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As competition for critical resources intensifies, managers, employees and job candidates are demanding more from human resources.

Human capital management (HCM) software is designed to help companies manage workforces dispersed around the world, improve human resource processes and enhance employee satisfaction while improving efficiency and generating cost savings.

HCM is an umbrella “software/cloud services” category that includes recruitment, talent and performance management, training and career development, as well as the payroll function.

In fact, the HCM market has emerged as one of the most dynamic and fastest-growing segments of the enterprise software market and has been reshaped by a wave of merger and acquisition activity over the past 18 months.

Recruitment software companies and performance management companies have invested and merged to become talent management companies. Talent companies have invested to become bigger talent companies, and three of the largest enterprise software groups – SAP, Oracle and IBM – have entered the market by acquiring three of the biggest talent management companies – SuccessFactors, Taleo and Kenexa – for $3.4bn, $1.9bn and $1.3bn respectively.

Within the broad HCM category, recruitment applications help an employer identify the best internal or external candidates for a role and process their application, removing the need to engage expensive recruitment agencies and headhunters.

Meanwhile, human resource management software (HMRS) is designed to help companies organise, staff and pay their global workforces, and typically incorporate self-service capabilities as well as tools for the HR department and administrators.

Finally, talent and performance management tools enable managers to set specific goals for an individual employee to make a direct contribution to company objectives – the launch of a product, expansion into a new territory or targeting a new customer demographic, for example.

“Achieving your goals and objectives depends on the quality of people in your organisation,” states Workday, the fast-growing, cloud-based software supplier that claims its Workday Human Capital Management is the only application that unifies HR and talent management into a single system.

Josh Bersin, founder of Bersin by Deloitte, a specialist HR market research firm that became part of Deloitte Consulting this January, says the growth in demand for the talent management software – and the surge of M&A activity associated with it over the past 18 months – underscores the growing importance of the HCM segment.

“As businesses around the world expand in 2013, they will face a growing shortage of talent and leadership,” Mr Bersin said in his annual market review. “This will drive an accelerated need for business agility, career development and talent mobility programmes, leadership development and re-engagement of the workforce.”

It turns out that strong talent management is also good business. Companies with superior talent management practices generate 26 per cent more revenue per employee than their peers, according to Deloitte. In today’s complex and global organisations, the right talent management system can make all the difference.

Not surprisingly, therefore, a broad swath of companies have adopted new HCM systems and social media tools such as LinkedIn to recruit and retain their best employees. For example, Aviva, the insurance group, is implementing Workday applications, while Taleo’s customers include Hyatt, the hotel group, and SuccessFactors serves Kimberly-Clark, the personal care products company, and American Airlines.

“Nearly every major business is challenged with shifting talent and business towards emerging markets, while grappling with talent shortages globally – all while improving the engagement, retention and development of their workforces,” says Bersin. “In this environment, high-performing chief human resources officers will provide a laser-like focus on high-value areas that empower and foster teamwork.”

Adding to the market’s complexity, Mr Bersin notes that the HR technology industry continues to undergo significant changes. Cloud-based HR systems, now available from many of the largest vendors in the market, integrate payroll, HRMS, talent management and analytics processing into a single service.

Global spending on these complex systems is anticipated to grow 22 per cent to nearly $4bn this year – almost double the growth rate of 12 per cent last year.

“In 2013, technology innovation is anticipated to accelerate as mobile tools and social recruiting systems make obsolete many of the HR systems in place,” Mr Bersin says. “New tools will empower employees to find experts, share information, manage their careers and become more interlinked.”

Mr Bersin adds that the market for consulting and integration services is also growing. “Accenture, Deloitte, IBM, Cognizant and many smaller consulting firms have built large practices to help companies select, implement and integrate these products into the corporate infrastructure.”

But, like other analysts, Mr Bersin also cautions: “Our research does show that talent management software does not create talent management.”

It seems there is still a need for companies to modernise continuously and rethink the way they hire, train, manage and engage people.

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