This week ADP, the largest HR company in the world, introduced its integrated talent management solution (and its own learning management system). This announcement has the potential to significantly impact the human capital and talent management software markets.
Background on ADP
You probably think ADP is a payroll company. It is really much more. In reality ADP is the industry's largest and original "cloud" HR services company. ADP's products range from global and local payroll, benefits and benefits administration, staffing and recruiting services and platforms, time and attendance processing, and many forms of HR consulting and outsourcing. And the company has been built on a recurring revenue model for four decades.
The company's tagline is "In the Business of Your Success," and this is essentially what ADP does – outsource the HR and people-related processes you need to run a business, freeing you to focus on growing your company. We use ADP for our own payroll and employee management services and the company delivers on this promise.
Originally founded as a payroll company (the company used to deliver payroll checks by hand), ADP has expanded into nearly all areas of human capital management. It has done this through a variety of acquisitions, white-label products, partnerships, and new products of its own. While its offerings may appear complex, they are all based on providing end-to-end HR services to small companies, mid-sized business, and global corporations.
ADP's secret has been to execute a "cloud-based" business model which started long before words like "SaaS" and "cloud technology" were coined. ADP services are very easy to use, supported well, and priced at low to moderate prices on a per-employee basis. And nearly everything the company sells is sold on a recurring revenue basis – a fee per month per employee. This business model enables ADP to invest, grow, and maintain high degrees of profitability.
ADP's products are not always "best of breed," but that's fine – companies that do business with ADP are willing to sacrifice the most exciting new features for an integrated solution which is supported by one of the world's most stable and profitable service companies.
ADP's profits show how powerful this model has become. More than 150,000 small businesses use ADP's cloud-based payroll (>450,000 clients in total) and 24,000 of them use the advanced WorkforceNow talent platform. More than 1 million employees use ADP's GlobalView global payroll solution (which now covers 95% of all world countries, including Vietnam, Argentina, and Turkey). More than 95 million job seekers apply for jobs through ADP's various recruitment solutions, and the company maintains more than 2,000 different tax compliance relationships. (ADP is the IRS's largest client.)
All this complex HR-related processing and outsourcing is done by ADP with great scale and efficiency. The company has more than 1,000 sales professionals in the US and with all these related services generates $2.92 billion in revenue last quarter (up 6.8% YTY) with net profit of $452 million (up 6.7%). Note that this growth occurred during the worst recession we have seen in several decades.
I think of ADP as "The GE of the HR Market." The company has deep reservoirs of talent, a strong focus on recurring revenue services and support, and amazing ability to move in new directions. ADP often moves into new markets with fits and starts (often acquiring a company, then building expertise around its management team, and then expanding the offering into its large sales force). And this is the approach ADP has taken in Talent Management, where it now offers a best-of-breed offering.
ADP's New Talent Management Strategy
ADP is well aware of the talent issues facing businesses today. In the company's recent analyst day they cited research from PriceWaterhouseCoopers which shows that 83% of business leaders believe talent shortages are their top business challenge. The company also realizes that nearly all its customers have become global – so the company is focused on globalizing all of its offerings.
In Talent Management, ADP now understands that this market is big, real, and here. Over the last several years ADP has acquired a number of companies (VirtualEdge in recruiting, Workscape in compensation and performance management), and partnered with CornerstoneOnDemand for learning and other related technology. Last year ADP acquired TheRightThing to build out its capabilities in recruitment process outsourcing. And as I discussed in a prior blog, ADP built out Vantage HCM, a first generation talent management platform for mid-market companies, which has been available for 8 months (now generally available).
This month ADP announcements went much further: the company introduced its own integrated Talent Management Solution (called ADP Talent Management) and its own Learning Management System, which essentially puts ADP on par with every major talent management software maker in the market. (For more details on the Talent Management market, please read our comprehensive study on the market, vendors, and our buyers guide.)
Our initial look at the system shows that it is already competitive with many of the talent management providers (offering goal management, development planning, talent reviews and comparisons, performance reviews, succession management, replacement planning, compensation analysis and comparisons, learning paths and informal learning). The user experience is clean, easy to use, and compelling. The company has a mobile offering, a comprehensive analytics module, and is soon to release a tablet application. Additional tools for social talent management and talent pooling come next year.
Fig 1: ADP Talent Management: 9-box Grid Talent Reviews
But what makes it most interesting and unique is that the system not only includes its own HRMS (which most talent management providers do not offer), it directly integrates with all of ADP's existing payroll, benefits, and tax services. This means that if you are an ADP payroll customer today, you can essentially "turn on" ADP Talent Management and the system will already be populated with data.
To make this implementation even easier, ADP has bundled in job profile and competency models from SHL and content from Bersin & Associates (BersinBasics®, our on-demand learning solution which teaches managers and HR professionals how implement talent management) and other content to make the system usable from the start. And it all runs in the cloud. Plus, by the way, with all this functionality integrated into one system, ADP can provide a level of analytics and reporting "out of the box" which is very hard to replicate.
Fig 2: HR Analytics
Cloud-Based End-to-End Talent Management Providers
This "end-to-end" cloud-based HR and Talent Management solution is the future. We have been supporting companies' talent management needs for years, and today most companies are tired of having different systems for different HR needs. Not only is administration difficult, but there is no integrated data (making HR analytics nearly impossible), the systems are hard to use, and employees and managers simply will not login to lots of different systems to get their work done.
Lots of money has been trying to build end-to-end solutions. SAP paid $3.4 billion for SuccessFactors; Oracle paid $1.9 billion for Taleo; Salesforce acquired Rypple (at an enormous multiple); and the smaller vendors (SumTotal, PeopleFluent, Lumesse, Saba, SilkRoad, Halogen Software, CornerstoneOnDemand and many others) are building and buying adjacent solutions as fast as they can.
ADP is essentially "already there" in many respects. Not only does ADP have an embedded HRMS, the company is a leader in one of the most complicated and messy parts of HR: global payroll. The average large company has 8 payroll providers today and the payroll system and HRMS holds many of the important pieces of data we need to manage people (compensation, benefits, job changes, etc.). So providing an integrated system which delivers payroll, talent management, benefits, tax reporting, and other forms of HR services is a big value-add for any company.
While SAP, Workday, and Oracle (Fusion HCM) are now selling the same message (along with NorthgateArinso and others), these companies don't have the combination of payroll, benefits, and other HR services that ADP provides. So the company has already skated to "where the puck is going" by providing a totally integrated cloud-based HCM platform.
This is not to say that the game is over for all the other vendors in the market. Most companies still have multiple systems and will for years to come. And ADP's offerings are new and primarily being sold in the US. ADP's LMS is very new and won't necessarily meet the needs of highly regulated industries, customer training applications, and other extended enterprise applications. And the company's recruiting products are not fully competitive with those from Taleo, Kenexa, and other smaller providers yet.
But this announcement definitely changes the market. Companies with ADP payroll today cannot afford not to look at ADP Talent Management – it is likely to be among the lowest cost and easiest systems to implement. And ADP's end-to-end services make its offering perfect for companies that have relatively small HR staffs who do not have the time, money, or expertise to tie together multiple systems.
I attended ADP's Talent Management launch last week and met with Nordstroms, Home Depot, Rich Products, and several other larger ADP customers. They all have strong ADP relationships and are considering ADP's talent management solution.
Raising the Bar for HCM and Talent Management Providers
The market for integrated talent management and HCM solutions is large (well over $140 billion when we include recruiting and staffing services) and there will always be room for many innovative providers. But this move, coupled with SAP, Oracle, and Workday's moves, clearly shows that buyers can expect to find more and more integrated systems in the future. Not every customer has the luxury of throwing out what they have to replace it with ADP's (or anyone else's) integrated solution, but the writing is on the wall: the "Talent Management" software category is being integrated with end-to-end HR or Human Capital Management.
And the cloud business model, which is great for vendors, is also great for customers. As the market evolves they can switch suppliers very easily. This year I've talked with dozens of very large organizations who plan to shop and replace many of their talent management platforms when the agreements come up for renewal.
What about the sales partnership with CornerstoneOnDemand? While the company extended its reseller relationship for five more years (largely an LMS partnership), we expect that sales partnership to end soon. ADP renewed the relationship primarily to enable it to support its existing Cornerstone clients (there are around 100) over the next five years.
Does ADP have the depth of experience and knowledge to continue this investment and pull this off?
I believe they do. When the company acquired Workscape they brought in a team of seasoned experts in compensation, performance management, and now learning management. ADP's LMS is not a best of breed yet, but it meets the needs of most training organizations and it will grow in functionality over time. And when one looks at ADP's offering as an integrated suite, you see many things which other providers simply cannot do (displaying real-time compa rations – ie. compensation data) along with talent information during a talent review, for example. Integration of benefits and time & attendance is also a unique capability of ADP.
Mobile and Analytics: Other Innovations Coming
ADP realizes that getting into the cloud-based talent management business demands innovation. The company recently launched its mobile solution (which looks highly competitive and ahead of most of the other talent management companies – with a cool tablet version coming) and is planning a BigData launch later this year. ADP's BigData (or analytics) solution will be very unique (the company is planning on harnessing the benchmarking data it hasamong hundreds of thousands of companies) and will become a big value-add in itself.
(For more on BigData in HR, read about our BigData Maturity Model.)
Fig 3: ADP Mobile Self-Service
This is not to say that ADP is perfect. When we looked at customer satisfaction with various HR systems last year, ADP's customers were in the middle of the pack. This was not because of a lack of service from ADP sales and service teams, but because ADP's software is often not the most advanced or innovative in the market.
With this announcement the company has put its foot down: they are going to innovate, integrate, and drive highly competitive products to marketplace. The company plans to consistently invest R&D into improvements every year.
ADP is an Aggressive, Sales-Driven Organization: Expect More to Come
ADP is a 50 year old company which started life as a payroll provider. Over the years the company has aggressively grown and expanded, continuing to deliver a profitable recurring revenue model. This model has forced the company to focus on sales, service, support, and quality. ADP now has more than 570,000 customers, 45,000 employees, and a strong culture focused on its people.
While ADP is still very new to the talent management market, I expect this product to rapidly gain traction. The benefits of an integrated, end-to-end solution are compelling – and ADP will reset the bar for many other players in the market.