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Research Bulletin | 2011 BERSIN & ASSOCIATES

July 7, 2011

Volume 6, Issue 30

SumTotal Systems: From Learning Management to Human Capital Systems Provider New Acquisitions of CyberShift and Accero Complete the Company’s HCM Strategy About the Author

This research bulletin discusses the history and evolution of SumTotal Systems, one of the largest and most profitable companies in the talent management and human capital management (HCM) industry. It specifically reviews the company’s most recent acquisitions of CyberShift and Accero. Today, with considerable revenues (more than Saba, Cornerstone and Workday combined) and a highly profitable business model, the company has become one of the largest end-

Josh Bersin, Principal Analyst

to-end software providers which offers all elements of talent and human capital management.

History SumTotal Systems began in 2004 when Docent Software and Click2Learn merged (both were public companies). At that point in time, Docent was a well-established player in the enterprise learning management software industry, and Click2Learn was a BERSIN & ASSOCIATES, LLC 180 GRAND AVENUE SUITE 320 OAKLAND, CA 94612 (510) 251-4400 INFO@BERSIN.COM WWW.BERSIN.COM

provider of tools and content (most notably offering ToolBook, one of the e-learning industry’s first content development tools). At that point in time, the company was the largest provider of learning management products with more than 1,000 total customers. In the fall of 2005, continuing on its quest to maintain its leadership position in learning management systems, the company acquired

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KEY POINT

Pathlore, a large midmarket provider of LMSs. This acquisition brought the company’s total customer count to more than 1,500 – ranging in size

SumTotal Systems

from midsize businesses to global corporations.

has become one of

Approximately a year later in the fall of 2006, the company realized

the largest end-

it needed to play more aggressively in the talent management

to-end software

software market and acquired MindSolve Technologies. Although

providers which

small, MindSolve was a highly successful provider of performance

offers all elements of talent and human capital management.

management software (e.g., performance appraisals, development planning and succession management) with an innovative, graphical interface for managerial rating and evaluation. This product was integrated into the SumTotal suite and the company continued to grow – but not in a very profitable way. In a highly visible move, in July 2009 the company was acquired by Vista Equity Partners (in a competitive bidding war) and went private. Vista Equity, a private equity company with extensive experience in enterprise software, put in place a new management team and started to further integrate the company to drive greater profitability. This effort resulted in a tremendous cost-savings. In September 2010, the company acquired Softscape, an end-to-end talent management software provider with leading products in recruiting, performance management, compensation management, succession planning, employee communications and HR management systems (HRMSs). This now put SumTotal in the market with one of the most complete endto-end software offerings in the HR industry, as well as with a customer base near 1,800 corporate accounts. Vista Equity has extensive experience in the acquisition and integration of enterprise software companies. The combined company rapidly put together a new integrated product set and focused on growing its set of offerings within its customer base. Then, in January 2011, the company acquired one of the only remaining major LMS companies, GeoLearning –

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now acquiring a total customer base of nearly 2,300 accounts. GeoLearning was a software-as-a-service (SaaS)-architected, midmarket LMS company that had a highly successful business; in addition, it brought to the company new customers, a well-developed telemarketing team (which sold to midsize businesses and public sector organizations) and a stable of happy customers that had recently migrated to a new architecture.

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Now, in July 2011, the company announced the acquisition of Accero (a midsize provider of complex, global payroll services) and CyberShift (a well-established provider of workforce management, time and attendance, contingent workforce management and expense management software). These latest acquisitions give SumTotal one of the most complete end-to-end software and services solutions of any major provider in the HR systems market.

Bringing the Pieces Together KEY POINT SumTotal’s owner, Vista Equity, has a track record of acquiring dozens of enterprise software businesses – and has developed a confidential

One of the most controversial parts of the SumTotal growth strategy is the steady acquisition of many established products, each with similar architectures on different platforms. While SumTotal’s competitors tend to criticize this strategy, in fact, it has become a highly successful way to grow a profitable software business – if managed well. SumTotal’s owner, Vista Equity, has a track record of acquiring dozens of enterprise software businesses – and has developed a confidential “playbook” that brings these companies together in a highly profitable way. The fundamentals of the SumTotal strategy are as follows. •

All products from acquired companies are maintained and

“playbook” that

improved, so there are no “stranded customers” that have to shop

brings these

for new solution providers.

companies

Engineering and product teams of the acquired companies are

together in a

maintained – with a goal of both investing in the existing product,

highly profitable

and rapidly building integration plans to integrate the product and

way.

its user interface with the other products in the portfolio. •

Teams are quickly integrated along functional groups across all lines of business, and brought onto common systems with consistent and unified processes.

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Sales teams are focused on maintaining close customer relationships and taking care of all existing customers – with a goal of growing the business by expanding product sales within current accounts first and attracting new customers second.

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A N A LY S I S History shows that

The company’s overhead is carefully scrutinized to maintain profitability, so the company can reinvest profits into R&D, sales and the acquisition of new companies.

all large software

While some companies in the HR software industry promote their “100%

companies

internally developed” software as the key to their success, history shows

grow through

that all large software companies grow through acquisition. They do

acquisition, by

this because it is very difficult to continuously innovate once a company

building a large

reaches a certain size. Oracle, SAP, IBM and most other successful large

mass of customers,

software companies have all grown through successful acquisitions. What

sales and support

these companies do is build a large mass of customers, sales and support

infrastructures,

infrastructures, and engineering expertise – from which they can absorb

and engineering

and grow the business with new products and technology.

expertise – from

This is not to say that acquisitions do not have risks. Many software

which they can

acquisitions fail – and this usually occurs when the management team

absorb and grow

is either unfamiliar with acquisitions, or is afraid to quickly integrate

the business with

the acquired company into the infrastructures and teams of the buyer.

new products and

The operating model of companies like CA (which grew by buying

technology.

companies and keeping them independent) has now been shown to be less effective than those which tightly integrate acquisitions quickly. In the case of SumTotal Systems, this integration has been accomplished with tremendous success. While some customers always switch vendors, the vast majority of SumTotal customers have remained with the company, and today the company has more than 3,400 total customers and an excellent operating profit.

SumTotal Product Portfolio Today, SumTotal offers a complete end-to-end human capital management platform, as shown in Figure 1.

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Figure 1: SumTotal Systems Strategic HCM Platform

SumTotal Strategic HCM Platform Comprehensive, Modular, & Integrated

Customer Value Expansion Acquire to Onboard (Recruitment)

Assess to Develop (Learning Mgmt)

Perform to Reward (Talent Mgmt)

Plan & Schedule to Pay (Workforce Mgmt)

Payroll & Benefits

Expense Mgmt

Time & Absence

Scheduling

Social

Learning

360 Feedback

Career Development

Succession

Compensation

Performance

Competencies

On-boarding

Recruitment

Workforce Strategy & Planning

Core HR Management Comprehensive, unified, industry specific support for all strategic HCM functions

Modular - Deploy individual components or as full platform, with flexible options for On-Premise or SumTotal Cloud

Page 8 - June 28, 2011 – PROPRIETARY AND CONFIDENTIAL

Integrated and engineered to work together with common UI and seamless business processes

Presented to Josh Bersin

Source: SumTotal Systems, 2011.

KEY POINT

Through its long history in the LMS market, SumTotal has amassed a broad portfolio of corporate learning solutions, which include

Through its long

the following.

history in the LMS

The company’s SumTotal LMS is one of the most scalable, enterprise-

market, SumTotal

class systems on the market (competitive with Plateau-SuccessFactors

has amassed a

and Saba). GeoLearning continues to be sold as a well-established

broad portfolio of

small and medium business (SMB) learning platform, now running

corporate learning

on its new 5x technology base. Pathlore and older systems continue to be enhanced and maintained. Customers can continue to use

solutions. BERSIN & ASSOCIATES, LLC 6114 LA SALLE AVENUE SUITE 417 OAKLAND, CA 94611 (510) 654-8500 INFO@BERSIN.COM WWW.BERSIN.COM

them or migrate to the SumTotal platform. •

SumTotal’s mobile solution is the only LMS-provided standalone player / LMS for mobile devices. This important module lets companies distribute compliance and other forms of training to remote workers (e.g., field supervisors, retail workers, consultants, et al), and can run untethered or connected – while still capturing local scores and completion data.

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The company’s ToolBook development tool continues to be widely utilized as an easy-to-use system to build basic e-learning courses that integrate into the LMS.

The company’s deep history in the space means that nearly every content provider has an integrated solution with SumTotal. In addition, tools like virtual classroom systems, assessment tools (the SumTotal Strategic HCM platform has its own assessment tool) and collaboration systems, also directly interface with SumTotal.

While the company includes basic collaboration systems, SumTotal is building a complete solution for informal learning and knowledgesharing. (Saba is the LMS leader in this category, with PlateauSuccessFactors working hard to catch up.) SumTotal will soon be releasing new advanced social capabilities, as well.

KEY POINT The company now

The Softscape acquisition gives the company a complete solution for performance management, succession management, and

has more than 43

supervisor- and manager-level talent reviews. These modules have

million licensed

basic compensation management functionality, employee self-

users – the largest

service, benefits management and some recruiting management

installed base

functionality. The system is not a best-of-breed talent acquisition

of any non-ERP

system but, for companies that want a single end-to-end solution, the system has been deployed to more than 150 companies for

software provider

complete talent management.

in the talent management market.

The company now has 3,400 total customers, 1,000-plus employees and more than 43 million-plus licensed users – the largest installed base of any non-ERP software provider in the talent management market.

Accero and CyberShift Acquisitions The Accero and CyberShift acquisitions add workforce management BERSIN & ASSOCIATES, LLC 6114 LA SALLE AVENUE SUITE 417 OAKLAND, CA 94611 (510) 654-8500 INFO@BERSIN.COM WWW.BERSIN.COM

(e.g., time and attendance, hourly scheduling, and expense management) and payroll to the company’s solution. Each of these companies brings significant revenues to the company and a large set of new customers.

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Accero KEY POINT Accero is a global payroll provider with experience managing complex

Accero is a global payroll provider (once the outsourced payroll provider for AON), with around 200 customers. The company’s target market is companies with more than 2,500 employees, with some as large as 85,000 employees. The company has experience managing complex payrolls, including unionized workers, state and local municipalities, manufacturing and large healthcare providers, and global workers (the company has an office in the U.K.), as well as offering employee and

payrolls, as well as

manager self-service portals in its HRMS. Accero showed us its workforce

offering employee

intelligence and analytics solution late last year, and it was among one

and manager self-

of the most complete reporting systems we have seen.

service portals in its HRMS.

The Accero workforce intelligence solution provides detailed reporting on payroll, absences, headcount, turnover, benefits and position management, as well as financials, demographics, performance ratings and training.

Cybershift CyberShift is a 14-year-old provider of workforce management (e.g., time and attendance, expense management, hourly workforce scheduling, Figure 2: Accero Workforce Intelligence – Screenshot

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Source: SumTotal Systems, 2011.

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and leave and absence management) solutions. These features fall into the category of “workforce management” software – a category which has not traditionally been considered “talent management.” The market leader in this space is Kronos, which has a dominant market share. It turns out that demographic and business trends are driving more and more demand for this category of software. Our research shows that upward of 30 percent to 35 percent of the labor force today is contingent (e.g., working part-time, hourly or on a contract basis). Some companies have more than 40 percent of their workforces in this category. The biggest industries for such workers are retail, healthcare, hospitality and government. These industries need integrated workforce and talent management capabilities that provide comprehensive processes across different organizational models – employee, part-time and contingent labor. KEY POINT Our research shows that upward of 30 percent to 35 percent of the

Our research also shows that, among all of the HR practices we studied, contingent workforce management is one of the weakest areas of strategic HR. The reason is that the highly complex transactional nature of contingent workers takes tremendous effort – and these systems were never designed to serve as tools for strategic workforce planning or analysis. Only in the last few years have CyberShift, Kronos, ADP and others started to offer analysis and planning tools that help companies

labor force today

understand the cost, dynamics and potential downsides of contingent

is contingent –

workers. Workday, for example, which recently introduced its total

and our research

workforce expense management software, is one of the first vendors

further shows that,

to ever give companies the ability to understand the “total expense”

among all of the HR

of a contract versus full-time worker. Companies (like Chiquita) used

practices we have studied, contingent workforce management is one of the weakest areas of strategic HR. BERSIN & ASSOCIATES, LLC 6114 LA SALLE AVENUE SUITE 417 OAKLAND, CA 94611 (510) 654-8500 INFO@BERSIN.COM WWW.BERSIN.COM

this software to discover very high variances in labor rates among their plants, resulting in huge savings in their total product cost. While CyberShift is not a huge company ($35 million to $40 million in revenue, at the most), the product set is strategic and gives SumTotal the ability to address this fast-growing market within its existing clients – as well as provide differentiated integrated processes and analytics across talent management, learning, workforce and payroll management. Another of the big opportunities that this opens up for SumTotal is the ability to focus on the market for temporary staffing management – another big HR expense, which most companies do not manage centrally.

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CyberShift’s customers include RR Donnelly, 3M, AEP and a few other household brands – but many of their customers are local governments, manufacturers and other service providers.

SumTotal’s End-to-End Solution Ultimately, this latest acquisition gives SumTotal a complete end-to-end HCM architecture. While each of these products is still separate, the company’s technology focus is driven in three areas: •

Integration of the user experience;

Integration of the data architecture; and,

Integration of the business processes, reporting and analytics.

Over time (probably many years), the company may in fact re-architect its solution to build a new integrated system – but for now the stated strategy is to integrate each product set into a complete solution, using its existing functionality as is. Figure 3: SumTotal HCM Architecture

SumTotal Strategic HCM Architecture

Robust, Scalable & Flexible for Enterprise and SMB Customers Shared Cloud, Private Cloud, or On Premise

Talent Portal

Mobile Delivery

Talent Acquisition

Workforce Analytics

Common Role Based UI

Talent Management

Talent Development

Flexible Deployment Options

Workforce Mgmt

Payroll & Benefits

Core Foundation Competencies

Job Profiles

Talent Profiles

HR Management

Social Network

Application Platform Security Personalization Knowledge Mgmt Desktop Integration Administration BERSIN & ASSOCIATES, LLC 6114 LA SALLE AVENUE SUITE 417 OAKLAND, CA 94611 Integration for ERP, Legacy & External Data Sources SumTotal CyberShift Accero (510) 654-8500 Page 9 - June 28, 2011 – PROPRIETARY AND CONFIDENTIAL Presented to Josh Bersin INFO@BERSIN.COM Source: SumTotal Systems, 2011. WWW.BERSIN.COM

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What This Acquisition Means to You A N A LY S I S

As a privately held company, SumTotal can be judicious about developing its total customer base by focusing on profitable growth.

Customers

In fact, one of the stated strategies of the company is to grow its

of Pathlore,

revenue by selling and implementing more products to its existing 3,400

GeoLearning, Docent, SumTotal,

customers. This means that SumTotal is very dependent on making sure its customers stay happy with the software they have.

Softscape, Accero

While no software company can keep every customer happy, this means

and CyberShift

that customers of Pathlore, GeoLearning, Docent, SumTotal, Softscape,

should demand

Accero and CyberShift should demand and expect high levels of service

and expect high

on their existing software products. While the product evolution of

levels of service

each individual product may slow down slightly as the company puts its

on their existing

R&D into integration, customers should expect continued support for

software products.

bug fixes, product enhancements and general updates. Customers that have invested in SumTotal products today have likely spent hundreds of thousands to millions of dollars in implementations. This means that the cost of switching to another vendor is very high. SumTotal understands this, so its strategy to grow is to maintain these products with enough support that very few customers leave (the company has a 96 percent renewal rate at this point in time).

KEY POINT SumTotal Systems has a 96 percent renewal rate at this point in time.

We have spoken with SumTotal customers over the last year, and some have been frustrated by changes in their sales team, customer support and product plans. While this is frustrating to SumTotal customers, nearly every other vendor in the talent management market is experiencing the same challenges. Taleo’s acquisition of Learn.com and introduction of Taleo 10 has slowed its product cycles. SuccessFactor’s acquisition of Plateau, Jambok and CubeTree has slowed its product cycles. Cornerstone OnDemand’s IPO has now put it under pressure to grow, so its product cycles are expected to slow. PeopleFluent’s acquisition of PeopleClick and Authoria has created a complex product

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integration strategy. Saba’s acquisition of Centra and two smaller companies have slowed its product cycles. Oracle’s and SAP’s products continue to lag the market.

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A N A LY S I S

This is not to say that the SumTotal strategy is easy. The company is now a 1,000-plus person software provider, with centralized product

We recommend

management and integrated engineering teams, a diverse sales team,

that customers

and many legacy products to support. Customers which have SumTotal

take the time to meet SumTotal’s

products must clearly review the company’s product plans in detail and make sure that their voices are heard.

sales leadership

We have met with the top leadership team and investors many times –

and product

and our belief is that this is a team that clearly understands the needs

executives to

to keep its customers happy, while it grows through acquisitions. Their

make sure the

integration playbook is world-class and the company continues to

investments your

focus on this market, gaining more talent with each acquisition. We

company is making

recommend that customers take the time to meet SumTotal’s sales

meet your precise

leadership and product executives to make sure the investments your

industry needs.

company is making meet your precise industry needs. We will continue to monitor SumTotal’s product and customer strategy. If you are a SumTotal customer, and would like guidance or the opportunity to give us your feedback, please contact us.

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The Bersin & Associates Membership Program This document is part of the Bersin & Associates Research Library. Our research is provided exclusively to organizational members of the Bersin & Associates Research Program. Member organizations have access to the largest library of learning and talent management related research available. In addition, members also receive a variety of products and services to enable talent-related transformation within their organizations, including:

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