Consolidation, Talent Gap Drives Earnings For Tech Vendors

Last year, when Kenexa bought up BrassRing for a hefty $115 million, a Yankee Group analyst declared it a “kick-start” to consolidation. Now, Kronos has bought Deploy Solutions; Taleo bought WetFeet and consolidation in the competitive field of talent management is well underway.

From almost any angle, it’s a bull market for HR technology providers due to the consolidation that is reducing the number of vendors as well as the expansion of these businesses into global markets and the tightening of the labor supply generally.

Al Campa, CMO of Taleo, puts it simply: “The workforce is not growing fast enough. There’s a talent gap. It gets harder every day to find top talent.”

This is driving the small- and medium-size businesses that have typically hung back from investing in HR technology investment to seek out solutions to help them better compete for talent. Campa says that Taleo research confirmed that for even for firms as small as 50 employees, “Hiring people is their single biggest challenge.”

It’s not, however, a land rush of small business seeking recruitment solutions. Only about 10 percent of Taleo’s business comes from SMBs. It’s globalization and the need to upgrade or expand talent management that helped push Taleo’s revenues to a record $33.7 million for the 3rd quarter of the year. A 35 percent increase over the same quarter in 2006.

Kronos, a privately held company on a fiscal year that ends Oct. 31, reported a 15% increase in revenue to $662 million. The company says its growth was fueled by pushing deeper into foreign markets, especially in Europe where it acquired Captor, a workforce management technology provider, and into India, where it launched a subsidiary, and into China as well. It also grew its US business by expanding talent management solutions domestically.

So strong is the market for HR technology, especially in recruitment and talent management generally, that SuccessFactors Inc., headquartered in California’s Silicon Valley, announced late last week it intended to go public with an initial public offering of 10.79 million shares at between $8 and $10 each. With the shares already in the hands of private equity investors, a sale at the high end could give SuccessFactors a market capitalization reportedly approaching half-a-billion dollars. The six-year-old company was one of the early introducers of on-demand performance and talenet management technology.

Seemingly alone with bad news, Kenexa disappointed Wall Street reporting 3rd quarter earnings of $46.8 million, a stunning 67 percent over the previous year’s quarter, but, in the expectations-fueled world of investing, about 8 or 9 percent less than the company predicted.

Nonetheless, analysts and industry watchers expect both revenue growth and acquisitions to continue.

“Even if the U.S. economy crashed hard, corporations will continue to hire because they have no choice,” says Master Burnett, managing director of recruitment consultants Dr. John Sullivan & Associates. The boom and bust, or hire in good times, layoff in bad cycle, especially for large companies, has ameliorated because of the effect of globalization. “There’s still a demand on headquarters for support,” adds Burnett. “The U.S. economy may stall, but these companies need to support operations where the economies are still strong.”

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Yet even in a U.S. recession, “There’s not enough good talent. Most of these companies are in a state of continuous hiring.”

What does the consolidation of the technology vendors mean for recruiters?

“This could be the change that is needed to break down the functional silos,” says Burnett. As companies acquire others and integrate their technologies into the product stream, it provides an opportunity to rethink everything from requisitions to job descriptions based on old-notions of static tasks.

“Do I think that will happen? No,” he adds.

If nothing else, the talent crunch is awakening ever more business leaders to the need to do something. At the SMB level, where recruitment and talent management have not had a place in corporate strategizing, that is slowing beginning to change. “You have a bunch of open jobs and that gets the attention of the CEO,” says Taleo’s Campa.

“At Starbucks, they don’t wake up in the morning thinking of the talent gap. They think about how they are going to fill 600 jobs.”

John Zappe is the editor of TLNT.com and a contributing editor of ERE.net. John was a newspaper reporter and editor until his geek gene lead him to launch his first website in 1994. He developed and managed online newspaper employment sites and sold advertising services to recruiters and employers. Before joining ERE Media in 2006, John was a senior consultant and analyst with Advanced Interactive Media and previously was Vice President of Digital Media for the Los Angeles Newspaper Group.

Besides writing for ERE, John consults with staffing firms and employment agencies, providing content and managing their social media programs. He also works with organizations and businesses to assist with audience development and marketing. In his spare time  he can be found hiking in the California mountains or competing in canine agility and obedience competitions.

You can contact him here.

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