IBM Values Front- and Back-Office Gains in Kenexa Acquisition

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Summary

IBM's planned acquisition of Kenexa is as much about social business as it is about talent management applications, services and big data.

News Analysis

Event

On 27 August 2012, IBM announced that it has entered into a definitive agreement to acquire the publicly held service provider Kenexa, which offers cloud-based recruitment and talent management solutions and business analytics, for approximately $1.3 billion in cash. IBM expects the deal to close during 4Q12.

Analysis

IBM's planned purchase of Kenexa is partly a tactical response to Oracle's and SAP's human capital management (HCM) acquisitions. But this deal is more than a sudden move into HCM applications. IBM has a strong position in global process services and is buying a different kind of company than Taleo or SuccessFactors; further, it aims to reap different kinds of benefits from the deal:

  • Kenexa's pioneering recruitment process outsourcing (RPO) offering will expand IBM’s outsourcing services, as Kenexa is as much a services company as it is a software company. Kenexa’s HR and RPO services will add revenue to IBM rather than replacing it.

  • As a leading provider of employee assessment services, salary data and related advisory services, Kenexa will strengthen IBM Global Process Services offerings to HR buyers. This will help IBM's Workforce Strategy Transformation practice compete with Towers Watson, Mercer, Accenture, Deloitte and others.

  • Kenexa’s business analytics offerings will bolster IBM's Smarter Workforce strategy. Kenexa is strong in e-recruitment, and its assessment data and tools are differentiators in workforce analytics. Talent management and social solutions are converging. IBM’s strong statistical services, analytics and social business could effectively leverage Kenexa's people data, but IBM will need to make a significant investment in engineering to combine its social products with Kenexa's talent management offering.

Kenexa's strengths in recruitment software and its service offerings in employee assessment and analytics have contributed to its success with large enterprises. But Gartner has not seen it winning many end-to-end talent management deals. Kenexa has assembled its technology through many acquisitions and was slow in developing an integrated offering. It still lacks the more consistent integration demonstrated by its major competitors' products. The fast-moving HCM market — in which we expect further acquisitions by major vendors — will demand that IBM show considerable agility in development execution and market communication.

Recommendations

  • Kenexa talent management application users and prospects: Expect minimal disruption to Kenexa's current products, as IBM is unlikely to rearchitect in the short term. Seek clear commitment from IBM on short-term continuity and long-term road maps, especially for products such as performance management offerings that have a smaller customer base. Use the pending acquisition as an opportunity to negotiate better contract terms.

  • Kenexa RPO users and prospects: Post-acquisition, expect significant focus on this offering — which IBM said was a major driver for the deal — including cross-selling of other services from IBM. Use the pending acquisition as an opportunity to negotiate contract terms.

  • IBM clients using other partner solutions for HCM: Seek confirmation that IBM will continue its partnership investments, and evaluate solutions in addition to Kenexa's. Gartner does not believe this deal will significantly disrupt IBM's partnerships with Saba, SAP and most other HCM technology partners in the short term, but over time IBM will favor its own offerings.

Recommended Reading

Some documents may not be available as part of your current Gartner subscription.

  • "Market Guide for E-Recruitment Solutions" — The continuing evolution of the highly fragmented e-recruitment software market will make selecting solutions challenging for IT and HR leaders. By Thomas Otter, James Holincheck and Jeff Freyermuth

  • "Hype Cycle for Business Process Services and Outsourcing, 2012" — The most important trends in business process services and outsourcing are the appearance of several much-hyped business process as a service (BPaaS) offerings, the rise of business consulting services and the reduction in vertical-specific service hype. By Morgan Yeates

© 2012 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution 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. Although Gartners research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

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