Keeping track of HR IT

The suppliers of HR IT systems have been busy consolidating of late. Keith Rodgers explains what this means for your existing and future systems


While the day-to-day politics of the IT industry may not hold much interest for HR professionals, recent events have made it essential to sit up and take notice. A series of takeovers and mergers among the leading suppliers has shaken up the industry and raised questions about the future of certain IT systems that have been swallowed up in the process.


Every takeover has implications for the acquired company’s customers, of course, particularly if they find the HR systems they rely on don’t feature in the plans of the new owner. But there are also wider implications for any organisation that is considering a software purchase. As suppliers continue to jostle for position in the HR market, users have to be sure where their best long-term interests really lie (see checklist, opposite).


The most recent deal to stir up the sector was the takeover of Rebus HR Group (formerly Peterborough Software) by Northgate, which was completed in late January. It came hot on the heels of Microsoft’s disposal of its specialist HR arm PWA Group, also sold to Northgate in a much smaller deal that raised interesting questions about Microsoft’s future in the HR arena. Coming off the back of Northgate’s acquisitions of Carapeople last summer and Prolog Business Solutions at the end of 2002, it’s clear that the HR market for small and mid-sized customers has been through significant changes.


In the enterprise network, meanwhile, Oracle dramatically upped the stakes in its battle for control of PeopleSoft at the beginning of February, hiking its hostile takeover bid to $26 per share, or $9.4bn. A robust financial performance had helped keep PeopleSoft’s share price above Oracle’s previous offer of $19.50 per share, but the new offer represented a healthy 19 per cent premium on its price at the time. The outcome is still in doubt, but it’s clear that the eight-month-long battle is nearing a conclusion, as US anti-trust authorities prepare to pass judgement on the proposed takeover ahead of a critical stockholder meeting on 25 March.


The struggle between these two leading suppliers highlights the problems HR purchasers face when the industry goes through bouts of consolidation.


When it first launched its bid in June 2003 – just days after PeopleSoft had itself agreed terms to buy another enterprise software supplier, JD Edwards – Oracle said it intended to stop developing future generations of PeopleSoft products. Although it subsequently pledged to support the PeopleSoft line for 10 years and insisted it would not force customers to switch to its own platform, the bid inevitably raised concerns among users. Prospective customers would also have had good reason to be nervous about buying PeopleSoft applications once the bid was launched, although the official response to that problem – guaranteeing refunds to customers if a takeover leads to reduced product investment – upped the ante for Oracle and has clearly helped keep sales buoyant.


Ongoing customer support is also a hot issue at Northgate following its £153m acquisition of Rebus. Although there will be some rationalisation of product lines, Malcolm Aldis, managing director of Northgate’s HR division, has committed to supporting older Rebus products through to at least 2010 to honour support contracts. More importantly, in an industry where ‘support’ is often a euphemism for little more than basic maintenance, the company also pledged to continue development work to enhance some of the older Rebus product lines going forward.


Northgate accepts that some disruption may be inevitable in the short-term as the company is merged and jobs are rationalised, and Aldis concedes that the company is still deciding where the different Rebus offerings will fit into its portfolio. For existing Rebus customers, however, it’s apparent that one outcome of the takeover will be an expanded product upgrade path.


In its proposal document, released just before Christmas, Northgate pointed out that Rebus had experienced contract terminations with several customers, and said it believed the group would continue to experience pressure on renewals because of the relatively large number of customers using older applications.


“The cost of software implementation was making it very difficult to migrate those customers,” says Aldis. “They need a clearer route map.” The enlarged group, Northgate argues, will now benefit from access to Northgate products as well as Rebus’s own lines.


For Northgate, the takeover of Rebus is the culmination of an aggressive expansion strategy that had its roots in a strategic rethink at the turn of the century. Today, the PWA Empower product, with more than 750 customers, is one of the mainstays of the Northgate portfolio, and the group is pushing ahead with development of the next generation product. Alongside it sits ResourceLink, Northgate’s integrated payroll and HR system, and the Rebus applications. In addition to a sizeable payroll outsourcing business, it also has a smaller personnel services offering.


Meanwhile, while Northgate prepares to digest its latest and biggest acquisition, Microsoft Business Solutions has been clarifying its own position in the HR arena. The company had bought its way into the broader enterprise software sector through the acquisition of two mid-market suppliers, Great Plains Software and Navision. Both companies had HR offerings in the UK – Navision offered an HR module in its Axapta application suite, and Great Plains covered HRthrough its PWA subsidiary.


Simon Edwards, general manager of Microsoft Business Solutions, says the firm is committed to offering high-quality, best-of-breed HR software, but PWA simply didn’t fit into its long-term plans.


“With PWA, we recognised an opportunity to bring leading-edge skills into the company for future development, but it didn’t work out,” he says.


For one thing, the product was targeted at upper mid-market organisations with thousands of employees, a higher-end offering than Microsoft’s traditional focus. In addition, the sales model was mostly direct to customers, whereas Microsoft sells through partners. “As the integration with Microsoft progressed,” he says, “it became more of an anomaly.”


In the short-term, the disposal leaves Microsoft UK with Axapta, a product that may not outstrip a specialist HR supplier in terms of functionality, but appeals to customers looking for an integrated business suite. In the mid-term, the company is piling its efforts into a global HR offering, and some elements of the PWA design team have been retained at Microsoft headquarters to help with the development of the next-generation product.


The software purchaser’s checklist


Numerous factors come into play during the software selection process, relating to the product, the cost of running it, and the long-term viability of the supplier. That is why purchasing teams should ideally include representatives from HR (both management and users), finance and IT. Key factors to consider include:


Vendor quality and viability


The recent spate of mergers in the HR sector demonstrates how hard it is to second-guess which vendor will be swallowed up in the next wave of consolidation, and what will happen in terms of product support. However, users can still take basic precautions to assess vendor viability and level of customer support, including carrying out financial due diligence and if possible, contacting vendor reference sites


Functionality and architectural design


It’s important that functionality isn’t focused on too much at the expense of other business factors, and users need to be aware that they won’t get everything on their product wish list. That said, it  is  important that applications meet all foreseeable future needs, particularly in terms of self-service functionality, reporting/analytical capability and, where relevant, support for international legislation and languages. The underlying architecture of the product is also important – the way it is built will have an impact on how easy it is to implement and maintain, and how scalable it is to meet future growth


Total Cost of Ownership (TCO)


This refers to the total cost of buying, implementing and running systems, and is usually assessed over several years. It includes factors such as:




  • Licence and maintenance fee
    This is often where purchasers focus their main attention when they come to buy a system but it’s important to remember that the licence fee is just one component of TCO, and may be dwarfed by implementation and running costs. Annual maintenance fees, which may be 15-20 per cent of the licence, are also an important cost factor, but generally not a differentiator



  • Implementation costs
    At the high end of the HR market, implementation fees can amount to four or five times the cost of the licence fee, although a 1:1 or 1:2 licence to implementation ratio is more common in the mid-market. As well as product design, costs are influenced by how much customisation users demand and the amount of integration required with other systems



  • Training
    Users frequently underestimate the amount of training required and this is, mistakenly, one area where companies often cut back to meet their budget. The bottom line is: if employees can’t use the system properly, you’ve wasted your money buying it



  • Future upgrades
    These upgrades are inevitable, and the cost will be heavily influenced by how much customisation has taken place. If a lot of deep-level code has been altered, that will make future upgrades more difficult. So this should be a factor in the initial purchasing decision

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