Last month NetSuite announced its intention to acquire TribeHR, a cloud-based provider of an integrated suite of human capital management (HCM) solutions. HCM solutions are pretty “hot” these days and cloud-based HCM is even hotter. Some make the mistake of thinking interest (and growth) in the HCM market is a very recent phenomenon. SAP’s acquisition of SuccessFactors and Oracle’s acquisition of Taleo (both cloud-based, by the way) only served to fuel that assumption. After all, if the “big guys” are jumping in, it must be the next “big thing.” Right? Yes and no.
Obviously HCM is “big” right now, but that didn’t happen overnight. I have been following HCM solutions since 2006, some years more closely than others. I actually think this HCM market started heating up back in the 2005 – 2006 timeframe. But it wasn’t the big guys that were making it happen. Instead, a lot of smaller HCM specialists saw the opportunity and jumped in. Most grabbed a niche – talent management, recruiting, performance management (reviews), incentive compensation or just plain HRIS. Very few took the full suite approach and that left the market with lots of players, but very fragmented.
In the early stages of this market growth, human resource management was still an afterthought in the world of ERP. For many years, the perceived requirements were rudimentary at best and Human Resource Management modules often were just repositories for employee data. They didn’t really manage anything. So what changed?
I believe there are three different forces converging here.
- The work force has changed
- All these smaller players demonstrated there was a real demand
- ERP vendors are more aggressive about expanding their footprints
The Changing Workforce
The workforce has actually been changing quite dramatically (at the very least) for the past two decades. The combination of automation and outsourcing to countries where labor is cheap has resulted in the blue-collar and hourly workforce shrinking enormously. When the work force was made up largely of these types of roles, nobody really worried about “employee engagement” or managing an inventory of skills. Employees were hired for a particular job that might or might not require special skills. Companies advertised job openings, even for salaried workers. Potential employees filled out applications on paper and resumes came through the mail. Benefits came in standard packages where one size fit all, whether they really fit or not. There was no “self-service.” Reviews were paper-based and recognition might (or might not) come with a length of service award announced at the company Christmas party.
We live in a very different work world today where the hourly worker has largely been replaced with the knowledge worker. When companies today say, “Our employees are our greatest asset” they really mean it. The way we recruit and hire is different. No place is the “social” aspect more prevalent than in managing human capital.
The Demand for Solutions is Real
The proliferation of smaller HCM vendors has proven there is a real demand for solutions to help manage this changing workforce. Until these vendors came on the market with solutions for everything from applicant tracking to hiring and onboarding to managing performance, benefits and incentive compensation, human resource professionals managed with paper and spreadsheets. Of course some, particularly in smaller companies, still do. But that only serves to increase the market potential and the cloud helps make these solutions much more affordable for smaller companies.
Even these smaller HCM niche vendors have tended to focus their efforts on larger companies, always measured by numbers of employees. As ERP vendors that serve small and medium size businesses bring these options to their existing customers, that could change very dramatically and market growth could accelerate even more quickly.
The Expanding Footprint of ERP
I have been saying for the past few years that the footprint of ERP has expanded to the point where it is getting more and more difficult to tell where ERP ends and other applications begin. This obviously is by the design of the ERP vendors. An ERP vendor can grow in several ways. Obviously it can grow by acquiring new customers (e.g. one ERP swallowing up another). It can grow by selling one new customer at a time. And it can grow by increasing its share of its customer’s wallet. This means cross-selling and up-selling existing customers. And an ERP vendor can either develop its own solutions to sell to existing customers, or it can acquire them. Most growing ERP vendors today will combine these growth strategies.
In this case, NetSuite has chosen the shorter route to market by acquiring a suite of HCM solutions. With such an acquisition I always caution customers and potential customers of the vendors to look closely at integration. Just because a vendor acquires a complementary solution doesn’t mean that solution is integrated and if not, there may be no additional value delivered than was available prior to the acquisition. In the case of NetSuite’s acquisition of TribeHR this is not a concern.
Earlier this year TribeHR joined NetSuite’s SuiteCloud Developer Network (SDN) and has already created TribeHR SuiteApp, integrating the two solutions. The integrated solution is already available on NetSuite’s Marketplace. Joint customers have the added advantage of a pre-configured and integrated solution. Start the recruiting process in TribeHR and when you make the hire, it also sets up and automatically provisions the employee in NetSuite’s ERP. Yes, there is some redundancy but the transfer is “touch-less” and the data is synchronized in real-time. So far, about 30 out of the 450 TribeHR customers are also NetSuite customers.
So where is the opportunity for growth in merging the two companies? It seems the biggest opportunity will be in up-selling the NetSuite installed base. Those NetSuite customers already running NetSuite Payroll have the highest probability of also wanting to buy HCM, but there are only about 100 of them, all US based. TribeHR is already deployed in more than 50 countries, but NetSuite’s Payroll supports US businesses only. But there should also be added opportunity for those small to mid-size businesses that have not yet invested in an HCM suite or even any HCM solutions. For the large enterprise, NetSuite will continue to partner with Oracle with Oracle HCM at the corporate level. But TribeHR might also be a viable alternative for two-tier deployments in smaller subsidiaries or divisions.
It is much more likely an existing NetSuite customer will extend its ERP solution with HCM than it will for a TribeHR customer to purchase an ERP, unless of course a new purchase of ERP was in the cards already. According to Mark Gally, previously Chief Revenue Officer at TribeHR and now HCM, Vice President of Sales and Marketing at NetSuite and ric Gerstein, Sr. Business Development Manager, HCM at NetSuite, TribeHR will continue to be sold as a stand-alone solution. The real question will be whether the NetSuite brand will help or hurt in that sale.
NetSuite Poised to Compete
The bottom line: this acquisition positions NetSuite to compete in the expanded ERP market, where prospects are looking for their ERP vendor to satisfy are larger percentage of their enterprise needs. Because managing human capital is becoming more critical to the continued success and to market differentiation, this category has become more important and will likely continue to gain in importance. Those ERP vendors that can’t fill this need will be at a competitive disadvantage. Acquiring a suite of HCM solutions is the fastest time to market and with all the recent acquisitions, the candidates for acquisition are shrinking quite quickly. Fortunately for NetSuite, it made its move with what appears to be an excellent choice, while the market is hot.