Vendor Viability Looming Larger

The economic downturn raises the stakes on the viability of talent management software vendors.

Dozens of firms pitch some variety of talent management software, broadly defined as tools for such key HR tasks as performance management, compensation management, recruiting and employee development.

Sales of the software have been brisk in recent years, in part because firms worried about a looming shortage of talent. But companies are slowing their investments in new talent management technology amid broader belt-tightening. Research firm Bersin & Associates says talent management software sales jumped 16 percent last year to nearly $2 billion, but the rate of growth will slip to about 14 percent for 2009.

Consolidation among vendors in the field likely will continue, and some providers may fail, analysts say. Such disruption can lead to big headaches for customers. A merger can mean a favorite product is no longer improved or kept current with the latest government rules. Taleo acquired Vurv last year and said it will support Vurv recruiting products for large organizations until July 2011.

And if a vendor goes out of business, a customer can be stuck without a crucial business tool.

Jim Holincheck, an analyst with research firm Gartner, says that when organizations buy a “perpetual license” to a software product, it’s wise to keep the source code in escrow. That means a neutral party holds a copy of the code and technical documentation, releasing it to the customer under certain conditions such as the vendor going belly-up. Holincheck also suggests that customers set up contracts to ensure that a buyer of the software firm must honor the terms of existing deals. Another key stipulation is the option to end the contract or get a rebate if there’s a change in control of the vendor.

A basic step organizations should take to protect themselves from vendor disruptions is backing up data, says Naomi Bloom, managing partner at consulting firm Bloom & Wallace. Particularly vulnerable is information stored remotely by providers that deliver their software as a service over the Internet through a Web browser. “If I have an applicant tracking product delivered as software as a service, and they shut down, I need to have my data,” Bloom says.

Experts also counsel organizations to monitor the health of their software vendors. One way is to look at the quarterly financial reports of publicly traded firms. Customers also can ask privately held vendors to disclose such information as their cash reserves, sales and profitability.

Another key area to check is the vendor’s “brain trust,” Bloom says. She recommends using the professional network LinkedIn to track changes in senior management, which can signal possible trouble at a firm.

Current sales are another useful barometer, Bloom says. Organizations can learn about their vendor’s latest sales by being active in user groups and by serving as reference customers.

Holincheck says even big fish in the talent management software pond, such as Kenexa or Taleo, could be acquisition targets. Company share prices have plummeted since September as the stock market overall has dropped.

“It could happen anywhere in the chain,” Holincheck says.

Workforce Management, April 20, 2009, p. 20 — Subscribe Now!