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IBM held its 20th annual IBM Connect conference (previously known as Lotusphere) as part of its IBM Social Business efforts at the end of January. The conference focuses on business and social collaboration technology, which our business technology innovation research found to be the second-ranked priority for business innovation. At the conference IBM made a series of significant announcements, including a new version of its social collaboration suite, IBM Connections, and the ability to use the software on a cloud computing platform.Technology Innovation Priorities

In the mid ’90s Lotus Notes and Domino led the market with the first true business collaboration and communications software. Today, after decades of fierce competition with Microsoft and its Office and SharePoint offerings, IBM is innovating (in a much more serious way than I have seen from Microsoft) to gain growth in the new market for business and social collaboration software. It is a good time for IBM to aggressively expand into the market, as our research finds only 25 percent of organizations are satisfied with their social collaborative capabilities. These have been dominated by shared folders and documents (86%), videoconferencing and instant messaging (66%), yet those applications are only a small piece of what social collaboration is about.

IBM has been adding business collaboration features over recent years with new capabilities that include activity streams, broadcasting, instant messaging, videoconferencing and wikis. All are part of IBM Connections 4.5, along with content and document management. With IBM Docs people can collaborate on a range of documents, including spreadsheets, presentations and word processing. IBM has advanced the user experience and integrated its collaborative and social software into a unified user experience. IBM is also making the software available on Apple, Android and BlackBerry smartphones and tablets. Our research finds Apple to be the first-ranked priority for smartphones (50%) and tablets (66%), followed by Android on smartphones (27%) and tablets (19%). Though BlackBerry (which just announced the change in its corporate name from Research in Motion) is a distance third for smartphones, it still has a loyal following that also uses IBM software. Our research finds Microsoft at the bottom of business and IT buyers’ priority lists. IBM is also expanding its social collaboration support for mobile technology to operate in an offline mode which is essential and has also addressed the need to secure sensitive communications and content.

IBM also maintains a strong installed base with Notes and Domino. IBM Notes and Domino Social Edition 9 is expected to be available in March and brings an innovative approach to blend social collaboration within electronic mail that many will really like IBM innovative approach. Businesses that do not use Notes, which make up the majority of the industry, can examine IBM Connections.

IBM is also moving fast to ensure that its offering is available in cloud computing. IBM SmartCloud for Social Business will make it easier for organizations to get started and use the software without the need for servers, storage and other internal IT resources. This is an important step to bring its offering to a larger audience that may not have the IT resources or budget to support new business collaboration efforts. The software helps streamline the cultural transition to using social collaborative software. IBM has introduced adoption services with a range of models, processes and education. This investment is critical to get organizations to step into the new world of social collaboration and increase the confidence level of organizations in this approach; today only 17 percent are very confident and just 38 percent are confident.

IBM has completed its acquisition of Kenexa, and at IBM Connect seemed to indicate it has settled on some specific areas of focus that blend learning and recruiting with Social Collaboration and Talent Managementsocial collaboration. It has taken steps since my analysis at the time of the acquisition to address many of my concerns. In addition, IBM introduced its new Employee Experience Suite, which is designed to provide an interface to business priorities and work like an employee portal. IBM also touted its new social learning offering, which when delivered will leverage its existing software and what the company purchased with Kenexa. I would like to have seen more on how to leverage Kenexa OutStart mobile learning. The potential in social learning is significant, and IBM’s product offerings put the company on a short list of providers who offer integrated social learning today. More broadly, IBM’s efforts to bring social collaboration to human capital management come at a time when our research into HCM shows that knowledge sharing, collaborating and learning are key priorities in organizations today. IBM will need to invest further to bring into IBM Connections more from Kenexa of what is needed in talent management in recruiting, performance and compensation. IBM has a great opportunity to expand its position with Kenexa recruiting customers that use both its software and its services and get them to use more IBM social collaboration and workforce analytics software.

IBM spoke at the conference about its Smarter Workforce Analytics Suite, designed to address workforce analytics and predictive hiring analytics, but I did not see this software leveraging the company’s business intelligence or workforce analytics solutions. The tandem of this software foundation, the IBM Research and global Improve Workforce Analyticsbusiness services organizations, and the analytic services of the Kenexa organization has the potential to advance the necessary process of moving off of spreadsheets to a dedicated business intelligence tool to meet the needs for workforce analytics and planning. We have found in our research a significant move by businesses to improve workforce analytics in 2013, with 61 percent of organizations indicating they have plans in this area. Also most HR organizations are still working on advancing beyond the use of spreadsheets and reports indicating a lower level of maturity than what IBM might expect. This could be an opportunity for IBM if they fully utilize the core technology of its business analytics software and that I wrote about last year.

Technology ConsiderationsI was impressed with IBM’s advancements in social collaboration at Connect 2013 and its commitment to usability, which our research found to be the highest priority (64%) in choosing technology, followed by reliability, since technology in use across an organization must be able to scale and perform. Organizations that have not considered IBM for social collaboration should examine the new version of Connections, since it offers a powerful set of unified capabilities that encompasses mobile technology. The top benefit to such software according to 72 percent of organizations in our research is better communications and knowledge sharing, and Connections has the power to deliver that. However, IBM should also embed its social collaboration features in other business applications, as that is still a preferred method of accessing collaboration according to 43 percent of organizations. One area that I expected to see more highlighted was its integration with IBM business analytics software which is one of the top use cases for using social collaboration in the enterprise and that IBM has integrated already.

IBM is taking a significant step forward to bring Smarter Workforce into a highly competitive market for human capital management. This is confirmed in my colleagues (Stephan Millard) research agenda for human capital management, that the pace of innovation in 2013 will be significant. IBM new offerings and approach are ones to watch but make sure you are able to get something for use today in your business and not have to wait for the future. IBM is a vendor to watch for its ability to help organizations of all sizes with social collaboration and human capital management.

Regards,

Mark Smith
CEO & Chief Research Officer

IBM has announced its intention to acquire Kenexa as part of IBM Smarter Workforce initiative and social business software division. It’s a billion-dollar-plus investment to bolster IBM’s social business and give the company more depth in the human capital management software market that comprises human resources, talent management and workforce management. A lot of surface-level analysis I’ve seen on this announcement is not worth reading, but the deeper review below may help Kenexa and IBM customers, along with the market at large, and understand the implications of this announcement.

Social collaboration in business applications is advancing rapidly; I have already written about our research detailing the benefits and best practices some early adopters have found. With social collaboration software, customers’ buying dynamic does not come from IT but rather HR and operational management, and this kind of software is not something executives are buying off the shelf.

Kenexa uses a lot of fancy business marketing words like enriching lives to describe what it does on its website. Its annual report states :

“We are a leading provider of software-as-a-service, or SaaS, solutions that enable organizations to more effectively recruit, retain and develop employees. Our solutions are built around a suite of easily configurable software applications that automate talent acquisition and employee performance management best practices.”

This positioning has evolved from the acquisitions Kenexa has made to help the company grow its software portfolio. The company sources the majority of its software revenue from its recruiting related software and its outsourcing and consulting services of hiring activities. It has been effective at using its own products within its recruitment process outsourcing (RPO) and licensing them to meet customer needs. But Kenexa was not advancing as quickly as it should have in embracing social media as a channel for recruiting – a factor that our social recruiting benchmark identified as a top priority for identifying new talent pools. Kenexa has recently gotten more engaged into supporting social media. Other software providers have advanced more rapidly in support social media and other innovations in recruiting, such as Talemetry’s support for social media and verification of resumes and HireVue’s video interviewing on smartphones.

Kenexa has been challenged when it comes to organic product development in its talent management portfolios, but it has made many acquisitions in the last two years to expand its applications footprint in this area. Kenexa’s own 2X Perform offering for performance management was slow to evolve, but even acquiring additional software assets and people to help its efforts is only beginning to help increase adoption across its own customer base, let alone give the company the ability to compete with others in the market. While Kenexa had been positioning itself as a talent management application suite provider, it really was focused on its recruiting application and outsourcing and consulting services.

In recent years Kenexa has worked to bolster its software portfolio. For instance, in compensation it had no real offering until it acquired Salary.com two years ago. Yet my analysis shows Kenexa has not really integrated Salary.com and operates as a division, and has seen little growth in adoption of its applications in the last 18 months. The company has been unresponsive to our attempts to compare its application to others that our firm assessed in our Value Index for Total Compensation Management, though we have written how hot this application segment is recently.

In 2012 Kenexa acquired OutStart, a learning management system (LMS) provider that needed to align with an overall talent management offering to be competitive with other integrated approaches. The company started the integration process this year, so it is still too early to tell how much value the acquisition will have for Kenexa customers, especially now that Kenexa will have to deal with the larger challenge of integration with IBM.

Kenexa talks about the value of analytics in its marketing material, but no solution dedicated to this area is listed on its website or annual report. Our benchmark research has found that workforce metrics are critical for talent management, yet Kenexa remains one of the only talent management vendors without a robust workforce analytics software offering. It also has struggled to advance smartphone and tablet access to its applications. Kenexa early attempt were not fully ready for the market and currently has one native application for the Apple iPhone that helps in specific tasks in recruiting which is well behind others in the market. Kenexa has been relatively slow to include social media as a channel for recruiting.

All of these issues are results of the company’s limited investment in R&D as a percentage of overall revenue. Its annual report shows only 6.7 percent of total revenue in 2011 went toward R&D, which is one of the lowest percentages in the industry. While the percentage increased in the first half of 2012 according to my analysis of the company’s financial reports, part of that is due to the acquisition of OutStart, which brought additional people to R&D and also more experience in support mobile technologies. At the same time, general and administrative operating expenses were a hefty 19.1 percent of total revenue. IBM must now decide how to handle these high people-related expenses, and how to better balance the number of chiefs and administrators versus workers in R&D. Meanwhile, Kenexa was struggling to reach a target level of profitability, but all of its financial statements show it had grown revenue at the expense of profits.

Kenexa lacks a social collaboration framework to help its customers provide methods to more fully engage its employees, as competitors such as Oracle, Peoplefluent, Saba, SAP and Workday already have in place. Kenexa also did not have an integrated set of talent management applications, but had acquired its way into the market and did not make the acquired products integrate to the level that most software companies do. IBM should be able to help here, as it can integrate its social collaboration framework with the Kenexa applications – it did not already have an integrated or unified approach to its applications – but assimilating Kenexa may take some time.

For the last several years IBM has been acquiring business application vendors. By all accounts it is efficient at integrating acquisitions, and is overall a profitable global company. Meanwhile, IBM has struggled in gaining adoption of its social business software into business areas including the talent management and overall human capital management market. But Kenexa may prove to be a difficult meal to digest, as this is the first time IBM has acquired a provider in the talent management market and the broader human capital management category and a company who has many acquired products that are yet to be fully integrated. This is a business application segment that also operates using software as a service (SaaS) and cloud computing – areas in which IBM lacks a lot of experience in the business applications area. IBM will quickly learn it will have to make a significant investment in product development to advance this talent management suite offering to complete with software providers that are already selling to HR and executive and business management. Kenexa had a large consulting and delivery team that, according to its annual report, includes 1,637 of its 2,744 employees. Those employees will need to integrate into IBM global services, a very large organization with a different culture and methods of operation.

When this acquisition is complete, Kenexa customers should not expect any immediate product advancements, as the software will need what IBM insiders call ”blue washing,” and that will overwhelm whatever resources are available for integration with IBM social business products. Given Kenexa’s smaller-than-normal investment in R&D, and IBM’s requirements, I expect the cycle of innovation to be very limited. In the medium term, IBM may see a customer and revenue opportunity in integrating its suite of analytics, planning and performance management technology and adapting it to human capital and workforce needs. For IBM and its social business customers, this category of application was probably not as important as it should be but will need to reach to HR and executives to garner any interest. Though eventually it should be worth looking at more closely, it will be some time before any integrated release, and there are already alternative approaches available in the market.

For IBM’s part, this acquisition is important because its social and collaborative efforts have struggled to get more deeply business-focused, and that is a buying requirement that we have found in areas like sales, customer service, marketing, human resources and operations. This is why we’ve seen deals like Salesforce.com’s acquisition of companies like Rypple to help in its social collaboration efforts.

Is the billion-dollar-plus investment worth it for IBM? Well, IBM is a master at leverage and gaining value from acquisitions – but so are competitors Oracle and SAP, and they already sell social collaboration in talent management. IBM will need to ensure it can meet the new social collaboration needs for talent management in such areas as knowledge sharing, collaboration and learning that are benchmark research finds important. In the short term, Kenexa and IBM will struggle, as competitors can market products that are already integrated. This acquisition could become a distraction and resource drain for IBM. It will be difficult for Kenexa to gain a competitive edge for integrated and unified talent management; it has not yet completed this task by itself, and now it faces integration with IBM social business technologies, which will require more R&D investments by IBM. On the plus side, IBM’s opportunity to advance its consulting services in areas like recruiting, employee assessment and other related areas will help bolster its global footprint. Here, the billion-dollar investment will pay off sooner but with lower margins unless it can convince customers to adopt its software as part of its consulting engagements.

Regards,

Mark Smith – CEO & Chief Research Officer

Mark Smith – Twitter

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