Magic Quadrant for U.S. Midmarket HRMS, 2003

Transcription

1 Markets, J. Holincheck Research Note 15 July 2003 Magic Quadrant for U.S. Midmarket HRMS, 2003 Although purchases of complete human resources management system solutions have declined in the large enterprise market, midsize enterprise interest for these solutions remains strong. Core Topic ERP II, Supply Chain & Manufacturing: Human Resources - Strategies, Applications and Technologies Key Issues How will human resources vendors and markets evolve? How will successful enterprises select, deploy and manage human resources solutions to minimize risk and achieve optimum ROI? Strategic Planning Assumptions By 2008, 30 percent of midmarket enterprises will enter into multiprocess outsourcing relationships (0.7 probability). By 2008, business service providers will become the dominant vendors for midmarket HR software solutions (0.6 probability). By 2007, the key functional differentiators between HRMS products will be based on support for specific worker types (0.7 probability). With PeopleSoft's presence in the HRMS market, its HRMS product will be the lead for the combined J.D. Edwards/PeopleSoft midmarket product line by the end of 2005 (0.7 probability). Microsoft's NextGen HRMS solution will not be fully developed in its initial incarnation until the end of 2006 (0.7 probability). Midsize enterprises are still interested in purchasing human resource management systems (HRMS) solutions. However, all midmarket enterprises do not have the same needs. Figure 1 shows the dichotomy that exists in the market between simple buyers and sophisticated buyers (see Note 1 for definitions). Vendors that target simple buyers typically do not compete against vendors that target sophisticated buyers. It is important to understand your "buyer" type so that you evaluate the appropriate set of vendors. Number of Companies Figure 1 U.S. Midmarket HRMS Customer Demographics Simple Buyers Sophisticated Buyers 500 Enterprise Employee Size 2,500 Source: Gartner Research (July 2003) Market Trends We have identified three trends in the U.S. midsize HRMS market. Gartner 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 Outsourcing Note 1 Simple vs. Sophisticated Buyers Simple Buyers Require core personnel and benefits administration along with employee self-service and e-recruiting. In many cases, these enterprises will outsource payroll services (or have basic requirements for payroll if these services are kept in-house). Simple buyers are costconscious and view solutions from the large ERP vendors as too complicated, too expensive and too risky. Sophisticated Buyers Resemble large enterprises in their requirements. They desire the same strategic functionality in areas such as performance management, compensation management, career development and succession planning. They also are often fast-growing enterprises that want a solution that can scale with them as they grow. Sophisticated buyers are more likely to value multinational capabilities because they have overseas operations today or plan to in the future. Sophisticated buyers tend to be morefrequent adopters of ERP solutions. Note 2 ASP/BSP Definitions ASP A provider that offers application hosting and maintenance for a Webenabled application. Each customer has its own instance of the application (although it may run on shared hardware). BSP A provider that offers "software as a service" through a "net-native" business application. All customers use the same instance of the application and are upgraded to new releases at the same time. U.S. midmarket customers often outsource payroll and benefits administration. Midmarket customers do not have, nor do they want, the same type of specialist resources as large enterprises in these areas. They look to leverage outsourcing to not only provide HR services at a low cost, but also to gain access to specialist resources. Today, business process outsourcing is an emerging trend in the large enterprise market (see "Deciding to Insource or Outsource for Human Resources" for more details). However, we expect to see this trend adopted in the midmarket as well. By 2008, 30 percent of midmarket enterprises will enter into multiprocess outsourcing relationships (0.7 probability). Midmarket customers should look for "one stop shopping." Outsourcers should provide an in-house solution (for areas that have not been outsourced) that will integrate seamlessly with their outsourced services. Application Service Providers/Business Service Providers The HRMS market has seen some initial interest by application service providers (ASPs) and business service providers (BSPs). See Note 2 for definitions of these terms. For example, Employease, a BSP, has more than 1,000 customers. We believe that this is the beginning of a significant change in the overall HRMS market. Core personnel, payroll and benefit functionality is well-defined. Many current HRMS customers are dissatisfied with the total cost of ownership of in-house HRMS solutions. By 2008, BSPs will become the dominant vendors for midmarket HR software solutions (0.6 probability). Simple buyers selecting software today should strongly consider ASP/BSP solutions because they are robust enough to meet their requirements. However, sophisticated buyers will want to consider other alternatives until robust-enough solutions are available. Differentiating by Vertical Market/Worker Types Several vendors in the midmarket, notably Best Software, J.D. Edwards and Lawson Software, are moving toward a vertical differentiation of their products. We have not seen significant demand for this type of differentiation; however, we expect that customers will want to reduce their total cost of ownership by increasing the "out of the box" fit. Although many vendors address vertical markets, that is only one way of making the distinction between different types of workers. For example, Kronos, with its large installed base on time and attendance solutions, is well-positioned to target hourly workers in a variety of different vertical markets. By 2007, the key functional differentiators between HRMS products will be based on support 15 July

3 for specific worker types (0.7 probability). Select the solutions that best meet the needs of managing your specific types of workers. Inclusion/Evaluation Criteria For information on the criteria used to determine placement on the 2003 U.S. Midmarket HRMS Magic Quadrant (see Figure 1), please see "U.S. Midmarket HRMS Magic Quadrant Evaluation Criteria." Figure 1 U.S. Midmarket HRMS Magic Quadrant Challengers Leaders Ability to Execute Cyborg Systems Ceridian SAP Lawson Software J.D. Edwards Best Software PeopleSoft Ultimate Software Oracle Employease Microsoft Business Solutions As of June 2003 Niche Players Visionaries Completeness of Vision Source: Gartner Research (June 2003) Leaders Best Software's Abra Suite is most appropriate for simple buyers seeking an in-house solution with strong functionality at a reasonable price. Best compared favorably in terms of functionality, only lagging significantly in performance and compensation management. Best has a large midmarket HRMS installed base, diverse product lines outside of HRMS and a financially strong parent company (The Sage Group). The company has a strong vision for incorporating outsourcing into its products and services, as well as for penetrating vertical markets. Oracle is most attractive to sophisticated buyers because of its functionality, scalability, multinational capabilities and integration 15 July

4 Note 3 J.D. Edwards/Oracle/PeopleSoft Impact On 2 June 2003, PeopleSoft announced a definitive agreement to acquire J.D. Edwards (see "PeopleSoft and J.D. Edwards Fit, but Merger Will Be Complex"). On 6 June 2003, Oracle announced an unsolicited offer to acquire PeopleSoft (see "Oracle/PeopleSoft Deal Would Greatly Affect ERP Market"). If the PeopleSoft/J.D. Edwards merger is completed, we expect that PeopleSoft will operate an IBM iseries product line (based on the J.D. Edwards World solution), a midmarket product line (based primarily on JDE 5) and a large enterprise product line (based primarily on PeopleSoft solutions). PeopleSoft's human capital management product will be the solution for the large enterprise product line. If the acquisition is completed, we expect that PeopleSoft's position in manufacturing, assetintensive industries, construction and real estate will improve. For PeopleSoft: Next 12 months We believe there will be little effect on PeopleSoft's HRMS solution and customers in the midmarket. Beyond 12 months We expect little impact on current PeopleSoft customers. PeopleSoft will continue to develop new functionality for the HRMS solution and will continue to focus on lowering TCO (which is important for large and midmarket enterprises). The product road map that rationalizes the PeopleSoft and J.D. Edwards HRMS products for the PeopleSoft midmarket product line will not be created until the acquisition is executed. See "Short-Term Advice for PeopleSoft Customers and Prospects" for more information. For J.D. Edwards: Next 12 months We expect little impact on current J.D. Edwards customers and its HRMS solution. Beyond 12 months As PeopleSoft rationalizes technologies and products, the long-term fate of J.D. Edwards Workforce Management is at risk. PeopleSoft will continue to support current J.D. Edwards customers. With PeopleSoft's presence in the HRMS market, the PeopleSoft HRMS product will be the lead for the combined J.D. Edwards/PeopleSoft midmarket product line by the end of 2005 (probability 0.7). However, no decision has yet been made. We expect the product road map that rationalizes the PeopleSoft and J.D. Edwards HRMS products for the PeopleSoft midmarket product line will not be created until after the acquisition is executed. See "Short-Term Advice for J.D. Edwards Customers, Prospects" for more information. If it successfully acquires PeopleSoft, Oracle has indicated that it will continue to support current products, but will discontinue actively selling PeopleSoft solutions. Although Oracle has indicated that it will continue to develop PeopleSoft solutions, we believe that it will focus on more routine enhancements (such as tax updates) and bug fixes rather than new, major functionality (see "How Oracle's Bid for PeopleSoft Affects Customers"). to its enterprise resource planning (ERP) suites. It is most commonly used by enterprises that implement the entire Oracle E-Business Suite. It has a higher total cost of ownership (TCO) than Best and Ultimate Software. Oracle has number of initiatives relative to ASP/BSP offerings, including a hosted offering called All-In-One and a tight business relationship with NetLedger, which provides the underpinnings to Oracle's Small Business Suite, a BSP offering that includes basic HR/payroll functionality (along with time and expense management). Oracle has a strong product functionality vision, as well as a strong vision for reducing TCO for its products. (For information on the effect of Oracle's unsolicited bid to purchase PeopleSoft, see Note 3.) PeopleSoft is a solid choice for sophisticated buyers in the midmarket because of its functionality, scalability, multinational support and integration to its ERP suite. The proposed acquisition of J.D. Edwards demonstrates PeopleSoft's focus on vertical market solutions. (For information on the impact of Oracle's unsolicited bid to purchase PeopleSoft and PeopleSoft's agreement to purchase J.D. Edwards, see Note 3.) PeopleSoft's midmarket solution bundles the most commonly used processes of midmarket enterprises to enable faster implementation at a lower cost than a standard implementation. The company has had success with its ASP offering, ecenter, as an alternative to in-house implementation. PeopleSoft has a relatively high TCO compared to Best and Ultimate, but it is addressing this through preconfigured solutions and the use of its implementation lab. Its vision for the total ownership experience will focus on additional capabilities that positively affect TCO. Ultimate Software is a smaller vendor, but it has functionality that meets many of the needs of sophisticated buyers at a relatively low cost. Ultimate is strong in core HR/payroll and self-service functionality, and recently upgraded its e-recruitment capabilities through the acquisition of its business partner HireWorks. Ultimate sells its solution in a traditional license model, as well as in an ASP model, through its Intersourcing offering (which is appropriate for simple buyers). Ultimate is well-positioned to become more of a BSP in the future because it has enhanced its solutions to support a multitenant architecture. Challengers Ceridian's esource offering combines a HRMS solution with outsourced payroll management. It had been most appropriate for simple buyers because it lacks deep functionality in performance and compensation management. However, Ceridian signed a letter of intent on 26 June 2003 with SoftScape 15 July

5 to remarket its performance and compensation management offerings as part of the esource suite (to be called Ceridian Performance Suite and Ceridian Development Suite). Ceridian offers good functionality relative to its cost. esource is composed of a number of products (including HR/benefits, time and attendance, and recruiting) that were built or acquired. Thus, there is not a single data architecture that pervades the suite. However, with esource, Ceridian has provided common user interfaces as well as support for XML, SOAP and Open Database Connectivity to ease data access and integration. Ceridian's vision for its ASP/BSP solution is solid, because esource is hosted and uses a multitenant architecture. Cyborg Systems' ecyborg product has strong core HRMS (selfservice, personnel, payroll and benefits) functionality, but it is late in evolving/reinventing its architecture for the Web. Current customers are just starting to deploy these capabilities. In addition, Cyborg provides only basic performance management and compensation management functionality. Cyborg is a good alternative to an ERP vendor for sophisticated buyers that want lower cost, good functionality, multinational support and scalability. Cyborg's ASP/hosted solution has become an important element of its appeal to midmarket enterprises. Its acquisition by Hewitt Associates provides Cyborg with a financially strong parent company. However, Hewitt's core competency is services, not software. Hewitt will be challenged to integrate Cyborg into its HR business process outsourcing offering while still maintaining it as a competitive, stand-alone inhouse solution. SAP is most appropriate for sophisticated buyers. mysap HR has deep functionality, scalability, strong multinational capabilities and integration to the rest of the mysap suite. Enterprises that implement mysap HR typically use other modules in the mysap suite. SAP has a relatively high TCO compared with Best and Ultimate. SAP's mysap All-In-One prepackaged, preconfigured HRMS solution includes an accelerated implementation by partners that focus on midsize enterprises. All-In-One-based partner offerings, such as Emeritis with HCM Express, are a good step toward reducing implementation costs and making them more predictable. SAP has not been aggressive in pursuing alternative models to reduce cost. For example, in the financials, distribution and customer relationship management areas, SAP has a separate solution called Business One, but lacks something similar for HRMS. Visionaries Employease stands out as a visionary. It is a pure-play BSP. It does not have the depth of functionality of other products on the 15 July

6 market, and it is most appropriate for simple buyers because it lacks strong offerings for training, skill/competency management, and time and attendance. However, it is inexpensive, has strong benefits administration functionality, and integrates with insurance carriers and payroll service bureaus (Employease does not offer payroll). Customers have indicated that it is easy and fast to implement. We believe that Employease will close its functional gaps over time. Its BSP model is an advantage, because it can provide three functional product upgrades per year (compared to the normal 12-to-18-month product upgrade cycle). The challenge will be to retain its simplicity as it adds more features and functions. Employease also has an advantage in service and support, because its installed base is always on the same, most-current release. Niche Players J.D. Edwards has a strong vertical market strategy for assetintensive (for example, energy and chemical), project and services (construction), and manufacturing and distribution industries. Its Workforce Management product is a good alternative for sophisticated buyers. It has strong core HR/payroll functionality, scalability and integration with the rest of the J.D. Edwards ERP suite. In addition, it includes some advanced functionality, such as performance management, compensation management and portal/self-service. J.D. Edwards provides good value for the money, and provides hosted applications through partners in its Managed Application Services program. The company's biggest challenge is visibility in the HRMS market. It has been viewed as an ERP vendor, not an HRMS vendor. Customers typically use Workforce Management in conjunction with the rest of their ERP suite, not as a stand-alone product. Lawson has a strong vertical market strategy for retail, healthcare, public sector, financial and professional services. It is financially stable. The company offers strong core HR/payroll functionality and scalability, but it lacks some advanced capabilities for performance management, compensation management, and time and attendance that would make it attractive to sophisticated buyers. Lawson is relatively expensive for simple buyers. Its ASP strategy leverages regional hosting partners, as well as national partners such as Deloitte and Verizon. Midmarket enterprises should consider Lawson primarily in its target vertical markets. Microsoft Business Solutions, through its Great Plains acquisition, has a HR/payroll solution with approximately 5,000 U.S. midmarket customers. Its solutions are most appropriate for simple buyers that value integration with the Microsoft Business 15 July

7 Note 4 Microsoft's NextGen Solution Microsoft has acquired several different HR/payroll solutions and is developing a new "NextGen" solution that will be the migration path for these acquired solutions. The first release of NextGen is currently scheduled for a 3Q05 release (it was originally scheduled for 3Q04, but with more-limited scope). NextGen incorporates many of the elements that will make it attractive to sophisticated buyers. These elements include deeper strategic HR functionality (performance management and compensation management), scalability and multinational support. We believe that Microsoft will price this functionality aggressively which, along with Microsoft's overall presence in the midmarket, will make it attractive to simple and sophisticated buyers. The first release of NextGen will be focused on basic HR/payroll functionality and local regulatory support for the United States, Canada and the United Kingdom. Acronym Key ASP application service provider BSP business service provider ERP HRMS TCO enterprise resource planning human resources management system total cost of ownership Solutions Financials solutions because it is not strong in e- recruitment, performance management, compensation management, training, benefits administration, or time and attendance. However, it has a strong product vision (see Note 4). Microsoft's "NextGen" HRMS solution will not be fully developed in its initial incarnation until the end of 2006 (0.7 probability). However, at that point, we expect Microsoft to be a formidable competitor in the midmarket. For a discussion of vendors not included in the 2003 U.S. Midmarket HRMS Magic Quadrant, please see "U.S. Midmarket HRMS Vendors Outside the Magic Quadrant." Bottom Line: Enterprises need to determine whether they are simple or sophisticated buyers to ensure that they evaluate the right set of vendors. Simple buyers should strongly consider business service provider solutions because of their low upfront costs and ease of maintenance. Sophisticated buyers should look at enterprise resource planning vendors if they are already using other modules in a suite or if they want to standardize on an ERP solution. If an ERP suite is not a consideration, enterprises should also examine other solutions that offer similar functionality at lower cost. Many midmarket enterprises already outsource some aspects of payroll and benefits administration, and they should evaluate the capabilities of human resources management system solutions to integrate with these outsourced solutions. 15 July