The Essential Guide to Employee Performance Management Systems. Leighanne Levensaler

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1 The Essential Guide to Employee Performance Management Systems Leighanne Levensaler Director of Talent Management Research October 2008 BERSIN & ASSOCIATES RESEARCH REPORT V.1.0

2 Introduction For decades, organizations have used simple office productivity tools to support employee performance management practices, such as goalsetting and performance reviews. Some early adopter organizations have even taken advantage of the web-based employee performance management applications that came on the market about five years ago. These nascent applications offered organizations the ability to realize great efficiencies through forms automation, self-service and improved compliance reporting. While these efficiency gains are certainly beneficial, they did not provide significant strategic business value or provide organizations with assistance in addressing critical talent challenges. In the last 24 months, however, we have witnessed dramatic advancements in employee performance management solutions and, as a result, the performance and talent management market has experienced explosive growth. Given the dynamic nature of the market, organizations are justifiably confused on many fronts, such as: What is needed in a technology solution; What their current HR systems offer (as compared with what is available on the market); Which providers should be considered; and, ultimately, How to evaluate employee performance management solutions. Through this comprehensive research study, we set out to provide organizations with a practical guide to address some of their biggest questions, including the following. What is included in an employee performance management system and how have the feature sets evolved to support broader talent management strategies? Why should we implement an employee performance management system and what are the biggest benefits? How well-adopted are the systems today? What are the top implementation challenges?

3 What are the best practices, and how can we ensure a successful implementation and adoption? Which are the leading solution providers and how do we differentiate the solutions offered? What is the most efficient and effective approach in the evaluation and selection of employee performance management solutions? We found that the leading solutions available today are much more than an employee performance appraisal tool; they now support advanced feature sets, such as goals management, competency management and development planning. In addition, integrated performance management solutions (as the core of a talent management suite ) offer support for pay for performance, and career and succession management. Additionally, the technology solution provider landscape has undergone dramatic changes as a result of mergers, acquisitions and an influx of new entrants to the market. The stability of solution providers is understandably a serious concern for every organization. This report is designed to be a companion report of The Essential Guide to Employee Performance Management Practices. It is intended to provide your organization with the information you need to: Educate your project team and stakeholders on the state of the market and the solution provider landscape; Identify the solution providers that support your critical requirements and meet your business needs; and, Guide your organization in how to approach the selection of an employee performance management system, given the chaotic state of the market today. We welcome your feedback and sincerely hope you find this guide to be an invaluable resource. 1 For more information, Talent Management Suites: Market Realities, Implementation Experiences and Vendor Profiles, Bersin & Associates / Leighanne Levensaler, January Available to research members at or for purchase at 2 For more information, The Essential Guide to Performance Management Practices, Bersin & Associates / Leighanne Levensaler, October Available to research members at

4 Research Methodology This research study was initiated in February 2008 and completed in August We invited representatives from U.S. and global corporations, nonprofits, government and higher-educational institutions to participate in interviews and focus groups to discuss their employee performance management practices. Over a five-month period, 47 organizations from a wide variety of industries and geographic locations shared the changes they made that had real business impact. In mid-july 2008, we surveyed HR practitioners and line managers from organizations of all sizes and across all industries; the final count of qualified respondents was 716. The survey yielded a large crosssection of respondents. (See section, Appendix VIII: Research Survey Demographics, which provides a detailed breakdown of the survey demographics.) Of particular interest is the percentage of multinational (41 percent) and non-u.s.-based (13 percent) organizations participating in this research. For the final analysis, we segmented the responses by geographic reach, industry, and a host of other demographic and operational characteristics. The goal of the segmentation was to provide organizations with benchmark data to assist with the design of their employee performance management strategies. In order to provide readers with another reliable benchmark for comparison, we identified 10 organizations with high-impact and deeply integrated employee performance management practices. We selected the organizations after completing 47 research interviews. The leading organizations come from different industries and range in size from 5,000 employees to 250,000 global employees. What they share is a welldeveloped, high-performance management culture and an integrated approach to building organizational capability. In several sections of this report, we refer to the practices of these leading organizations. Of the more than 700 research participants, 30 percent are listed in the top 100 on the FORTUNE 500 list and 28 percent are listed on the 100 Best Companies to Work list. It is not a Bersin & Associates practice to disclose the names of the respondents and organizations participating in the research unless we seek formal approval. In addition to the findings captured from organizations, we conducted an extensive analysis of the solution provider landscape. We invited 30 solution providers to be evaluated and profiled for this research study

5 and report. Ultimately, we covered 25 solutions, including two from Oracle. Our analysis approach included the following activities. We collected comprehensive profile data, based on a standard set of company and product questions similar to a request for proposal (RFP). We conducted detailed briefings, and evaluated the providers using a functional criteria matrix and use-case scenarios. We conducted customer reference checks for each solution provider. We developed a profile for each solution provider, including functional evaluation ratings and our own analysis. We believe our approach to evaluating the market and solution providers is unrivaled in the industry.

6 Summary of Key Findings 1. The performance management systems market is the fastest growing subsector in the human capital management (HCM) market and will soon be the biggest talent management segment. The performance management systems market is estimated at $520 million for 2008, growing at a rate of 35 percent from The market is growing more than twice as fast as the more mature talent management segments of recruitment and learning management and has potential to be largest talent management segment overall by We estimate that the market for performance management systems is less than 12 percent penetrated in the U.S. and less than nine percent globally. 2. The performance management market has been redefined. No longer a standalone market, it now encompasses solutions that support integrated performance, career, succession and manager-focused compensation management and is the core of the talent management suite. The explosive growth of the performance management systems market can be attributed, in part, to the trend of both solution providers offering and organizations pursuing an integrated talent management solution. Our research shows that the performance core offers the highest-value integration points and, as a result, it is typically the first set of modules an organization will implement in an integrated approach. Further, every integrated talent management solution on the market today supports the performance core. Organizations with integrated talent management suites cite two to three times the return on investment (ROI) than organizations implementing point solutions. 3. There are more than 30 solution providers vying for market position, making it very difficult for buying organizations to narrow the field for evaluation. In terms of revenue and customers for performance management solutions, SuccessFactors, Halogen and Oracle (respectively) are the market share leaders. From an overall company revenue standpoint, there are several other large, stable solution providers offering

7 performance management solutions, including SAP, StepStone and Taleo. While there are many providers offering solutions, most are optimized to service organizations in only one or two target segments. We found that less than half of the providers are able to meet the needs of organizations with 10,000-plus employees, while only seven of those providers have deep experience with truly global implementations. For smaller organizations with less than 1,000 employees, there are only nine providers that would have a solution and the type of services required to meet their needs. 4. The performance management market is quite elusive, beset with new entrants, consolidation and global expansion. In early 2008, leading recruitment management provider Taleo released their Taleo Performance solution with great fanfare. Several months later, the company announced that it was acquiring Vurv. Not only one of its direct competitors in the recruitment management space, Vurv was also one of the largest performance management solution providers with more than 750 customers running several versions of its products. Another recruitment management provider, Cytiva, launched an on-demand performance management solution designed by some of the pioneers in the performance management market also could be called the year of globalization. Many organizations are now pursuing truly global talent management strategies. As such, they require the solution providers to support multiple languages, as well as offer support for highly sophisticated configuration and distributed administration requirements. Several leading solution providers (including Cornerstone OnDemand, Softscape and Plateau) extended their sales, services and support teams beyond North America in an effort to support their multinational customers as well as tap into the enormous market potential of Europe / the Middle East / Africa and the Asia-Pacific region. At the same time, several global providers (including StepStone and Pilat HR Solutions) have successfully entered the U.S. marketplace. 5. We are at the point in the market in which performance management systems can drive tremendously high return on investment. In addition to hard time and cost-savings, organizations cite better alignment of individual goals to organizational goals; more consistent

8 feedback and ratings; and, better insights into key performance indicators as benefits of performance management systems. Moreover, organizations identified implementing an automated technology solution as the highest impact change made to their employee performance management strategies. We cite this finding with caution, though. The technology solution itself does not provide the higher-value benefits or change behavior. The high-value benefits come from the process, policy and user experience design work organizations must go through to configure a technology solution to meet their needs. The act of selecting and implementing a technology solution forces an organization to really think about its practices as they relate to the company s goals and management culture. 6. User experience is a key differentiator for solution providers in this ostensibly homogenized performance management market. As performance management systems continue to support more advanced and integrated functionality, they increasing become much more complex and difficult to use. For solution providers, an intense focus on user experience is critical to ensuring customers adopt sophisticated functionality and to supporting overall customer success. In the last nine to 12 months, several leading providers have undergone major development efforts to significantly improve their systems user experience and now incorporate next-generation features, such as decision and performance support, collaboration, and contextual or smart content. 7. SaaS (software as a service) is the predominant delivery model for performance management systems. Adoption of the SaaS model has dramatically increased the pace of product innovation and the frequency of product releases in the market. Sixty-two percent of organizations with a vendor-provided solution today are deployed on-demand in an SaaS model. By eliminating organizations using an enterprise resource planning (ERP) solution for performance management from this analysis, the percentage increases to 81 percent. The single code base and controlled management environment of SaaS enable solution providers to move to more frequent (e.g., quarterly or semiannual) releases of enhancements to the software. For buying organizations and

9 customers, this means it may only be a quarter or two until the solution provider can close a functional gap in its product. Thus, there is no more waiting years for functionality, or taking on a lengthy and expensive upgrade process. 8. SaaS can be highly configurable. Over the last six to nine months, several leading SaaS solution providers have extended their product capabilities to support organizations with highly customized and varied global performance management practices. Now that the majority of security concerns with SaaS are no longer valid, reticent organizations cite the inability to customize an SaaS solution as the major obstacle to adoption. It is true that SaaS solutions cannot be customized but several solutions on the market do not need to be customized in order to meet an organization s sophisticated needs. Leading solution providers now offer as much configurability as possible to accommodate nuanced approaches, as well as variability in the approaches, based on business unit, region, type of worker or any combination of attributes. Functionality for establishing business rules, templates, controlling data access and setting up notifications can now be defined at a very granular level. In addition, the solutions have come a long way in offering distributed administration privileges. In the early stages of this market, all SaaS solutions are not equally competent in this area and configurability should be considered a key differentiator. To ensure the best fit solution, organizations should develop detailed use-case scenarios to guide the evaluation process. 9. The performance management functionality available in the ERP s HCM solutions has reached functional parity with the majority of the best-of-breed solution providers. Point solution providers no longer have the 12 to 18 month product advantage over the much larger ERP providers. The latest product releases from Oracle (EBS 12.1 and PeopleSoft 9.1) and SAP (ERP HCM 6.0) offer comparable performance and succession management functionality. Recent advancements are, in part, due to the fact that the ERP providers are much more focused on the HCM business and are spending more on research and product development than the smaller, less resourced providers. While advanced feature sets and user experience are now available, organizations must

10 10 be on the latest version of the ERP environment to implement the enhancements. For some organizations, the upgrade could be several years away, depending on their individual organization s overarching ERP strategy and the timing of the HR upgrade. Fortunately, once an organization has upgraded, the ERP providers have adopted a strategy to offer new features through frequent (several times a year) enhancement packs between major point releases. 10. Organizations identified their top implementation challenge as insufficient training and performance support for employees and line managers. As performance management practices become more sophisticated, the role of the line manager and the employee increases significantly and the related technology solutions are required to do much more. In our research study of performance management practices, we found that 38 percent of line managers do not feel they have the training and skills needed to be effective in their expanded roles. In addition, the top challenge in implementing performance management systems is not having enough training and performance support for the users. To ensure end-user adoption and appropriate execution of the practices, organizations must budget extensively for education, change management and performance support. 3 For more information, The Essential Guide to Performance Management Practices, Bersin & Associates / Leighanne Levensaler, October 2008.

11 11 SuccessFactors, Inc. Company Overview COMPANY SNAPSHOT Headquarters San Mateo, California, USA Date Founded: 2001 Public of Private Public (NASDAQ:SFSF) 2008 Projected Revenue Estimated: $105 million Employees: 700 Customers: 2,140 North America 85% Total Number of Users 4 million Customer Retention Rate: More than 90% Top Five Industries 1. Business Services 2. High Tech 3. Financial Services 4. Healthcare 5. Retail SuccessFactors is one of the fastest-growing public software companies, and the leading provider of on-demand employee performance and talent management solutions. The company enables organizations of every size, and across every industry and geography, to achieve highperforming workforces through goal alignment and execution, talent development and planning, and pay-for-performance initiatives. From 92 customers and approximately 282,000 end-users in 2003 to more than 2,140 customers and four million end-users today, SuccessFactors solutions are widely deployed across 60 industries in more than 185 countries in 22 languages. Founded in 2001 with offices around the world, the company employs more than 700 people, all passionately focused on revolutionizing the future of work. For more information, please visit Figure 75: Solution Provider Profiles SuccessFactors Figure 1: Sample Screenshot SuccessFactors 4 Largest Implementations and Number of Users 1. Johnson & Johnson (129,000) 2. Wachovia (101,000) 3. Lloyds TSB Bank, PLC (60,000) Source: SuccessFactors, Representative screen shot from the provider s performance management solution.

12 12 Product Overview Performance Management and Succession Management Product Family Product name Current Version Number Available for General Release Date Current Version Released Number of Customers on This Version Delivery Models Supported (SaaS / Multitenant, Hosted, and / or Installed) Languages Supported Development Technology 1. Goal Management Via the SaaS model, all customers are on the most recent release. SuccessFactors 2. Performance Management employs a monthly release cycle that allows customers to opt into new features. Estimated at 1, Degree Reviews N / A 4. Learning and Development N / A SaaS / Multitenant 22 Languages: Bahasa (Malaysian), Bahasa (Indonesian), Chinese (simplified), Chinese (traditional), Danish, Dutch, English (U.S.), English (U.K.), French (Canadian), French (European), German (European), Italian, Japanese, Korean, Polish, Portuguese (Brazilian), Portuguese (Portugal), Russian, Spanish (international), Thai, Turkish, Vietnamese Java 5. Succession Management Estimated at 800 Performance and Succession Management Capabilities Performance management planning and review cycle management Goals management Competency management Performance planning Development planning Performance reviews Performance calibration support Pay-for-performance integration High potential / talent identification Job profile management Talent profile management Succession management / pool and position-based Talent analytics Global capabilities Bersin & Associates Evaluation = None = Basic = Comprehensive

13 13 User Experience Administrator s user experience Employee and manager s user experience Bersin & Associates Evaluation = Lagging = Current = Leader Other Products Other Human Resources Products Core HRMS Competency Management Competency Content Library Recruitment Management Product Name and Current Version Number (Available for General Release) N / A Advanced Job Description Manager Advanced features beyond the core job role / competency management capabilities 50 predefined competency management, included in base product; additional partnerships with Lominger, PDI, DDI. Recruiting Management Onboarding Learning Management Learning Content Management Offboarding/Transition Management Compensation Management Workforce Planning Recruiting Management Capability provided via partnership with GeoLearning Capability provided via partnership with GeoLearning N / A Compensation Management and Variable Pay (advanced bonus calculations) N / A Time and Expense N / A Workforce Analytics Other Analytics and Reporting Targeted Content Packs (e.g., healthcare, behavioral interview questions, wage data, et al), Engagement Survey

14 14 Service Offerings COMPANY SNAPSHOT (cont d) Geographic Expansion Targets Asia-Pacific, Europe / the Middle East / Africa, Latin America Resellers / Distributors IBM, Ceridian, Convergys, Hewitt, Accenture, Gevity, TriNet, GeoLearning Implementation Services Technical Consulting Services Platform Hosting Customer Training Regional Users Groups User Conference Customer Service Strategic Consulting Services Remove BPO Partner Training Industry Users Groups Three Key Company Differentiators 1. Organically built and seamless integration across performance and talent management initiatives. 2. Proven track record exhibited by large user base, and high number of satisfied and successfully deployed customers. 3. SaaS delivery model provides fast time to value, straightforward implementations and faster innovation. Bersin Analysis SuccessFactors is a leading talent management suite provider with (by far) the most well-adopted employee performance management product on the market today. For this profile, we evaluated the Enterprise Edition of the application suite. This version is suitable for organizations with more than 1,500 users or organizations with sophisticated practices. To address the varied needs of different size organizations and / or levels of employee performance management maturity, SuccessFactors delivers two other editions of its product SuccessPractices for organizations with 300 to 1,500 employees and the Professional Edition for organizations with up to 300 employees.

15 15 In the current release of the Enterprise Edition, we found performance management and development planning to be comprehensive, and very well-integrated with compensation and profile management. One of the biggest differentiators of the SuccessFactors solution is the innovative employee and manager experience. Leveraging the latest Web 2.0 technology, SuccessFactors now offers support to help organizations address the most common contributors to end-user dissatisfaction and low adoption rates. Rather than expecting users to constantly feed the system and get nothing in return, SuccessFactors makes extensive use of features, such as performance support, collaboration and integrated data experiences. These features help to engage users by providing contextual information to support decision-making and planning. We found the succession management capabilities to be just basic and limited to slate-based position planning; however, the identified gaps in succession management will be addressed very soon. Improvements (such as scenario planning and pipeline analysis) will be available in the company s Q release. SuccessFactors indicated that further enhancements to succession planning (including support for talent pool management) will be included in the Q1 and Q2 releases in The company s customers shared that they would like to see improvements in the administrator s experience particularly in the areas of configuration management, and support for distributed administration across organizational units and geographies. As recently as12 months ago, we reported that the majority of SuccessFactors s customers were in the small to medium-sized category. While this may still be true (given the amount of customers the company supports), SuccessFactors is used in organizations of all sizes and across all industries. Over that last year, the company has had great success with selling into large, complex organizations. Today, we find that SuccessFactors appears on the evaluation shortlist for almost every North American-based organization seeking an employee performance management system. In addition, the company s global presence and experience is steadily increasing. New consulting and reseller partners (such as IBM) should help SuccesssFactors expand its geographic reach and target to many more global corporations.

16 16 About Us Bersin & Associates is the only research and advisory consulting firm focused solely on WhatWorks research in enterprise learning and talent management. With more than 25 years of experience in enterprise learning, technology and HR business processes, Bersin & Associates provides actionable, research-based services to help learning and HR managers and executives improve operational effectiveness and business impact. Bersin & Associates research members gain access to a comprehensive library of best practices, case studies, benchmarks and in-depth market analyses designed to help executives and practitioners make fast, effective decisions. Member benefits include: in-depth advisory services, access to proprietary webcasts and industry user groups, strategic workshops, and strategic consulting to improve operational effectiveness and business alignment. More than 3,500 organizations in a wide range of industries benefit from Bersin & Associates research and services. Bersin & Associates can be reached at or at (510) About This Research Copyright 2008 Bersin & Associates. All rights reserved. WhatWorks and related names such as Rapid e-learning: WhatWorks and The High-Impact Learning Organization are registered trademarks of Bersin & Associates. No materials from this study can be duplicated, copied, republished, or re-used without written permission from Bersin & Associates. The information and forecasts contained in this report reflect the research and studied opinions of Bersin & Associates analysts.