David Manaster in his ERE Blog reviewed the Taleo 10Q which mentioned that 85% of Taleo’s revenue comes from the US. This is in fact something that we discussed yesterday with a couple of colleagues. While that’s true, many of those customers run a global business and have operations that cross borders. In fact, Taleo has more than 400,000 users in 85 countries, and an online interface available in 13 languages including Chinese and Japanese.

p.s.

Thanks very much to David for the nice compliment in his blog: “On a semi-related note, if you haven’t already seen Yves Lermusiaux’s blog, check it out. Yves is the President of Taleo Research (formerly known as iLogos), and he does some of the best thinking in the industry.”

Executive Issues 2005 is an annual global research project carried out by Accenture for the third year at a global level with responses from 425 individuals. They ask questions about 45 business issues contained in several categories related to the theme: High performance and the need for balance. The issues revolve around customers, finance, cost reduction, innovation, technology, outsourcing, supply chain, and of course – human capital.

So of course our question is: how does human capital stack up, compared to all the others? The top two issues are directly related to human capital:

#1. “Attracting and retaining skilled staff”
#2. “Changing organizational culture and employee attitudes”

These even come before acquiring new customers. That is only #3! And four of the top ten issues are human capital related!

The drivers for these priorities identified in the study are economic recovery and increasingly high demographics pressure. But when asked what their top agenda items will be for the future, human capital issues remain high on the list.

And if you are making a strategic investment in software to address the #1 and #2 business priorities – and four of the top ten – shouldn’t your organization be considering a Talent Management system prior to a CRM system, which sits at #3?

The Capability Within is a new study of Chief Human Resource Officers (CHROs) around the world done by IBM. Inside are a couple of interesting findings.

The top 3 initiatives for CHROs in response to CEO priorities are: organization transformation, people development, and talent management.

Turnover of staff is about twice as high in the US versus Europe. Nothing surprising there. But turnover of middle managers or specialists is a bit higher in Europe!

Companies that are devoting more learning time to employees are demonstrating higher profits per employees. In contrast, less than 30% of firms are tracking the ROI of their human capital investment. But close to 80% are monitoring employee satisfaction!

Maybe it’s because tracking ROI is very difficult. At Taleo Research, we have spent the last four years monitoring the ROI of optimized talent acquisition practices and delivered some pretty strong cases. We analyzed data and published reports to show where the true economics of talent acquisition lie and why quality is the paramount metric to monitor.

So when we see IBM report that quality of hire is the #1 metric with close to 70% of CHROs using it to assess their effectiveness, we hope our research helped everyone move from the cost per hire (#2) and time to fill (#3) to the #1 metric with the most economic impact.

The only last change we would like to see is the standard answer to the question, “Which people metric does HR report most often to the business?” Unfortunately, it’s headcount.

We would like you to get more strategic and lose the responsibility for headcount and trade it for the responsibilities of performance and productivity!

Leave the headcount counting to administration. Closely monitor and report on what really matters: performance!

Over seven years ago, Taleo was faced with a key strategic technology decision: “Are software applications delivered as a service the trend of the future?”
In other words: “Is it a good decision for Taleo to continue to invest heavily in the on demand model?”

Today it seems more like a rhetorical question as the on demand model has been proven by similar innovators like Salesforce.com and endorsed by the largest technology companies like IBM.

But what is the difference between all those acronyms? What is their definition? Is the on demand model here to stay?

On demand has been called a business model that is agile, fast to react, and that leverages a shared infrastructure and a subscription model as described in AMR Outlook.
ASP stands for application service provider. This model has recently shrunk in scope. At best, it is now merely synonymous with Hosted Application Management. ASP is limited to hosting applications for companies that were bought and web-enabled. This is a halfway alternative with traditional on-premise license packaged software and an evolutionary step towards total outsourcing.

SaaS stands for software as a service. Many define the concept as a software solution that is designed specifically for a web delivery and supported by a vendor as a service.

Recently some companies opted for hosted native web applications on site. This is a minor odd trend and seems to be missing the economy of scale of the on demand model.

But is the on demand model here to stay?

On demand is a significant force according to analysts. The growth for on demand software for the next four years will be 21% vs. 4% CAGR for the on-premise model, as described in a THINKstrategies paper.

The first benefits are mainly cost and often driven by avoiding the pain of needed upgrades. But as described by IDC research: “Current software on demand adoption is just the tip of the iceberg.”

So maybe our technology bet was not too bad. Taleo has been the on demand talent management pioneer and is probably one of the largest SaaS providers in terms of data hosted with approximately 80 Terabytes!

As were catching up with our stack of reading, we took the time to go into the details of the Harvard Business Review (HBR) article The Surprising Economics of a “People Business”.

What is a people business? It’s any division or business with high employee costs, especially when compared to businesses with high capital costs and limited people activities devoted to long term value creation.

Typically all the service related fields such as IT services, advertising, security, facilities, hotel, or hospital management are all good examples. Also, a well emphasized but often forgotten finding is that even airline or car manufacturer employee costs exceed capital expenditures, meaning they spend more on people than anything else.

If you are in these businesses, you must look at the “people numbers” and ask yourself: “Do I manage and report on them efficiently”? The performance of a people business is based on previous Boston Consulting Group (BCG) research work on “workonomics” and is given a formula for economic profit at the employee level.

Economic profit equals employee productivity minus average cost per employee multiplied by the total number of employees.
In short, the rule is: make more than you spend – while taking into account the cost of capital.

The best lesson probably comes from the insights that line managers and HR can learn from aligning their compensation and performance indicators according to the type of division managed. For instance, use more stock options if you build long term intangible value and use more short term bonuses if you perform services.

But above the details in the article, we think the key message is that for a people business - and I would say for any business - “People management needs to be a core operational process and not solely a support function run by the HR department.”

Did I mention that you have to look at the “people numbers” and report on them efficiently? But do not limit yourself by focusing on the numbers. Learn how Talent Management can improve them!

Two recent studies have been released on pre-employment assessment and screening tools – one from Charles Handler and Mark Healy and the other from Katherine Jones at Aberdeen.

First, it’s important to make the strategic distinction between assessment and screening. Screening is the simple qualification for employment and is not similar to assessment or the ability to predict future performance. So consequently, their use is often motivated to either screen out or screen in candidates.

The utilization of screening tools today among companies is about 60% (studies found 58% and 61%) with a projected growth in the next 12 months of 14% according to Aberdeen. The risk of discrimination is virtually non-existent (5 successful suits in 60 years).

But does it work?
One study shows that 80% of the companies that measured this metric deem it effective. The remaining 20% just didn’t know. The other study quotes 57% of the respondents seeing it as a valuable strategy for retention.

So Aberdeen highlights some recommendations for action:
1. Make sure you validate your results on a consistent basis so you are screening in the best candidates and not the other way around.
2. Automate the test by enabling online access and connecting the results to your workflow.
3. The test and assessment results must be integrated to your talent management system.
4. Work towards organizational consistency.

At Taleo, we saw that clients who used our assessment platform bring their talent acquisition work of art closer to a predictable work of science. Read the findings in these studies and see how assessment tools can improve your quality of hire.

My recommendation: if you are not using assessment today, try it!

The Google Microsoft legal fight these days about one individual is the perfect example of the supreme value of intellectual capital.
Google looks at it as a scare tactic. It could really be that, but it is a clear statement that people and confidential strategies are worth more than anyone can think.
The immense value of Microsoft is based on three key things, usually seen as the pillars of intellectual capital. 1) Relationship capital or customers, 2) structural capital crystallized by patents, and 3) human capital. Those were described in the seminal work: the Invisible Balance sheet.
First, the relationship capital has been the one most closely watched as Microsoft gained ownership of the desktop and built a great brand as well as distribution channels.
Second, the structural capital and its ownership; let’s not forget that it is a company that built most of its wealth by a clever trick to acquire the property of an operating system it didn’t design originally. (And most of those clever tricks are attributable to Gates’ father’s trade: law.) The key tool here is patent.
Third, the human capital is the key for future innovation and value. This is why the battle is so fierce today between Microsoft and Google, and why any serious company should spend more time on managing and acquiring its source of future value: Talent. This is also why I see Taleo’s industry pushing a tidal wave!

A very direct article “Why We Hate HR”? makes a simple point: “in a knowledge economy, companies with the best talent win, so why,… HR people are neither strategic nor leaders”?

We certainly agree with the first statement, “best talent win(s)” but I think HR as we know it, should not try to be strategic. As we already described, “HR is not talent and skills, HR is not talent management; HR is first and foremost benefits, payroll, administration and lastly talent, (and sometime learning).”

Maybe the new wave of Talent Management software will finally enable Talent Managers to speak like some of our customers do, saying: we contributed last year to $0.02 EPS!

Then and only then Fast Company could write their article “Why We Love Talent Management.”

This question is the same as: who is responsible for the liabilities linked to 7% of your revenue today? According to our research, most large organizations spend about 7% of revenue on contingent labor (i.e. contractor, temp,…).

As you can see on the chart, today 33% of organizations are unclear about who owns it.

Another 19% believe it is the same as procuring pencils and the same people should hold the risk.

Optimizing contingent workforce management can often reduce spending by up to 22%, yet that is not the only issue of contingent labor procurement. Risk of co-employment, for instance, is significant (this is why the legal department is sometimes responsible for it).

Finally - as I believe it should be - 29% of organizations report HR owns it. They are I believe the key owner since they are used to dealing with legal issues, with people issues and can leverage centralized processes to optimize spending.

Note: the data provided here is from research we are about to release, based on in-depth interviews with 25 F500 companies.

The upcoming Watson Wyatt Human Capital Index study holds some interesting facts to show your CEO or CFO why you need to invest more on some specific talent initiatives.

WW looked at two key corporate financial impacts: 3 year total return to shareholders - below I will call it return, and market premium or how much the intangible assets are worth - I will call it premium.

A few results:
1. Active velocity of labor movement is a value creator: faster time to fill is correlated with significantly better return – 59% compared to 11%. Higher referrals (38% vs. 9%) bring a 48% vs. 23% return and 40% vs. 13% premium.

2. Internal promotion is only good in a moderate fashion. From the results, having 12% internal hires is too low (return -2%) and having 80% is too high but better (return 32%), a mid point at 50% reaps a reward of 56% return.

3. Similarly, turnover must be measured: 5% or 43% are too low and too high with a return of 31% and 34% while 15% turnover reaps a 43% return. Of course these are only overall data results and should be looked at specifically for your organization and industry.

Unfortunately we will not have data for BPO, to better quantify if it pays off in market value to outsource your Talent Management processes.

The WW results are in line with our review of Taleo customers that focus on Excellence in Human Capital Performance. There we saw a return over 2 years of 48% versus 38%.