content on all mediums (i.e., tablets, mobile devices, and PC’s)
• Engagement: highlights include a mobile feedback application that can be used for immediate feedback from meetings / events, employee surveys, and 360 degree feedback
• Global Talent Management: clients include Shell, Exxon Mobil, Walmart, BP, Yum (in China), and Huawei (in China); 2012 sales included the suite of recruitment, learning, and performance management; EMEA sales grew 40%, mostly from competitor conversions
• Compensation Management (part of 2x Perform): added ~500 new compensation clients YTD 2012 including Ernst & Young, Cox Enterprises, and Cracker Barrel.

For more information on these products and services, please see my prior blog entries, Kenexa’s vendor profile, and the NelsonHall database.

Kenexa is also continuing to develop its survey, assessment, and leadership development capabilities with recent contract awards including Amazon, Campbell’s, and Cargill announced October 16^th.

Stay tuned for part 2 later this week, which will include RPO highlights.

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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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HRO: Are you Violently Good at the Talent Process?

In following up on my recent talent management (TM) blog, Building HRO Business Value, I spoke with Marianne Langlois, Global Process Executive with NorthgateArinso (NGA).  Marianne agreed that TM has been on the back burner for many companies, but now she sees growing interest. It may even be that TM is one of several paths to climbing out of crisis.

With several lost years, simmering issues of an aging skilled workforce and new generations entering the workforce are heating up. Surveys show that succession planning has become a critical concern of senior business leaders. Creating succession plans is fine, but there is too often a cycle of identifying and/or hiring top talent and then losing them within two years.  If this is happening, then whether the tools and processes are home grown or “best of breed” doesn’t matter because they are not adding full value to the business.

We do not need to make the case here for the value of a holistic and integrated talent management system and process supported along with, as Marianne says, HR partners who are “violently good at the talent process.” We do need to discuss how to get there from where many companies are now: scattered with underutilized tools, disconnected processes, islands of related data, as well as what roll HRO plays.

For NGA, the underlying HR system is key because it helps bring all of the data together to monitor and manage talent and workforces across the enterprise. Core HRIS and payroll is a necessary part of the whole, and the sooner the base is considered, the faster and more direct the value added TM services can be built. With today’s many HR system options, TM can be added now or later as a module, hung off the side as a specialty system, or even connected via a cloud-based SaaS application.

In this environment, are organizations willing to do more than talk? Yes. For example, a major global pharmaceutical company is working with NGA to build the integrated TM platform it needs, including letting go of their earlier investments in TM systems that were not connected or fully used.

Renewals are a great opportunity for TM. NGA is working with major clients that came with the Convergys acquisition last year on plans for the future. Fifth Third Bank will be continuing with NGA for another seven years and it will also be moving to the next generation of HRO services based on SAP HCM and euHReka.

With clients looking for integrated and streamlined systems and data across the enterprise and around the world, vendor, product, and service selection need to keep glob-ability in mind. Can you get a unified view of your top talent and their compensation, appraisals, laterals and promotions, as well as development plans and activities?

Linda Merritt, Research Analyst, HRO, NelsonHall

Employee Engagement, High Performance, and HRO

Employee engagement is down to the lowest levels seen in many years. Low engagement makes it hard to be high performing and can later raise turnover as employment opportunities improve.

• In early 2010, The Conference Board found that only 45% of employees were satisfied with their job, the lowest rate seen in the 22 years of the survey.
• This year, the 2011 Aon Hewitt Trends in Global Employee Engagement survey found that 56% of employees are engaged on average, down from 60% in the prior year, the largest year-over-year drop seen in 15 years. Declines were seen across Asia-Pacific, Europe, and North America, with only Latin America showing improvement.

My colleague, Gary Bragar, has consistently brought attention to the engagement topic because it is important and makes a difference for all: employers, employees, and HRO service providers. It can also make quite a difference! Aon Hewitt’s research indicates there is a strong correlation between employee engagement and financial performance. Organizations with high levels of engagement (65% or more) outperformed the total stock market index and had shareholder returns 22% higher than average in 2010. Companies with low engagement (45% or less) had shareholder returns 28% lower than the average.

Naturally, employee engagement that contributes to high performance business results is first and foremost a critical issue for C-level and management teams and there is a myriad of advice available, including consulting services from many of the HRO providers. Every organization, industry, and market has a life cycle and the management challenges will vary depending upon the stage. Accenture’s new book, “Jumping the S-Curve,” identifies three s-curves and outlines the critical issues for each cycle, including the importance of transitioning from one stage to another.

I see within the very insightful Accenture management advice opportunities for HRO contributions. For example, to climb the cycle of business success based on a winning idea, you need to reach a threshold of capabilities and competence and to attract and keep top talent in critical areas to maximize growth without collapse. As the cycle of achieving business success begins to end, new talent problems can arise as turnover increases due to fewer advancement opportunities and talent poaching. As a new cycle starts, a change may be needed in leadership and business competencies at the executive and other levels. Talent needs to be continually monitored, nurtured, and refreshed – all appropriate to the current and next cycle of the enterprise and what is happening in the broader market and economy.

Layering talent management services (e.g., recruiting, staffing, performance management, succession and career planning, and workforce planning) on top of a capable HR system for employee data management that’s supported by HR analytics can go a long way in helping clients see where they are now, identify gaps and emerging issues, and use HRO services and support to achieve a truly high performance-based business transformation.

Linda Merritt, Research Director, HRO, NelsonHall

Top HR Issues by Geography: The Same, But Different

In blogs earlier this month I addressed: 1) increasing use of SaaS; and 2) cost reduction as a top HRO driver based on data from NelsonHall’s recently published HRO buyer report, “HR Issues and Outsourcing Intentions.” Now let’s talk about the top HR management issues by geography.

On a 1 – 5 scale, with 5 being most important:

Asia	Importance
Low consistency of HR processes across the organization	4.8
Difficulties in obtaining consistent single view of the employee	4.4
Need accurate and consolidated workforce information and reports	4.3
Continental Europe	Importance
Difficulties in obtaining consistent single view of the employee	4.4
Corporate requirement for reductions in costs of HR administration	4.3
Need accurate and consolidated workforce information and reports	4.1
U.K	Importance
Corporate requirement for reductions in costs of HR administration	4.2
Need accurate and consolidated workforce information and reports	4.1
Need to improve identification of high performers and succession management	4.0
U.S.	Importance
Corporate requirement for reductions in costs of HR administration	4.2
Need to improve identification of high performers and succession management	4.2
Need for improved talent management capability	4.1

While the relative rankings vary a bit from geo to geo, and although there are a couple of outlier line items, the cited HR management issues can pretty much all be addressed by outsourcing core HR technology. Not surprisingly, this was identified as the number one HR service to be outsourced in our HRO buyer study, and its validity is bearing itself out as evidenced by recently-signed HRO contacts that are either for technology or technology plus HRO services. Let’s look at a couple of examples:

•  In just the last two weeks, Netherlands-based Raet has been awarded five SaaS contracts for its HR portal, RaetOnline, to leverage one system for HR and payroll, standardize to achieve improved efficiency, data accuracy and cost savings from elimination of systems and/or what may have been manual processes, and gain self-service capabilities 

•  Infosys is implementing a platform-based HRIS and global payroll platform for a leading Australian insurer, using PeopleSoft 9.0 to enable the client to have one standard integrated platform, eliminate disparate technologies, drive up process consistency, increase data accuracy and reduce costs

Tangentially, I found it interesting that cost reduction didn’t even make it into the top three HR management issues in Asia, while the U.S. and U.K. cited it as the primary issue, and continental Europe ranked it second. This made me think about my prior background in quality, long before I started working in HRO, and the work of Dr. Deming and Dr. Juran who trained Asian workers and managers on the importance of quality for three decades following World War II. Their tenet was that if you first focus on process and quality (of data), reductions in cost will follow. Cost reduction is of course important in Asia, but there’s clearly a different mindset in how to achieve it. Rather than my views on the principles of management, let’s engage. Where do you think cost reduction should fall in the “fix HR issues” equation?

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall