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Hosts Stacey Harris and John Sumser discuss important news and topics in recruiting and HR technology. Listen live every Thursday at 8AM Pacific – 11AM Eastern, or catch up on full episodes here.

HR Tech Weekly

Episode: 19
Air Date: May 7, 2015


This Week

This week John and Stacey discuss:

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Hosts Stacey Harris and John Sumser discuss important news and topics in recruiting and HR technology. Listen live every Thursday at 8AM Pacific – 11AM Eastern, or catch up on full episodes here.

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Begin transcript

John:               Good afternoon and welcome to HR Tech Weekly, One Step Closer with Stacey Harris and John Sumser. This is John Sumser. Morning Stacey, how are you?

Stacey:            Morning John. I’m doing well this morning, doing well. We got a busy week with the news. There’s a lot of topics to talk about. We had, I think, just the last half hour we couldn’t figure out which of the many things to cover today. It should be a good conversation today.

John:               Where do you want to start?

Stacey:            This week in the news, as far as HR technology goes, has been pretty loud and boisterous. We’ve had a lot of updates about what’s happening with, which we had started the conversation last week about. We can talk a little bit about what’s happening there and who’s come out of the woodwork and how that’s changing some of the dialog.

We also have some updates from Oracle’s cloud and HCM Analyst events. They’ve announced a couple of different things from those events that I think are worth having a conversation about. We also had the big Sapphire event this week for SAP. I wasn’t at that, but many of the industry analysts have been at that. I think there was a couple of announcements that came out of that concerning their relationship with IBM and Connexa.

If we really have a few minutes to spare, we might take some time to talk about Benefits and what’s happening there with both Mercer as well as Benefits  , two companies who are taking different approaches to the Benefits space and how that might be impacting the overall HR technology market. It’s a big week for news. Where would you like to start, John? Any of those pique your interest?

John:               Let’s start with the Oracle because we spent some time with the folks at Oracle, you and I, last week. Let’s see where we go from there.

What I noticed at Oracle is that the company seems to be perfecting an approach to delivering software that means, “If you come to us as a customer, we will have a solution for you.” They’ve got this just enormous catalog of products and services, and functionality that is the midpoint between an on-premise solution and a pure SaaS solution. That puts them in an interesting place.

You and I were debating about whether or not Oracle is the largest HCM player. I think it’s true that in the states Oracle dwarfs anybody else.

Stacey:            Yeah, I would definitely agree with that, yeah.

John:               In the world, it’s less clear who’s the biggest global player. What do you think?

Stacey:            Yeah, I think here in the states, at least as far as the numbers go, and the data that’s been shared with us, and what you’re seeing in the various research surveys too, when you take into comparison their entire suite, which is not just HCM Cloud, but also what they have with Oracle ABS, JD Edwards, the PeopleSoft, obviously, base that they’ve got, all of that seems to make them still the largest overall player unless you’re talking something like an ADP with mid-market and small organizations.

Then, obviously, globally, when you start looking globally, I’ve had a lot of organizations talk to me about the numbers and the data that’s being shared from SAP if you’re taking into consideration everyone who has some form of SAP doing some form of master data management as well as expenses, which tends to be how they’re also labeling these are people who used HR for us. Then SAP might have a larger number globally.

I don’t think any of those numbers have really …. We’re not sure what a number is actually, particularly when we’re talking about cloud vendors, and cloud buyers, and who those cloud buyers are. That was something you and I were talking about, which is what does a cloud buyer look like?

Are they someone who has the hybrid suite who maybe has a payroll that’s on-premise, but a cloud solution in their talent management cloud and their core HRMS? Do they have to be just core HRMS? Are they someone who also has maybe the talent suite particularly for SAP and Oracle? That’s a conversation that a lot of organizations are having. For other vendors, it’s not such a big deal.

John:               Going back two weeks ago to what we learned at Workforce Software, Workforce has been in the cloud business for a decade. They have been diligent and innovative to the point that a little bit of their design looks a little bit old. Now, after 10 years, because that’s how it works, they’re at the point where 95% of their new clients go directly to the cloud.

Their old clients are a transition question that has to do with the cycle with which people replace software. There’s a longer set for existing customers to see how long it takes them to move from the traditional solution to the cloud solution. My guess is that there are bunch of different ways you could be a cloud customer.

Stacey:            Yeah, and I think they’re all valid conversations. The real essence of all of this cloud versus on-premise conversation is that if you want the most up-to-date environment, if you want the newest technology, if you want the user interfaces.

One of the things Oracle talked about this week was that they’ll be launching their release 10 in the cloud environment, which has a new user interface, which is actually very nice, easy-to-use user interface. Then you really have to be purchasing from the cloud as far as a go forward strategy.

For your on premise environments, there a lot of reasons why organizations are keeping some level of their on premise environments due to complexity, due to regional differences, due to customizations that they’ve made that they still can’t quite get in the cloud environments because they’re very industry-specific.

I think to your point, the conversation that we had at Oracle this week was a lot of, “Look, we can be in the middle, but ultimately we are heading towards the cloud fast and furiously and that there is a lot of opportunity here for us and that this is the direction that we want to make sure we’re making a stake in.

The one thing, I think, that was also interesting about this week and the conversations was not only did they make some general updates to the Work Life content, which is that the Work Life Balance material and functionality that they had, but they also made some updates to their time and labor technology, and the user interface. The big announcement was that they were launching their first foray on the cloud side in their core HRMS environment for a brand new learning technology.

That, to me, was very intriguing. They did not base it off of the technology, which came along with the Taleo acquisition. This is brand new technology. It was very social, very focused on video-based and contextualized content. That will be launched, I think, with the new version here in June. That’s the first, I think, large organization at this point in time, in the ERP/HRMS environments that is saying, “We are putting our foot down and we’re going to now go into learning full force.”

John:               I also thought that their talk about their new payroll product was pretty interesting. It’s really hard to enter the payroll business because most people who try to enter the payroll business don’t have the financial stability necessary to win new customers.

When you have somebody like Oracle who’s stepping into payroll, all of the traditional questions about a new provider disappear. If Oracle screws up your payroll, you can sue them and get right. If some Silicon Valley company, who is diving into payroll for the first time, screws up the pay for all of your people for several weeks and loses the money, it’s a much, much more difficult problem to collect it and get right.

Oracle seems to have some interesting momentum in payroll right off the bat, which I found to be surprising and interesting. In my mind, even though all the rest of that stuff is really interesting, the game in HR begins with payroll.

Stacey:            Yeah, it really does, yeah. That’s a very good point. On a global sense, the global payroll conversation is much bigger, I think, than often times gets really talked about a lot.

Right now the American Payroll Association is holding their big annual event. I have a friend who’s down there. I was talking to her via email this week. We were exchanging emails.  What we really had heard is that a lot of the people who are working in payroll right now are at a point where they need to make some big decisions because the regional challenges of payroll are starting to cause them to rethink many of their strategies around payroll systems.

Payroll systems are traditionally either you have it on premise, you have your people inside and you’re managing most of it except for check delivery and things outside from an outsource perspective, but now there’s a big movement, I think, for those large organizations who traditionally have handled it internally to start to look at a mixed model where they’re managing some of this off-site and they’re leveraging some of these new cloud technologies. The new cloud technologies are where the regional capabilities are being able to be handled.

John:               Could be an interesting time. Microsoft is “Evaluating a bid for Salesforce.”

Stacey:            Yes.

John:               What do you make of that? That’s Microsoft. In other words Microsoft is evaluating spending billions of dollars to buy an Oracle application.

Stacey:            Yes. I was laughing about this when I saw this announcement yesterday. It came out of Bloomberg again. I think they once again broke the news. Me and you, when we were talking last week, we had talked about the fact that almost every financial analyst out there was saying that Oracle really had to be the top dog in this game.

We had talked about what were the opportunities for someone like a Microsoft, who has the business suite side of the organization to pick up the sales, and customer support, and marketing side of the conversation. It was really intriguing to see how those two things could work together.

If you listen to all the financial analysts out there, they’re pretty much all pooh-poohing this idea. They’re basically saying, “No, this would be less likely that Microsoft would pick them up and that it would be more likely that Oracle is the better choice for this.” It was Microsoft’s name that was floated this week. That was, I think, the interesting thing.

John:               The cynic in me thinks that, like we said last week, that Salesforce is in play because you can now see the end of its market potential. From here on out, every additional sale is going to be increasingly expensive for Salesforce. Figuring out how to put it in a context where you can continue to grow the market is what this is about.

Microsoft could do that. Microsoft has a hole in its Office Suite for useable multi-layer databases that don’t feel like the complexity of a straight up relational database. Salesforce is really good at that. I can see the fit, but it also seems to me that throwing Microsoft’s name on the table is just another way of pulling the Salesforce stock price up another five percent over the course of doing this transaction.

Stacey:            Which it did, I think, at least for that first day. Yes, I would agree. It’s definitely like waiving your red flag in front of the bull in some sense. “Do you really want Microsoft to have this? Who else wants to come talk to us?”

John:               Yes, exactly.

Stacey:            It’ll be interesting, yeah. It’ll be interesting to see where this lands. I think for the HRMS community, where this is going to have maybe the biggest impact, depending on what decisions are made, is in two ways. One, if Microsoft Office Suites continued to be the primary tool we use in our offices; there’s some debate as to whether or not Google’s going to be able to take that spot over time.

If they continue to be the primary tool that offices use to get work done and the conversation about your clients, your customers, and your candidates begins to merge more and more in the market, whoever owns that total database of customers, clients, employees is really going to have the most important information in the market.

The question becomes is that someone like an Oracle, who’s creating a people profile, or is that someone like a Microsoft, who has all of your Office Outlook context, or is that someone like a, with their client, and customer, and marketing data and where does that go? It’ll be interesting to see where it goes.

John:               One of the things I’m seeing, I’m just now digging into the optimal text stack report data. What I’m seeing in the data is that there’s a significant part of the market that think that their Microsoft hand-cut system of spreadsheets and presentations, and documents is a system.

Don’t make the distinction that we might make because we’re more familiar with vendors and how vendors categorize themselves. Don’t make the distinctions that make that system A is from IBM and system B is from Microsoft. They go, “Our system is the comprehensive set of tools that we use to solve the problem, not some vendor’s name.”

It’s like you get in the car and it’s got an aftermarket stereo in the car. You don’t really think about the brand name of the stereo unless you’re an audio nut. You think about the car. You certainly don’t think about the brand name of all of the manufacturers of all of the things that are in the car. It’s just a car.

Stacey:            It all works together when you buy it.

John:               It all works together. Unless you are deep in the creation of the tools, the distinction between vendors is inside baseball to a lot of people.

Stacey:            I think that brings up a really good conversation, which is the announcement this week at the Sapphire event of SAP and Successfactors partnering with IBM and Connexa. They’ve been partnering with IBM SAP for a long time as IBM is an implementer and a partner from a regional perspective in multiple ways as they are with many other vendors.

They made a big splash this week with a lot of news announcements, and press releases, and calls to all the analysts that there was this new strategic global alliance between IBM Connexa, which is all of IBM’s talent acquisition, learning, and performance management solutions, and SAP/Successfactors, which is the cloud HCM element of SAP and how those two now are basically going to be preferred partners to each other.

Me and you were having a conversation, which is is this brand management and creating hype out there right now, or does this create something new in the market that wasn’t there before? I’m not sure that it creates anything new, but to your point, if someone is thinking about their current onboarding, or their current talent acquisition system, and they want to make sure that it’s going to connect seamlessly to another solution, what we’re hearing, at least from IBM, is that this is going to connect a little deeper is what I think the statement is saying.

John:               What’s really interesting is that David Ludlow, who is the honcho of Human Capital-related projects at SAP, was at Brass Ring, which became Connexa for much of the company’s life. There’s another thread here that I don’t know how to get at that has to do with Ludlow’s ability to imagine how all these things go together.

He’s got to be central to this story, but that’s not what I’m hearing on the streets. I will dig, for next week’s call, into this story a little bit to see if I can find out more about what’s going on. You could easily read this as blah, blah, blah, press release. Maybe there’s something more to it. Maybe it’s the case that in order to compete effectively with Oracle in that ground, everybody has to have a broader set of products and this is the SAP IBM move to counteract the Oracle juggernaut.

Stacey:            I think it also brings up the issue. I agree with you that this is an opportunity for both, particularly with the U.S. and North America market. I would say that that is the market where this news is going to make the biggest waves probably. I also think there’s some interesting perspective here about the fact that there was a lot of conversation when Connexa came out with their suite. The suite didn’t have a core HRMS component to it.

There was some speculation back then about can you have a work profile and not have a core HRMS profile? Can we be creating this bigger, broader perspective about what an employee or a person within an organization’s profile is? Really, that’s the big thing that Connexa is missing. It’s missing the core HRMS environment. It’s missing some of the payroll components, the benefits, the things there that are not tied to a talent suite or a recruiting solution from that level.

I think what it comes down to, which is something me and you were talking about just before we started the call, is that in many ways what’s changing the dialog with core HRMSs and talent suites, and even applicant tracking systems today is this changing world of benefits, tax compliance, regional regulations.

The amount of paperwork and data that the governments, the industries, the various systems that we’re connected with are requiring means that the core HRMS, the benefits system, and the payroll system are becoming more central to this conversation than I think it has sometimes in the past been.

Do you see that as part of the conversation as well, John? Or, do you think that that’s not quite there yet? Maybe this is just a partnership relationship?

John:               I don’t know how to read this one. I really don’t know how to read this one because it could be anywhere all over the map from a shared implementation deal to a really deep integration of functionality. They were muddy in their articulation of that; probably intentionally muddy.

The larger topic, which is is payroll and benefits becoming more central to the conversation about talent? I think what’s happening is that each of the little cultures that are the United States and this may be true in Europe, I just don’t know. Each of the little cultures that are the United States are starting to assert their influence. In a city like San Francisco, which it’s a very specific American culture, the regulations about time, and wages, and benefit structure are different than they are in L.A.

That means that the social contract, go to work to have a job, to be an employee, which you can clearly see the differences in that between the United States and the rest of the world is now starting to fragment inside of the United States. The social contract, which is what all HR technology serves, is changing. It’s changing really rapidly. I think that may be where the center of the conversation is.

Stacey:            Yeah, no, no, I think that makes a lot of sense. What I’m seeing is that as this topic heats up, and as we start to really see that the core HRMS connected with the payroll and the benefits conversation is definitely changing here in the U.S. and in the North America market. I’ve had similar conversations in the Canadian space as well with organizations, that when we go outside the U.S., at least from the conversations I’ve had with a lot of organizations is that there is a lot of complexity obviously, maybe more so than we’ve had to deal with in the past in the U.S., but it’s a different level, different types of complexity.

It’s not the same things, but it still is enough that you have, which is why we have regional payroll providers, who are the only ones who can really handle these small countries and small regions from a payroll perspective. The more these systems and solution providers can figure out a way to bundle this for these large complex organizations, the more I think people are going to get excited about making some changes in what has been their long-standing payroll, or benefit solutions.

I think it’s a space that’s heating up right now. The biggest news, I think, today was the investment of $500 million from a fundraising perspective into Zenefits, which is one of the newer players on the market, who has primarily started out with benefits and payroll. They also offer other areas of HRMS in their solution now. They said the $500 million is going to be for investment into their development for their system going forward.

John:               What’ll be interesting with Zenefits is if Zenefits can stay focused on the mid-market, it’ll be an extraordinary success. If I were running strategy there, I would have ADP squarely in my target. I’d have my sights on unseating them. They’re not a few people who are envious of ADP’s position. This looks like an interesting way to go after that.

You know what’s going to happen is somebody will get the bright idea that Zenefits should become an enterprise company. I have yet to see a small startup begin aimed at the mid-market make the shift to enterprise and do anything but choke.

You see the struggles of smart recruiters as it moves over in that direction. It’s a traditional thing. The board sees the dollar figures associated with enterprise accounts. They get all excited about going after the enterprise business. It means every single aspect of the [inaudible 00:27:23] proposition has to be re-examined and revised. It’ll be amazing to watch that.

Stacey:            I think the interesting thing around this idea of mid-market versus enterprise is that this is a space that isn’t as clearly defined as it used to be either. You used to say without a doubt, “Oracle SAP was going to be going after the larger accounts.” Then you had the second tier vendors who would be going after mid-market.

The conversation last week with Oracle was that they were very interested in focusing on mid-market and saw many of their deals coming from that space in the cloud. Cloud, I think, is changing that conversation about mid-market and enterprise. On the other hand, they also have the scale to go to the larger organizations and that’s the challenge for a lot of these startups is, “Can you scale complexity-wise, to what a larger enterprise organization needs?” Then that adds dollar amounts from a services perspective and from an upkeep perspective.

John:               What it takes to serve, I’m less sure that the distinction is [blurring 00:28:35]. What it takes to serve a complex enterprise scale organization is a workflow that would simply destroy a mid-market business. You have layers and layers of influencers and approval authorities and input. In order to run in a big operation, you have to have workflow that incorporates all of that.

If you ran a small to medium-size company, on that level of consensus, which is what it is, you’d slow it down to the point that it couldn’t grow anymore. It’s really as simple as large companies have a different kind of governance than medium and small-size companies do. The software that’s required to serve that more complex governance it’s just not the same. I don’t care what anybody says.

Stacey:            Do you think the other thing is happening? Do you think a lot of these large complex systems that are being created, the ones that are focusing on the enterprise organizations, are they honestly saying, “We also want to make a stake in the mid-market as well.” with the idea that these mid-market organizations are going to grow? It would seem that it would be easier to go downstream than it would be to go upstream.

We haven’t seen many large organizations do that very effectively either. They haven’t been able to show the level of relationship building with those mid-market organizations that they obviously have with the larger organizations. When I was always talking to a lot of organizations and their selection processes and their decision-making is, “Do you want to be a small fish in a big pond, or a big fish in a little pond?” That always made a big difference as far as how the relationships would go with those organizations.

John:               Yeah, the way that I see that is big companies will have to look at the mid-market for growth. The only two choices for growing an Oracle are through acquisition, or through exploitation of the market that they’re not in. If you’ve got a bunch of people who are really good at hunting elephants and you send them out to hunt rabbits, they’re liable not to do very well on the rabbit thing.

Stacey:            I love your analysis, John.

John:               That’s the problem. You can’t solve the mid-market with Enterprise Salesforces.

Stacey:            On that note, I think we’ve run through our time. We’re already at half past the hour, John. We’ve exhausted, I think, all the various topics we were going to be talking about today.

Next week, I think, we’ll have a lot of new topics. There’ll be Cornerstones Event next week that I think many of us will be attending. Then there are a couple of other analyst events going on next week as well.

John:               Yeah, I’ll look forward to talking to you next week. Thanks, Stacey. It was great as usual. Thanks, everybody, for tuning in. We’ll talk to you next week.

Stacey:            Thanks, John. Thanks, everyone.

John:               Bye-bye.

End transcript

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