Thursday, January 29, 2009

Technology vendor risk in this economy

In the midst of this lovely economy we are all now enjoying, most organisations who are currently taking a look at HCM/Talent technology are spending a good bit of effort trying evaluate vendor viability and risk. Without delving much into the data on specific vendors, I do believe that you can categorize HCM/Talent technology vendors in this economy to some extent by the sort of risk they might possess.

Here is one way to break this down:

Early stage private companies - Vendors in this category are often innovative and exciting. They also are relatively small (less than around ~$20M USD in revenue) and more often than not, venture funded and still burning cash. But, with a prolonged recession in the works and little new money available for investing, these companies are having to pull back significantly in order to conserve precious cash. Since their businesses are less mature, with a small base of long term recurring revenue, pullbacks can be draconian, and customers could be in for a rough ride. Buyers, do your financial diligence! Some of these companies will do fine, but be aware of the risks.

Highly devalued public companies - This is the highest risk category of all. Why? Because these companies are trading near the basement with no near term prospects for recovery and they have investors that want out. While some of these companies may be sizable and have enough cash to survive, they are at very high risk of being bought out within the next year. I don't need to name these companies, which would be exceedingly impolite, but you likely know who they are, and buyers should be very careful when dealing with them.

Stable public companies - All public companies have been hit hard by this economy, but some of them are fundamentally sound, of scale and still capable of charting their own course and innovating. I would include companies such as Laswson, Successfactors, Taleo, and Ultimate among some others in this category. I think buying from these sorts of vendors is a pretty safe bet. They have enough scale and cash to survive, and even innovate a little in a prolonged down economy. However, I don't look for these companies to be very acquisitive during the recession. They all view their equity as devalued, and are unlikely to use it (or cash) to do a big deal.

The ERPs - As usual, the ERPs get their own category, but I'd throw in ADP, Paychex, and some of the other large employer service giants in here as well. The good news is, nothing has really changed. The bad news is, nothing has really changed. Buyers will probably get better deals, but don't expect much to change about doing business with the big boys. Don't expect a lot of innovation. But, if your organisation was okay with that direction, then move along smartly.

Stable private companies - The wild cards! For those looking for action, this is the place. First of all, the category is truly a mixed bag, but if there is going to be change, I think there is a good chance it could come from this category. Some companies are simply of scale and will keep doing what they've always done. But, some well run private companies could end up being very acquisitive over the next year while the stable public companies are still rebuilding their share prices. All of this is predicated on the return of some amount of private equity in to the market over the next year, which, in and of itself, is questionable. Given the lack of constraints that a private company of scale has, plus a return of some capital, some real breakouts could occur here in the next year. But, as with all private companies, buyers should do their diligence, both financial and strategic. Sometimes it's hard to tell who belongs in this category and who belongs in the category below.

Declining private companies - Stay away unless they really have some differentiating thing your organisation must have. These companies are neither innovating nor stable. Sometimes a company in this category may have a technology that survives, even if the company may not. Sometimes, a declining company gets recapitalized and can change its course. But this relatively common phenomenon in the past, is unlikely to happen in this economy for some time. Again, buyers do your diligence.

There are many valid and different ways to look at the HCM/Talent technology vendor landscape, and this being only one of them. I hope it provokes some thoughts and is of some use.

Wednesday, January 14, 2009

Cutting industry analysts a break...sort of

I am often pretty hard on industry analysts for a number of reasons. I think they epitomise the axiom " a little knowledge is a dangerous thing." I also firmly believe that they are spoiled by being in a position where they rarely face any consequences for what they write or say, and are thereby emboldened to make pronouncements with incomplete data and poor assumptions. In HCM/Talent technology, I think they really get away with some things because, truly, as a rule senior HR professionals are the most stupid people in an entire organisation when it comes to technology.

There, I said it. You know it's true. This isn't to say that HR professionals aren't otherwise competent or smart, just generally not when it comes to technology.

So, this is where I believe industry analysts can, and often, do the world and their clients a real service. Namely, explaining to senior HR practitioners that many of there assumptions about technology, HCM applications, etc., are often wrong, or minimally, much harder to do than they think they are. At its finest, this is a consultative process where industry analysts can demonstrate that the practicality of technology is always less than it's promise, and that great success comes only with focus and discipline. But most of all, industry analysts can help practioners build a support network of technologists and processes that will keep practitioners safe from putting on rose colored glasses, and instead keep them focused on achieveable results.

In HCM/Talent technology, industry analysts offer organisations far more value when they help practitioners understand how to think about technology, rather than telling them which technology or company is better. My New Year's wish is for analysts to stop telling us about vendors, and to start telling organisations how to think.