The Hype Around an Integrated Talent Management Suite Outpaces Customer Adoption

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1 Research Publication Date: 3 February 2009 ID Number: G The Hype Around an Integrated Talent Management Suite Outpaces Customer Adoption James Holincheck Gartner surveyed 123 customer references (see Note 1 for survey demographics) for its "Magic Quadrant for Employee Performance Management Software" about their use of talent management applications. Most customers used multiple talent management applications from a single vendor, but did not use a broader suite of talent management applications from the same vendor. Key Findings Sixty-three percent of customer references reported that they use a single vendor for multiple talent management applications. Performance and succession management were the most common (46%). Integration of employee performance management (EPM) software (performance, compensation and succession management) applications with other talent management applications (recruiting and learning) was also common. The use of a broad suite of integrated talent management applications (recruiting, performance, compensation, succession and learning management) from a single vendor was limited (only 4% of customer references). Recommendations Organizations that want talent management solutions that help them develop the next generation of leaders in their organizations should look for an integrated performance and succession solution (and possibly a learning solution, if no standard exists in the organization) from a single vendor. Organizations that want basic pay-for-performance capabilities do not need to buy a solution from a single vendor; the integration requirements are limited. However, organizations that want to more finely tune their pay-for-performance programs should consider integrated performance and compensation management solutions from a single vendor. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

2 WHAT YOU NEED TO KNOW Do not get caught up in the vendor hype around buying an integrated talent management suite from a single vendor. It is a useful long-term destination, but the vendors are still building out their breadth and depth of solutions. Limit the number of vendors you use for talent management applications to the minimum required to get necessary depth, breadth and user experience. STRATEGIC PLANNING ASSUMPTION(S) Through 2012, more than 50% of customers will adopt performance and compensation management software from a single vendor. Through 2012, fewer than 25% of customers will adopt a broader suite of talent management applications (including recruiting, performance, succession, compensation, and learning solutions) from a single vendor. ANALYSIS In 2005, Gartner published its initial definition for emerging suite talent management applications (see "Talent Management Application Suites Can Enhance Workforce Effectiveness"). Since then, we have seen vendors working feverishly to build out these suites. Some have built their own suites of integrated applications, while others have acquired other vendors/products and have integrated them or rebuilt them. However, the vendors had hyped these suites as "the way," but still were building out their depth and breadth. Because customers had niche talent management applications, and because the emerging suite solutions did not have the requisite breadth and depth, customers have been forced to manage a portfolio of talent management applications. This research focuses on customer use of talent management applications, and how that use will evolve. Multiple application use from a single vendor is common, but the use of a broad suite of talent management applications from one vendor is limited. However, we expect that broader suite use will continue to grow during the next three years, but the pace will be slower than many expect. Defining the Talent Management Application Suite In "Talent Management Application Suites Can Enhance Workforce Effectiveness," we defined a talent management application suite to include workforce planning, talent acquisition, performance management, career development, succession management, compensation management and learning EPM is a subset of the talent management application suite, and it includes performance management (including career development), succession management and compensation management. In the customer reference survey for the "Magic Quadrant for Employee Performance Software," we asked customers about their use of recruitment (the main focus for talent acquisition), performance management, succession management, compensation management and learning. We did not ask customers about workforce planning or contingent workforce management (the other component of talent acquisition), because few EPM software providers offer solutions in these areas. Multiple EPM Module Use Is Common Among Customers In the "MarketScope for Employee Performance Management Software, 2007," we noted that few vendors had customers who had adopted the full suite of EPM applications from a single vendor. Publication Date: 3 February 2009/ID Number: G Page 2 of 7

3 Our customer reference survey results for the "Magic Quadrant for Employee Performance Software" showed that multiple module use is high, and that many customers have now adopted a full EPM suite from a single vendor. Figure 1 shows that 63% of the customer references surveyed used multiple EPM capabilities from a single vendor. Furthermore, 46% used performance and succession management from the same vendor. We had seen a movement in our client inquiries from succession management focused on identifying successors for the most-senior executives to a broader focus on developing the next generation of leaders in an organization. The customer reference survey results support this conclusion as well. Not only was integrated performance and succession management from a single vendor quite high, but integrated performance, succession and learning management (20% of customer references used from a single vendor) also had strong use by customers. Publication Date: 3 February 2009/ID Number: G Page 3 of 7

4 Figure 1. Customer Use of Talent Management Applications From a Talent Management Suite From a Performance/Recruiting From a Performance/Learning/Succession From a Performance/Learning From a Full EPM Suite Performance/Compensation From a Performance/Succession from a Multiple EPM Modules 0% 10% 20% 30% 40% 50% 60% 70% N=115 Source: Gartner (January 2009) Publication Date: 3 February 2009/ID Number: G Page 4 of 7

5 Use of performance and compensation management solutions from a single vendor was lower (32% used performance and compensation management from the same vendor), but was still significant. We believe there are two main reasons for this. First, adoption of compensation management solutions is considerably less than performance and slightly less than succession management. Second, the integration requirements for doing basic pay for performance is relatively limited (overall performance ratings need to be integrated for compensation planning), so getting the solution from a single vendor has not been as critical. However, we expect this to change. Through 2012, more than 50% of customers will adopt performance and compensation management software from a single vendor. We believe this shift will happen because customers will want to take advantage of more fine-grained linking of pay for performance. Instead of linking overall performance just to merit increases or bonus/stock allocation, we expect users to link achievement of specific goals and objectives to specific compensation pools. Customers Are Using Other Talent Management Applications in Conjunction With EPM Solutions Twenty-four percent of customer references are using performance management and learning solutions from a single vendor versus 10% for performance management and recruiting solutions. We believe there are a couple of reasons for this. First, a higher percentage of references came from vendors that started in the learning solutions market versus the recruiting solutions market. With the exception of onboarding, vendors starting in the learning market do not offer recruiting solutions. Likewise, few recruiting vendors offer a suite of talent management applications that includes learning (and those that do get little use). Second, we believe that the challenge of development (generally, and for the next generation of leaders) has been a strong driver for integration (of performance and learning, as well as performance, succession and learning). We expect that the percentage customers using integrated recruiting and performance solutions will grow. As organizations focus more on time to productivity, the integration of recruiting, onboarding and performance (as well as learning) will increase in importance. The Hype Around an Integrated Talent Management Suite Outpaces Customer Adoption Only 4% of the customer references used a broad suite of talent management applications (including recruiting, performance, succession, compensation and learning) from a single vendor. Although there is quite a bit of hype around the concept of an integrated talent management suite (and vendors are working furiously to buy, build and partner to create them), the reality is that few customers have adopted them. As we indicated in "Unlocking the Strategic Value of Talent Management Application Investments," we think this will change over time. However, it is likely that it will not change as fast as most people think. Organizational silos in HR are still pervasive; convincing one part of the HR organization that is happy with a particular product will not be easy. This is especially true if that part of the HR organization feels that they will be giving up capability if they switch to a talent management suite solution. Vendors continue to improve the depth, breadth and maturity (customer adoption) of the suites. However, no vendor has built deep functionality and mature solutions across all the talent management domains. Through 2012, fewer than 25% of customers will adopt a broader suite of talent management applications (including recruiting, performance, succession, compensation and learning solutions) from a single vendor. Bottom Line Customers now appear to be comfortable using multiple talent management applications from a single vendor solution to solve key talent management challenges, such as pay for performance Publication Date: 3 February 2009/ID Number: G Page 5 of 7

6 and developing their next generation of leaders. This is an indication that the functional depth, breadth and maturity of solutions provided by vendors are improving. However, few customers have adopted the broader suite of talent management applications from a single vendor. Most talent management application customers will evolve into it (reducing the portfolio over time, as vendors achieve greater breadth and depth of functionality and maturity). Although new customers during the next three years may look to buy a broader talent management application suite, current customers will likely move more slowly. Many current customers have made investments in recruiting and learning vendors, and those functional silos are loath to give up their preferred solutions. However, as the market continues to mature, and as HR and IT leaders see the benefits from better-integrated solutions, we expect those walls to come down. It has been almost four years since we published our definition of a talent management application suite (and some suites were already available at that time). These changes do not happen overnight. We do expect the increased adoption of a broader suite of talent management applications from a single vendor during the next three years, but the movement will not be as fast as the vendor hype might suggest. RECOMMENDED READING "Magic Quadrant for Employee Performance Management Software" "Talent Management Application Suites Can Enhance Workforce Effectiveness" "Unlocking the Strategic Value of Talent Management Application Investments" Note 1 Customer Reference Survey Demographics As part of our research for the "Magic Quadrant for Employee Performance Management Software," Gartner conducted a customer reference survey. The survey drew 123 customer responses. Tables 1 and 2 provide the breakdown by industry and organization for the customer responses. The survey respondents represented a wide range of industries and organizational size ranges. Table 1. Customer References by Industry Industries Percent Education 1.6% Energy/Utilities 8.9% Financial Services 14.6% Healthcare 8.9% Manufacturing 19.5% Not for Profit 1.6% Pharmaceutical 2.4% Professional Services 8.1% Public Sector State/Local 3.3% Retail/Hospitality 10.6% Software/Technology 12.2% Telecommunications 5.7% Publication Date: 3 February 2009/ID Number: G Page 6 of 7

7 Industries Percent Transportation 0.8% Wholesale Distribution 1.6% Source: Gartner (January 2009) Table 2. Customer References by Organization Size Organization Size Percent Less Than 2,500 Employees 33.3% Between 2,501 and 10,000 Employees 23.6% Between 10,001 and 25,000 Employees 17.9% Between 25,001 and 75,000 Employees 17.1% More Than 75,000 Employees 8.1% Source: Gartner (January 2009) REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT U.S.A European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo JAPAN Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, andar World Trade Center São Paulo SP BRAZIL Publication Date: 3 February 2009/ID Number: G Page 7 of 7

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