More Consolidation in the HR Space: Kenexa Deals for Salary.com

HR software maker Kenexa will have a lot to talk about at its annual Kenexa World Conference later this month in Philadelphia.

That’s because Kenexa announced today that it has agreed to acquire compensation specialist Salary.com in an all cash offer for $80 million, or $4.07 per share.

According to a press release from Kenexa, “The agreement has been unanimously approved by the board of directors of both companies, and Salary.com’s board intends to recommend that the Salary.com stockholders tender their shares in the offer.”

Salary.com, based in Massachusetts, makes software that helps businesses and individuals manage pay and performance, and, is very well-known in the HR space. Kenexa says that it expects to close the transaction for Salary.com in the fourth quarter of 2010.

Analyst Kris Tuttle at Seeking Alpha lists three things that “investors may or may not like” about this deal:

The price at just under 2x sales is reasonable. However Salary.com hasn’t grown much in the past two years, thanks in part to the weak employment market. Worse still, the company has done little to control spending and has been losing money at an $18M annual rate.

Due diligence has been limited and Kenexa participated in an auction process, which means that they are likely to discover far more information once the deal closes and there are bound to be some negative surprises.

Current customers of both companies may demand price concessions before any benefits of “cross-selling” can materialize. Most of the management commentary has been focused on opportunity but we know corporate customers are also interested in leveraging consolidation to get better “bundled” pricing.”

Tuttle added: “At the functional level the acquisition makes plenty of sense given that Kenexa has been focused on “talent management” and Salary.com has been in “compensation management” and on-demand HR solutions. Both companies have the same business model which is the classic on-demand/SaaS model we have all grown so accustomed to…. (But) as with most acquisitions, the value is going to be in how Kenexa can aggregate an excellent combined customer set with a rich set of data for better decision making and more efficient businesses processes.”

Kenexa CEO Rudy Karsan said of the deal, “We believe there is a tremendous opportunity to take Salary.com’s best-in-class compensation management solutions to Kenexa’s customer base, which includes some of the largest corporations in the world. In addition, Salary.com has several thousand customers that provide a fertile opportunity for Kenexa to deliver our suite of software, services and content. We believe Salary.com’s acquisition by Kenexa is a major positive for both of our respective companies, employees, partners, customers and prospects.”

The acquisition of Salary.com by Kenexa is part of an ongoing consolidation in the human resources space. Although it is small potatoes compared to something like the Aon-Hewitt deal earlier this summer, it does show that larger players in the HR space are looking to make deals that help to round out their product offerings so they can offer a wider array of services and software for end-to-end customer solutions.

This doesn’t suggest that the “best of breed” product approach is dead, just that companies like Kenexa see an opportunity to leverage and perhaps up sell their customer base if they can offer a wider variety of software and services across the board.

So, don’t be surprised if you see more of these kinds of deals in the months to come.

(This story was originally published on TLNT.)

What HR Can Learn From American Idol

I’m not a big fan of American Idol, but like a lot of people, I get sucked into the competitive aspects of taking a group of talented people and publicly narrowing it down until you have a single “winner.”

This got me to thinking: what can we take away from this kind of competition? Have we learned anything after nine seasons of watching a singing champion chosen this way?

Well yes, there are some pretty big lessons we can take away from American Idol — especially if you’re in human resources.

At its core, American Idol is all about finding and promoting the very best talent — something that HR leaders do for their organizations every single day. But, how the show ultimately goes about finding and promoting the best talent leaves a lot to be desired, and it raises some issues that every HR person should think about in their own talent development process.

So, here are three talent management takeaways I gleaned from American Idol:

The highly-competent-but-safe candidate doesn’t always make the best hire.

This year’s American Idol winner — Chicago’s Lee DeWyze — is a solid and competent singer, but he’s not very exciting. Lisa de Moraes in the Washington Post described him as “the franchise’s third consecutive Super-Safe Kinda Beige Rocker Boy winner,” and she’s right. DeWyze is the kind of hire you make when you’re afraid of making a mistake.

And that raises a good question: are you satisfied choosing someone who is “safe” and won’t get you into trouble, or, do you go with the flashier choice who may have not only more upside, but perhaps some downside too? This year’s Idol runner-up, Crystal Bowersox, has over-the-top talent and style to burn, but she’s also is a single mom with dreadlocks and numerous tattoos who doesn’t really “look” the part of an American Idol. People like her can make you look really good, but, not everyone else may agree.

This points to an management truism worth remembering: safe but unexciting choices yield safe but unexciting results. If that’s what you are looking for in your organization, then go to it. But, if you want to push the envelope and stretch for something better, you need to work on overlooking the flaws and quirks that many highly talented people bring to the table. If you don’t, you end up with someone like Taylor Hicks — the safest and most forgettable American Idol winner ever . How hot has his career been lately?

A committee approach to hiring doesn’t always yield the best candidate.

Lots of organizations like to have candidates get interviewed and evaluated by a slew of different managers before everyone weighs in with their opinion. It’s a “safe” talent acquisition approach.

American Idol works this way, too, with the judges and nationwide voters all weighing in on who they believe is best. It’s a time-honored approach, of course, but hiring by committee rarely yields the best candidate. For every superstar like Carrie Underwood and Kelly Clarkson, you get a slew of middle-of-the-road winners like Ruben Studdard, Chris Allen, David Cook, and Hicks.

Idol would do well to limit the nationwide voting until late in the season, letting a smaller group of smart and insightful talent managers — the judges –whittle down the group until the final four or five are left. Doing this would surely help keep more of the highly talented but less traditional candidates in the candidate pool longer, and maybe, give one of them a chance to win.

Your company would also be better served by limiting the vetting of candidates to a smaller group of four to five key decision-makers rather than running potential hires through a gauntlet of managers up and down the food chain. I bet you’ll find this approach not only leads to making better decisions about talent, but is less stressful on the candidates and your organization.

You need to ask yourself — do I hire for competence now or for growth potential down the road?

In most seasons, the American Idol winner reflects someone chosen for solid competence right now over someone who may have more upside in the years to come. That’s why last year’s most talented and colorful Idol finalist (Adam Lambert) was passed over for someone with a lot less potential (winner Kris Allen). Other highly talented but less polished Idol candidates, like Chris Daughtry and this year’s Siobham Magnus, seemed to suffer from this, too.

Except in very rare cases, high potential tomorrow is always preferable to solid competence today, but many HR leaders and talent managers don’t agree. Making the safe choice won’t get you in trouble and may help the organization immediately, but going with the high-potential candidate is likely to yield a lot more if you can afford to be patient. In other words, you won’t build superstars taking the safe road, and isn’t building an organization of superstars what it is all about?

Yes, American Idol is all about top talent winning out, but like a lot of things in life, it’s less about finding the very best talent and more about finding someone who is highly talented and acceptable to a large group of constituents. It leads, in the end, to all-too-many vanilla choices, and while that may be acceptable for American Idol, it’s not the optimum way for you to get the very best talent into your organization.

In other words, you need to hire like Simon Cowell. That’s a tougher way to go, but in the end, you’ll have a lot better talent — and bottom-line results — to show for it.