Thursday, October 9, 2008

Something to look for when buying HCM/Talent software

A recent post reply made me think of an important aspect the organisations should consider when purchasing HCM/Talent software, that is solution survivability. This is different than considering corporate viability, otherwise known as "when in doubt, buy IBM" syndrome.

What it means is, assess your vendor's solution based on its quality and market share to determine if it should be the surviving solution in the case of a merger or acquisition. What should you consider? Here are a few things, not necessarily in order:
  • Size of customer base
  • quality and stability of the technology platform
  • feature depth
  • satisfaction of the customers
  • total Product Development spend - does one company produce better software than its competitors for less money? If so, the more efficient, profit supporting, will win
  • gross margin of application revenues - this speaks to technology and hosting operations efficiency

Sometimes, it's not always the bigger fish that wins. Of course, for private companies or those with deliberately opaque financials this could be hard to figure out. Don't let that stop you. If under a non-disclosure argreement, a company refuses to disclose this information to you, you should view it with suspicion.

Last, while HCM/Talent practioners are often novices at understanding corporate financials, the numbers contain important information that your organisation needs to know! Get some help from someone that understands technology finance, like an investment banker or financial analyst, not your purchasing director or some bloke from accounting. Engage your prospective or current supplier in a dialogue, let them explain their numbers, and make sure you have your experts help you check for facts and bullshit.

But most of all, don't look to the industry analysts like Gartner, Forrester, for help on understanding financials. They seem to go out of their way to disclaim financial analysis as if it doesn't matter to what they do, which is of course absurd. And then when they do mention financial aspects, they are usually way off base, comments re: Authoria a case in point. While industry analysts provide a valuable service and should be consulted, many of them tend to be really full of themselves and often more concerned with hype and fluff than substance. Financial analysts face consequences for not dealing with substance, one reason why it's good to pay attention to them.


Anonymous said...

You seem overly obsessed on this topic. if strong financials were the end all be all to a quality HCM solution, the best of breeds wouldn't exist (and every company would be stuck with their own personal customized version of SAP.)

TechSphinx said...

Yes, I am little obsessed by it. When the hype of any company gets so thick, only for everyone to find that said company was lying or next to insolvency, I find it supremely irritating, and moreso unethical.

But, truth be told, if we just relied on the ERP vendors, there would be almost no innovation at all in HCM. It is the small companies that drive nearly all of the innovation in the market.

Unfortunately, it's just not a simple equation for buyers out there. There is no easy or single answer.

Anonymous said...

There is a strong correlation between companies with good financials and extra-chunky hype. Whether this also correlates with solution quality is another question.

To some extent, when a company tells a good story that really connects with users, that is indicative that they understand what users want as well, which is a good thing. However, my experience from being on just about every side of the software industry, is that good stories are sometimes just that.

As for financials, unless the company is public, I doubt you will ever get far enough under the hood to be relevant, unless the deal is so large relative to the vendor in question that they will submit to an M&A level of disclosure, in which case, the conservative analysis would almost certainly say you ought to go with IBM.

Anonymous said...

" Product Development spend..."

This is particularly important for non-SaaS vendors who by their very nature are much less efficient with development resources.