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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HR Tech: Another Winner!

Kudos to Bill Kutik and everyone involved in planning and organizing the 14^th Annual HR Tech Conference that took place October 3 -5. Surveys are still being collected, but I’d rate it as a success! As an analyst, I did attend a couple presentations and briefly visited the showroom floor but, the majority of my time was spent in small meetings learning about new outsourcing contract activity and technology offerings, which included demos.  Highlights from some meetings included:

• IBM, already a major global MPHRO and LBPO provider, winning three significant contracts in the past month with clients headquartered in three different continents including a MPHRO contract with Air Canada (press release issued this morning). More to follow on the Air Canada win as well as the other MPHRO and LBPO contract awards as those press releases are issued.
• ManpowerGroup Solutions’ RPO business continuing to grow at > 50% thus far in 2011 with dozens of new clients added YTD in countries that include: U.S., Mexico, Costa Rica, Nicaragua, Australia, China, Hong Kong, Malaysia, Taiwan, India, Vietnam, Japan, U.K., Israel, Belgium, Finland, Poland, Netherlands, Sweden, and France.
• ADP’s demo of Vantage HCM, which is initially targeted in the U.S. for organizations with 1,000 – 20,000 employees.  I was impressed with the performance management capabilities and the overall ease of use, which included setting goals, identifying competencies, weighing performance to goals, linking performance to compensation, succession planning, etc. I could easily see how this platform can make an organization’s talent more effective, especially when combined with project management and implementation consultation.
• Kenexa’s recent announcements that include: launching Social Solutions for Recruiting and its new performance management suite, 2x Perform, which integrates performance management, succession planning, and compensation; a partnership with Skillsoft to integrate its e-learning content and SkillPort platform with Kenexa’s talent management platform and 2x Perform; a partnership with The Brooklyn Group to increase RPO presence in Australia; and a partnership with HR GlobBlog for global talent advice.
• SourceRight Solutions, whose revenue has been growing from both new contract wins as well as existing clients increasing hiring volumes, with the biggest news that Randstad completed its acquisition of the SFN Group for ~$771m last month. SourceRight will be the RPO arm for Randstad and with combined company revenue of ~$22 bn, of which ~80% are in Europe, expect great opportunities abroad as well as continued success in North America.
• Mercer’s Human Capital Connect, which combines talent management technology for performance management, succession planning, and compensation. It uses the PeopleFluent platform and a client success team that does a readiness assessment and stays with the client for life. Since its launch in mid-2010, a few major clients have been won, but names cannot be disclosed.

I attended twelve other meetings, demos, and presentations I’ll write more about in a future blog, but for now common themes are that HRO is thriving and that vendors are introducing new offerings for clients to improve talent management. Yes, technology combined with consultation is important and is most effective by organizations trained in how to do performance management.

Gary Bragar, HR Outsourcing Research Director, NelsonHall

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NorthgateArinso Getting SaaS-y Starting with e-Learning Content

NorthgateArinso (NGA) has just announced its euHReka Inclusion Framework to provide transparent access to third party providers, HR professionals, and associated resources.  The euHReka platform includes payroll and talent management SaaS for learning, recruitment, performance management, compensation management, and succession planning.  It serves 80 clients and 800,000 employees, and is available in 100 countries and 32 languages.

Although NGA has been providing learning BPO (LBPO) since its acquisition of Convergys’ HR Management business in March 2010, and since learning is already a part of its euHReka platform, the company is aware of the heightened demand for e-learning content in the market.  Consequently, NGA’s first partnership on the new framework is with SkillSoft to add e-learning content to euHReka.  Subsequent content and applications will include:

• Compensation data
• Benefits programs
• Job boards
• Professional social networking sites.

NGA is wise to begin with e-learning.  In NelsonHall’s LBPO market analysis, published Q4 2010, traditional instructor-led classroom training (ILT) is expected to be reduced from ~50% of the market in terms of revenue to 40% by 2012 due to the explosion of e-learning.  As a result, content development is also rapidly growing.  NelsonHall’s LBPO report ranks content development second behind learning administration in terms of LBPO revenue and ahead of delivery, technology, and consulting. 

Some examples of e-learning contracts this year include:

• Accenture with HSBC
• Genpact with JobSkills in India for a 5-year content development contract (note: approximately 85% of Genpact’s courses are provided via e-learning)
• Edvantage Group with Yara International for safety e-learning (note: Edvantage Group’s H1 2011 financial results showed a 31% increase in sales and double-digit revenue growth y-o-y with EBITA increasing 168% to 5.9m NOK, compared to 2.2m NOK in H1 2010).

I believe we will continue to see significant increased demand for e-learning content for years to come, which will be further magnified by mobile learning (i.e., m-learning), especially for accessing content for self-paced e-learning when out of the office.  However, e-learning will not replace the uptick expected for virtual instructor-led training (VLT) because of the need to actively participate and focus on the learning task at hand in VLT.  I’ll write more about contracts for VLT and web 2.0 learning portals at a later date.  In the meantime, further analysis on the useage of e-learning by region and other associated information is available from NelsonHall.

Gary Bragar, HR Outsourcing Research Director, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.comwith “HRO Insight” as the subject.

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