Management Update: Gartner s Large-Enterprise HRMS Magic Quadrant for 2002

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1 IGG J. Holincheck Article 23 October 2002 Management Update: Gartner s Large-Enterprise HRMS Magic Quadrant for 2002 The market for large-enterprise human resources management system (HRMS) solutions is wellestablished with clear leaders: PeopleSoft, Oracle and SAP. Other vendors in the market are focused on specific niches. Many enterprise executives are looking for insights on how human resources applications can support their enterprises business models and key business initiatives. The market for largeenterprise human resources management system (HRMS) solutions is well-established with clear leaders: PeopleSoft, Oracle and SAP. Other vendors in the market are focused on specific niches, which Gartner points out in presenting its Large-Enterprise HRMS Magic Quadrant. A Mature Market The large enterprise HRMS market is mature. Many large enterprises have purchased a core HRMS solution (personnel, payroll and benefits). In the current economic environment, new large purchases of core HRMS are facing tight scrutiny. Consequently, many large enterprises are looking at improving their HRMS capabilities by adding functionality that can support a strong return on investment (ROI). Vendor Evaluation Criteria Gartner s evaluation criteria used for the Large-Enterprise HRMS Magic Quadrant focuses on strategic workforce management functionality, including: Portals (including self-service) Workforce planning (including organizational modeling) Workforce acquisition (including recruitment and services procurement procurement of third-party resources) Workforce management (including training administration/e-learning, performance management, career/succession planning, performance management, total compensation management, time and expense management, and competency management) Workforce optimization (including knowledge management/collaboration and staffing optimization) Gartner Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction 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. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Reporting/analytics Best-of-Breed Integration Some 80 percent of customer project activity in large enterprises is focused on self-service, time and attendance, travel and expense management, performance/competency management, e-recruitment and compensation management because of the high ROI. Enterprises are evaluating best-of-breed solutions vs. their core HRMS providers for these advanced capabilities. By 2005, enterprise resource planning (ERP) II vendors will deliver strategic workforce management functionality as part of their solutions (0.8 probability). The initial functionality will be immature, compared to best-of-breed vendors. IS organizations should be prepared to integrate best-of-breed components with a core HRMS, because single-vendor solutions for strategic workforce management will not be realistic until 2H05 (0.6 probability). Key Trends HR is an area that has the most commonality across industries. However, vendors are providing more industry-specific functionality. That follows the general ERP II trend of differentiating by vertical market. In some cases, such as the public sector, vendors with industry-specific products leverage the cross-industry capabilities of those products. In other cases, the focus is on adding industryspecific functionality to the cross-industry products. Vendors want to provide vertical market solutions to lower the total cost of ownership by increasing the out of the box fit (reducing customization) and to differentiate themselves from their competitors. Industry-specific functionality is just the first step. Vendors should develop true industry domain expertise and deliver that expertise from marketing and sales through development, support and implementation. By 2005, ERP II vendors that combine deep domain capabilities with interenterprise process enablement will grow at least twice as fast as vendors that do not (0.7 probability). Many large enterprises operate on a multinational basis and want HRMS solutions that support their needs globally. They want to implement global processes, where possible, to reduce costs (and make it easier to deploy HR staff). Vendors have boasted of the number of countries in which they provide local payroll support. Increasingly, that is less of a concern for large, multinational enterprises. Those enterprises want local payroll support in countries where they have a critical mass of employees, rather than all countries in which they operate. In Tier 2 countries, they want a seamless interface with local payroll solutions and service providers. The evolving global HRMS architecture is a single, integrated database of workforce information (internal and third party) that supports global head count reporting and competency management. The architecture can easily integrate with local service providers and applications to support countryspecific requirements outside of major operating countries. Supporting that type of federated approach and building the network of providers is a work in progress. No vendor provides a truly comprehensive global HRMS solution. Providing applications that cross traditional product area boundaries to solve specific customer business problems is an emerging trend. SAP has introduced cross applications, or xapps. The first HR-related xapp is for resource and project management. It combines capabilities from project management and HR to help enterprises (for example, pharmaceutical companies) deploy staff and manage their project portfolios more effectively. New applications will emerge to help manage

3 business events, such as mergers, acquisitions, divestitures, downsizing and new product lines. The scope of these applications is beyond the scope of traditional HRMS, but HR information will be a critical component. Gartner groups large enterprises into two distinct segments: enterprises with 2,500 to 10,000 employees, and enterprises with more than 10,000 employees. In the Gartner HRMS Magic Quadrant (see Figure 3), PeopleSoft, SAP, Oracle, Meta4 and Lawson Software (in its target verticals) are the only vendors that target enterprises with more than 10,000 employees. Figure 3 HRMS Magic Quadrant for 2002 Challengers Leaders PeopleSoft SAP Oracle Ability to Execut Lawson Softwar Ultimate Software J.D. Edwards Cyborg Meta4 As of October 2002 Niche Players Completeness of Visionarie Source: Gartner Research Magic Quadrant Leaders Since presenting the large-enterprise HRMS Magic Quadrant in December 2000, the leaders PeopleSoft, SAP and Oracle have remained the same. PeopleSoft has the deepest and broadest HRMS functionality and has executed best in driving new product sales and market awareness. This has allowed it to extend its lead on SAP from an execution perspective. PeopleSoft s vision and movement in areas such as workforce planning and optimization and service procurement enabled it to push ahead of Oracle in terms of Completeness of Vision. Oracle scored well in almost all categories. Its self-service and e-recruiting functionality, as well as its vision for daily business intelligence, was strong. Oracle delivers the largest number of selfservice functions of all the vendors evaluated. Oracle s e-recruiting compares favorably to many

4 point solutions. It is intuitive and has a strong candidate self-service component. Although room still exists for Oracle to improve service and support, most customers feel that the major bugs of Oracle11i are worked out and that Family Packs have improved the quality of patches. SAP did very well on Completeness of Vision for technology (the scalability and the tools to manage the technical environment), global presence and support. It ranked near the top in core HRMS, compensation management, time and expense management, and workforce analytics. SAP has lagged in e-recruitment (it has used BrassRing and Recruitsoft as partners). Limited availability of the initial release of e-recruitment functionality is expected at the end of October SAP needs to quickly move its employee self-service offerings from its Internet Transaction Server architecture to its portal architecture so that it can be deployed consistently with its manager self-service capabilities (introduced in July 2002, with limited availability). Visionaries Meta4 remains in the Visionaries Quadrant. It showed strong functionality, especially in the more advanced areas such as knowledge management, integrated competency management and selfservice. It has a strong vision for linking people, knowledge and learning. However, Meta4 lacks a benefits administration solution (in development). Its object-oriented architecture is advanced and positions it well for customer extensions. It has a strong presence in Spain, Portugal and South American countries, and a growing presence in France and the United Kingdom. Meta4 has shown some recent improvement in its financial results, but required additional capital investment in 2001 and needs to show increased product revenue and sustained profitability to improve its Ability to Execute ratings. Challengers Lawson Software moved from the Visionaries Quadrant to the Challengers Quadrant. It did well in terms of vision and execution of a vertical-market strategy for retail, healthcare and the public sector. In addition, it scored well in reporting/analytics, portal/self-service, technology and viability. However, Lawson lacked some advanced capabilities for total compensation management, time and attendance, and travel and entertainment expense management. Its global vision is a work in progress, compared to the vendors in the Leaders Quadrant. With continued focus and execution on its vertical strategy, better definition of its global vision and improvement of its advanced capabilities, Lawson could move into the Leaders Quadrant. Niche Players Cyborg Systems and Ultimate Software, rated as Niche Players, had the lowest cost and scored well on functionality. That is in line with their value propositions: provide 80 percent to 90 percent of functionality for much lower cost. Cyborg has broad and reasonably deep functionality (strong core HRMS functionality) but has lagged somewhat in evolving/reinventing its architecture for the Web. Customers are just starting to deploy these capabilities. In addition, Cyborg provides only basic performance management and compensation management functionality. It has many satisfied, long-time customers. Cyborg needs to show increased new customer/product revenue to improve its Ability to Execute scores. Ultimate Software has strong core HRMS functionality (especially payroll) and has been cited consistently by users as being fast, easy and inexpensive to deploy. It also has strong self-service functionality. It lacks some of the more advanced HRMS management functionality, but that may help to ease implementation. Ultimate s revenue dipped as the vendor made the transition from a

5 traditional direct sales/in-house implementation model to a more balanced or more recurring revenue model. This new model leverages channel partners and an application service provider (ASP) offering, in addition to direct sales. Ultimate s partnership with Ceridian is the first significant evidence of these new channel-partner relationships. Ceridian will pay Ultimate a minimum of $42 million (of which Ultimate has received $16 million to date) over seven years to market a private-labeled version of Ultimate s UltiPro product in an ASP model targeted at enterprises with approximately 100 to 1,000 employees. Ultimate was conservative in the recognition of the revenue from the Ceridian deal. More aggressive revenue recognition would have lessened the dip of revenue experienced by Ultimate. If it can successfully finish making the transition to the new model, its Ability to Execute rating will likely increase. For enterprises with 2,500 to 10,000 employees that need core personnel, payroll and benefits applications along with employee self-service, Cyborg and Ultimate provide good value for the money. J.D. Edwards remains in the Niche Players Quadrant. It was near the top in vertical market vision and company viability. It has made significant strides in shoring up its core HRMS functionality, as well as providing some advanced capabilities, such as compensation management and performance management along with portal/self-service. J.D. Edwards provides good value for the money. However, its Web browser user interface (HTML or Java) is not widely used by customers and has not been aggressively marketed in sales situations. J.D. Edwards is not focused on selling Workforce Management as a stand-alone solution. Workforce Management is most appropriate for its established customers and for prospects looking for an enterprise solution. Other Vendors Several vendors were excluded from the HRMS Magic Quadrant. Automatic Data Processing (ADP) and Ceridian provide HRMS applications along with their outsourcing services. They do not typically provide HRMS applications on a stand-alone basis. Gartner s evaluation criteria did not include hosting services or outsourcing services, so these providers would have been at a disadvantage in terms of demonstrating their value proposition. Gartner also did not include Geac, Genesys, Infinium or Tesseract, because we have not seen them enough on shortlists in large-enterprise HRMS software selections. Other vendors of note that were considered but not included were IBM HR Access, Gruppo Formula, Rebus (Peterborough Software) and Midland Software. IBM HR Access has a strong customer base in Europe, especially in France, and Gruppo Formula has a strong presence in Italy. Rebus and Midland Software have considerable customer bases in the United Kingdom. Gartner has not seen these vendors involved in much recent software selection activity. However, we will re-evaluate them for the next Magic Quadrant. Bottom Line PeopleSoft, Oracle and SAP remain the leaders in the large-enterprise HRMS market. They have demonstrated the broadest and deepest solutions, make the most shortlists (especially for enterprises with more than 10,000 employees) and win the most deals. The other vendors compete on cost/value (Cyborg and Ultimate Software) or vertical market differentiation (Lawson and J.D. Edwards) for enterprises with fewer than 10,000 employees.

6 Written by Edward Younker, Research Products Analytical source: James Holincheck, Gartner Research For related Inside Gartner articles, see: Management Update: How to Implement a Successful ERP II Project, 25 September 2002