The Good News About a Bad Fight

Betsy Zikakis, senior vice president of marketing for Workscape, a human resources benefits and workforce management software firm, is nonplussed by all the noise erupting from the technology heavyweights that dominate high-end software applications: SAP, PeopleSoft and Oracle. Her company focuses on two main lines of the human resources technology business, and the firm has gotten good enough to attract clients like General Motors and Dow Chemical.

    Zikakis figures when clients arrive at Workscape, they’ve already checked out the human resources software the big ERP players sell and decided to shop around. “We see a lot of people looking for alternatives,” she says.

    Still, when Oracle announced its $9.4 billion hostile takeover bid of PeopleSoft more than a year ago, “people were really nervous,” Zikakis concedes. PeopleSoft is one of the oldest players in the human resources tech world and is a comfortable, trusted name to many workforce managers. Oracle, on the other hand, has a win-at-any-cost reputation to go along with its tech savvy.

    One of the unsettling questions facing workforce managers is what happens if Oracle wins the takeover fight, now in its second year. PeopleSoft is the leading provider in the United States of the kind of monolithic foundational software systems that can tie a Fortune 500 company’s many divisions together, linking sales, manufacturing, human resources and other functions into a dandy package of state-of-the-art technology. But these systems can take years to install and can cost $100 million or more.

    The research firm IDC estimates that licensing sales for human resources management and payroll processing software were $4.5 billion in 2003, and will grow at an annual rate of 5.6 percent to $5.7 billion by 2007. The broader category of enterprise applications software, which includes HRMS and a wide range of other business products, took in $65 billion during 2003, IDC reports. In the fierce competition to control the market for human resources and payroll processing software, SAP was first, taking 11.8 percent of the market share worldwide, compared to 11.3 percent for second-place PeopleSoft. Oracle, with 3 percent, was a distant fifth.

    The fight by Oracle to take over PeopleSoft has not only dominated headlines but also elevated the visibility of these high-end enterprise resource planning systems that have become so important to corporations that human resources executives who ignore them do so at their own risk. Already, the technology has forced human resources to rethink its traditional role. Now the stakes are even higher. Experts say that workforce management executives who insist on keeping their focus on conventional administrative functions such as benefits administration or payroll could find themselves on the outside looking in, losers in the strategic battle by corporate leaders to extract ever greater productivity, profits and talent from the workforce.

Behind the curve
    In his book Rethinking Strategic HR, John Sullivan, head of the human resources program at San Francisco State University, says that human resources professionals have been behind the technology curve compared to counterparts in, say, finance or manufacturing, who “are light years ahead in the extensive use of technology.” Ron Hanscome, a technology-industry analyst with Meta Group Inc., says that staying current with technology is a matter of survival for human resources. “A working knowledge of technology is an absolute requirement for anyone in the HR business,” Hanscome says. “There is a real need for HR to understand how technology can make a difference. Those who understand technology and its applications will have a good career. Those who don’t will be relegated to do more administrative things, and ultimately their jobs might be outsourced.”

    Hanscome believes that when the dust settles, PeopleSoft will be able to fend off the attack by Oracle. “The market is well served with three strong competitive systems–it drives innovation, it keeps prices reasonable,” he says. “Each is working very hard to cover more and more human resources, particularly the more strategic HR functions.”

    Consider PeopleSoft’s Enterprise Learning Management system. An electronic kiosk is set up in a central location like a break room. Retail sales associates, for example, can log on to a training module or dial up a call center and receive training on the spot to deal with a problem such as an abundance of inventory of a certain product. New prices can be set immediately, sales incentives laid out and a sales strategy provided. The system not only gives the salesperson on the floor valuable training but also provides division managers with a means of tracking the success or failure of individual employees and enables them to link their training directly to sales numbers to determine the effectiveness of the training.

    “The kicker for the COO and other management is that they can then track the subsequent impact of the training on same-store retail sales,” says PeopleSoft’s Mark Lange, a vice president with responsibilities for global products marketing. “For years, training has been an expense. The CFO has never been clear on what kind of return on investment is generated for that expense. Now for the first time, you can have store training through the kiosk, with up-to-date information on how their stores performed.”

    The goal is to make every employee a competitive asset. “Driving workforce productivity is an enormous priority, a major imperative for companies,” Lange says. “We are not your mother’s HR department anymore.”

    PeopleSoft’s business results remain strong, despite the attack by Oracle, Lange says. As it stands, German powerhouse SAP is tops in sales worldwide, while PeopleSoft is No. 1 in the United States. Oracle would be a strong No. 2 if there were a takeover, but that would leave only two major players in an important segment of the software market. Seeing an obvious advantage in having only one major competitor instead of two, SAP has come out in favor of the takeover, publicly questioning an antitrust lawsuit filed by the Department of Justice to block Oracle.

    SAP argues that it has the broadest, deepest system on the planet, one that can incorporate payroll, performance management, benefits administration, the handling of regulatory-compliance issues, e-recruiting and employee self-service transactions. But the main thrust of the SAP business, like that of its competitors, is integrating human resources systems under the broadly defined umbrella of workforce management. As this plays out, human resources is less about collecting and processing employment data than it is about taking responsibility for such things as coaching management on how to better manage teams. One of the roles of human resources executives should be identifying high-potential people in a company, connecting them to measurement criteria, creating a development plan for them and following their progress every step of the way, says SAP’s David Ludlow, vice president responsible for MySAP HR. “We believe management of the workforce has been elevated to higher levels within a company,” Ludlow says. “If we look at some of the valuations of the companies, more and more are being attributed to intangible assets, and one of those intangible assets is people. When we talk about writing a performance appraisal, it is not just an individual assessment. It’s about how someone’s performance is tied to the overall goals of the company.”

    Joel Summers, senior vice president of Oracle global HRMS development, says the future of human resources “is all about connections”–or wiring in large amounts of corporate data that can go horizontal or vertical to promote profit-making strategies. Oracle is recognized as a leader in creating powerful databases. Playing to its strength, its systems mine and integrate massive amounts of information into data repositories, absorbing workforce information on a day-to-day basis and then feeding it out to heads of manufacturing, sales, finance, human resources and other divisions. This is especially valuable in tying together global operations, where workforce requirements and legal requirements can vary from one country to another.

    One example of the many challenges facing large corporations is the complex compliance and governance regulations passed in recent years in the crackdown on corporate malfeasance. “We have to have audit trails so that every [keyboard] touch is captured somewhere,” Summers says. “We have to have learning systems that allow us to distribute information on business ethics, explaining what the law says.” The way this might work for a company with thousands of salespeople is that teams from the legal and human resources departments would get together, set up a mandatory business-ethics course, record compliance as each person takes the course–with follow-up notices to employees who miss the training–and then feed the response rates up the management chain to the CEO.

Oracle plays rough
    Ever the hardball player, Oracle wants to control more of the market that is now going to vendors like Workscape. Smaller companies that concentrate on a limited number of applications, such as providing benefits administration, contend that their products are less expensive, perform more tasks and give better value.

At this point, there appears to be room for both large and small companies, though many in the industry predict that the universe of human resources software is shrinking and will accommodate fewer and fewer survivors. CEO Anthony Karrer of TechEmpower helps client companies choose learning-management and other software and then integrate it with large systems like PeopleSoft, SAP and Oracle. Not too long ago, the learning-management-software market was dominated by smaller companies with sophisticated, best-of-breed expertise. Now, PeopleSoft is moving into the field in a big way, with SAP and Oracle not too far behind, Karrer says. “The smaller public companies are going to be swallowed up or they are going to work really hard to stay out in front of the big guys.”

    As a result of the frenzied competition and new products, people-management executives itching to broaden their strategic influence already have sweeping solutions at their disposal that can enhance training, productivity and talent development across a multitude of corporate divisions. But they are faced with numerous challenges, from convincing CIOs that one product is better than another to fighting for a place at the head of the line when decisions on technology investments are debated by CEOs. Then, once the sophisticated software has been purchased, there is the problem of teaching managers how to use it and convincing them that it is better than paper.

    Some managers require more convincing than others. Despite the sweeping changes under way, there are still many Luddites in corporate America, ready to cast aside technology in the futile hope of returning to long-gone days. One of Zikakis’s chief selling points at Workscape is that her company’s compensation package gets a higher percentage of use than similar packages installed at other companies by competitors. That’s because her product is easier to use, she says. “If managers think the software is too complicated, they go back to paper,” Zikakis says. “They will create a spreadsheet and hand the spreadsheet in to human resources.”

Workforce Management, May 2004, pp. 53-55 — Subscribe Now!