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Last week SAP announced its intent to acquire SuccessFactors for $3.4 billion – which just so happens to be the predicted size of the entire talent management market for 2011 (according to Gartner and Bersin & Associates). This news is important for almost as many reasons as there have been opinions published over Twitter and in blogs in the aftermath.

Technology vendors in the talent management space have witnessed a lot of consolidation lately. For starters, just about every top-tier Learning Management System (LMS) – other than Cornerstone – was acquired in the last two years, reflecting the realization by performance management vendors that training and development must be a part of the broader talent management spectrum.

But the SAP/SuccessFactors deal represents a different kind of market shift - less about basic consolidation and the fleshing out of vendor portfolios and more about market validation and an expansion of the conversation outside our immediate neighborhood.

So what’s Cornerstone’s take (another voice in the bedlam)? We think the merger of SAP and SuccessFactors is a significant moment with at least five key possible outcomes to consider if you are a potential buyer (or just an interested observer):

1. This is the beginning of talent management, not the end.

The acquisition of SuccessFactors is a serious validation of human capital management in general. Jason Averbook puts it more passionately: “SAP has just broadcast to the world the single-most persuasive validation of Human Capital Management technology to date. It is a declaration we can all, as vendors and practitioners, lean on as we create workforce technology strategies and HCM business cases for years to come.”

Beyond business processes, SAP’s self-declared push into the “Cloud” market is a major validation of Software-as-a-Service as a delivery model.

So the talent management market is alive and well. If anything, SAP’s acquisition feels a little bit like the old “if you can’t beat ‘em, join ‘em” from the perspective of the ERP players. And hopefully that realization ends up benefitting organizations by raising the profile of talent management process and technology.

2. Confusion and distraction will certainly be among the immediate consequences.

After a major industry event like this one, everyone immediately has one big question: how long will it take for the acquirer to integrate the acquired company? Integrating product sets and corporate cultures is never easy work, especially so in the case of a traditional software giant absorbing a fast-moving, cloud-based vendor.

One of the biggest challenges is likely to be the rationalization of the companies’ offerings. How do you make the merging products (and related services) work together? Which older, outdated products must be eliminated?  How do you make the user experience work between disparate products? How about data models and customer support programs and….on and on.

Naomi Bloom catalogs the product rationalization challenge in her recent blog post “SAP/SuccessFactors -- Help Me Count the HRM Codebases”.

This is an ambitious assimilation of technologies and strategic approaches. Results may come, but there will certainly be a lot of growing pains along the way. And while SAP and SuccessFactors wrestle the eight-headed snake, other vendors will continue to innovate and serve their clients.

3. Innovation will continue to come from the best-of-breed talent management vendors.

While big ERP vendors like SAP certainly bring new attention to the talent management technology world, if history is any indicator, product innovation is not likely to be spurred by these combined companies in the foreseeable future.

Josh Bersin argues that this is precisely why the best-of-breed talent management vendors will continue to exist (and thrive) – “primarily because of the tremendous levels of innovation still yet to be achieved in talent management. New areas, like social recruiting, social performance management, social rewards, social learning, mobile talent management, talent analytics, talent risk management, employee engagement management, contingent workforce management and many others, continue to become more important to customers every day.”

Bersin goes further to note the worrying “upgrade interlock” problem that faces ERP/talent management customers. This means that, typically, every new release of an ERP vendor’s talent management offering is dependent on a new release of the HRMS.

On the other hand, organic talent management SaaS/cloud vendors are releasing new and improved functionality on a quarterly basis, in some cases. It comes down to a matter of being fast and nimble, accusations rarely leveled at lumbering ERPs.

4. HR technology should be owned by HR and not IT.

One of the other possible implications of an ERP vendor acquiring a talent management company is that it means that IT assumes control of HR technology. And we all know how well that works today.

For HR technology to realize its potential business benefits, it must be governed by HR itself. Relying on IT to source, implement and administer talent management software sounds like a recipe for limited business impact.

5. Organically developed talent management has never been more meaningful.

It won’t shock the reader to hear that Cornerstone OnDemand sees the SAP/SuccessFactors merger in the most positive of light. The merger validates the work of all the best-of-breed talent management SaaS/cloud vendors in the space for the past 10-15 years.

However, the considerable questions raised around integration and the role of the ERP as provider of talent management software leave a significant opportunity for the nimble, innovative, best-of-breed providers that remain in the market (and there aren’t many of us left).

With so much transformative possibility in the industry today – around social tools, mobile access, talent mobility, employee engagement, workforce planning, analytics, etc. – it seems like what we all need to focus on most is rapidly developing innovative products to match the ambitions of forward-thinking HR practitioners and good talent management processes.

Disruption often (always?) leads to opportunity. Tien Tzuo, founder and CEO of Zuora, reacted to the SAP/SuccessFactors news this way: “I’ve seen this movie before. When Siebel bought Upshot CRM in 2003, it instantly signaled to the world that SaaS CRM was the future, and catapulted Salesforce.com from ankle biter to the de facto industry leader.”

Tzou’s analogy has remarkable parallels today.