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Micah Fairchild IBM Acquires Kenexa: Questions & Answers

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 By Micah Fairchild

IBM Buys Kenexa: Asking the Right Acquisition Questions

By all accounts, the latest news that IBM is acquiring Kenexa is big news in this age of HR software acquisitions. In fact, all you have to give is a cursory glance at the dizzying array of analyst blogs right now to see that the HCM industry is not taking this news lightly. After all, at the time of this post we’ve counted no less than 30 articles dedicated to this topic from the likes of IDC, Gartner, Forrester, Ventana, HfS, i4CP, and countless others. And the views expressed are as varied as the pundits giving them. Heck, it seems like everyone’s got an opinion on this latest M&A activity and I’d be lying if I said that we here at HR Lab were any different.

Specifically, from our perspective (which is one dedicated to analyzing how this news will affect current and potential customers for each company), IBM’s acquisition of Kenexa raises a number of questions.

IBM-Kenexa Acquisition Question #1: What Exactly is IBM Getting?

For a price tag of $1.3B, you would assume that IBM is getting the world with its purchase of Kenexa. Sure, this acquisition makes sense as part of IBM’s massive Smarter Workforce initiative that’s slated for $20B worth of M&A activity by 2015, but the question on everyone’s minds on this one is what that money is actually buying. So, let’s start with the basics:

  • Kenexa has a hugely successful Recruitment Process Outsourcing (RPO) arm of its business that IBM indicates will be folded into its already-existing Human Resource Outsourcing (HRO) business. While speculation abounds as to what this conglomeration will look like, it is clear that HRO global domination is in IBM’s sights.
  • Kenexa has one of the world’s top survey platforms (in the same vein as newly-acquired SHL and Gallup) which means that IBM (much like the Corporate Executive Board) can now have the insight via big data that Kenexa has been able to successfully leverage with its current customer base.
  • With Kenexa’s former purchase of Salary.com, partnered with their advisory services bench strength, IBM now has the firepower to take on Accenture, Mercer, TowersWatson, and a host of other services firms through IBM’s Global Process Services.

What’s not clear is how IBM plans on reconciling the disparate applications that Kenexa itself has, let alone integrate them into the parent company portfolio. After all, Kenexa has offerings for RPO, salary studies, talent management, and assessment services—many of which are already in a state of “cobbled together”. And integrating any and all of these elements is a complex undertaking.

IBM-Kenexa Acquisition Question #2: Is This Deal Really About Social?

Perhaps one of this acquisition’s most interesting aspects is that IBM’s press releases to date on this latest news have focused on big data and the fact that Kenexa brings social to the table. Social? Really? I, as well as a host of other analysts, find this to be one of the oddest facets of the whole deal. According to IBM’s announcement, "Real economic value is created when social technology and analytics are applied to transform business processes”. While an interesting and not-all-that-off statement, the fact of the matter is that Kenexa is far from best-of-breed in analytics and even less so in the Social HCM side of the business. As such, it should come as no surprise that after a series of analysts’ calls, IBM conceded that this move is about beefing up their business process outsourcing and talent management offerings. And while Big Blue is certainly late to the HR software game, this purchase certainly does just that. What we will say about IBM’s social venture is that this is an obvious direction that the company aspires. With IBM Connections (the next-gen Lotus platform), the company does have the capability of integrating social into countless applications; and with Kenexa’s talent management suite, IBM may well be able to finally achieve the ever-elusive single platform for all business applications.

IBM-Kenexa Acquisition Question #3: Will IBM Be Buying More?

Of the many comments and analyses that we perused on this topic, the one that seems to have the most people talking is whether this acquisition simply paves the way for additional IBM M&A plans—the most oft-cited vendor being Saba with its talent management offerings. Given Saba’s run-ins with the SEC though (and its relative falling value), this doesn’t exactly seem like the best move that IBM could make at this time. Granted, Saba had already effectively replaced IBM’s learning solution, and as mentioned above, IBM does have a $20B acquisitions budget, but given Kenexa’s soon-to-be-released Social Learning platform (and the fact that they have a stellar LCMS) the call for Saba to be added to the fold seems a bit premature. That said, Saba is one of the 2nd-tier HCM solutions that has been able to build up an organic Social HCM strategy which could be particularly appealing given IBM’s focus. For our money though, Cornerstone OnDemand seems like it would be a better overall fit. Nevertheless, IBM does have a significant amount of ground to gain in order to build up their HCM software suite—a feat that will likely only be accomplished through acquisitions.

IBM’s Kenexa Acquisition—Final Thoughts

The HR software world has changed dramatically just over the last year; in a fashion that many are indicating heralds the end of the talent management software era. In fact, as Ed Frauenheim suggests, with the recent activity of Oracle and Taleo and SAP and SuccessFactors, larger vendors are finally taking advantage of the market that the smaller and innovative companies have built “because for the past five years or so, [these] software vendors [have been] focused on the talent management tasks of recruiting, performance management, learning and compensation”—applications that have fully proven their worth in terms of the benefits that they can bring to organizations.

What we’re starting to see now is the incorporation of these talent management systems into larger human resource software suites; in essence, recognition that technology firms are finally seeing the value in HR software. And for HCM practitioners this newfound recognition appears to be garnering the C-suite attention that the HR function has so desperately craved for so long. As Brian Somer puts it though, IBM’s latest venture could well be the culmination of these forces; stating that IBM is going to “take their more expansive vision for HR technology (it includes HR, social, collaboration, analytics and other technologies) and show how it can impact a business [and] not just one department. Kenexa was a good (albeit expensive) buy for IBM. Whether this shakes out as the game-changer that some are hinting at (or the death of talent management according to others) only time will tell. End

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This Kenexa acquisition makes sense as part of IBM’s massive Smarter Workforce initiative that’s slated for $20B worth of M&A activity by 2015, but the question on everyone’s minds on this one is what that money is actually buying.”

 

 

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