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Secrets Are Finally Revealed

Thursday, May 8, 2008
Secrets Are Finally Revealed

Since going public almost three years ago, Kenexa has been roundly criticized for not revealing more about its business. Wall Street calls that "transparency"; we call it honesty. All that finally changed last month.

By Bill Kutik

Kenexa CEO Rudy Karsan is an incredibly smart (former actuary) and normally honest and straightforward guy. At least for the first three of the six years I've known him. He's certainly done an impressive job welding together the 27 companies he acquired in the last 21 years into Kenexa. The company expects to sell more than $220 million of its deep selection of HR software and services this year.

But when the company had its IPO nearly three years ago, it somehow slipped off the communications rails. Kenexa set up its revenue buckets for SEC-required reporting so that no one could figure out what the company was actually selling. And it has a large array of products and services, both in recruiting and assessment/performance, including employee surveys, where it is a giant like Gallup.

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Karsan invited a group of influencers to his home for dinner and then six hours of in-depth briefings at company headquarters in Wayne, Pa., the next day. In fact, early in the briefings, he apologized for "Kenexa not being as present in the HR community since the IPO" and the meeting was intended to remedy that. It did.

Okay, so let's go to the numbers. Taleo (a public company) announced it signed 78 new enterprise recruiting deals in 2007; Vurv (private), 68. While Kenexa did not reveal the exact number, it disclosed enough other numbers for non-actuaries to figure out that it probably signed 40 or 42, while saying that it had lost three existing customers. That's a small number of losses in the churning recruiting space.

As with all vendors' new and total customer numbers, there is room for endless dispute. Did BrassRing have 157 customers when the deal closed 16 months ago in January 2007, as Kenexa's Becky Sterling told the group of influencers last month? Or was it really 180 as ThinkPanmure financial analyst Nate Swanson later pointed to in an October 2006 Kenexa press release?

How does Sterling's end-of-year total customer count of 210 square with an August 2007 second-quarter earnings-call transcript of "150-plus, almost 200 customers?" Especially with Karsan telling the group that eight were sold in the third quarter and 15 or 16 in Q4 2007?

Who knows? However you run the numbers, BrassRing under Kenexa clearly is no longer staying abreast in new sales with its two traditional rivals, which have raced neck-and-neck for years.

Karsan admitted to the group that closing down BrassRing's customer support call center in Waltham, Mass., was a mistake since customers had formed personal relationships with the service reps there. But President Troy Kanter pointed out that Kenexa always integrates the operations of new acquisitions, rather than leaving its pieces in place, and sometimes that is disruptive.

CTO/CIO Jim Restivo said the BrassRing product got a new version in the middle of April, saying it had "substantial data model changes" but never mentioned or showed any new functionality at the briefing.

He said the BrassRing product arrived with two big problems (which I later independently verified): Users complained about the difficulty in turning a candidate into a hire and about the reporting. He said the first has been fixed, and he's supervised a full rewrite of the data-extraction wizard for reporting.

None of this may matter, because Kenexa has announced its own next-generation software project: Taking the best features and functions of its three recruiting products and writing a new application from the ground up for companies from 500 to 50,000 employees. Both Taleo and Vurv have separate products for smaller companies, so that will be very interesting to watch.

The new product and a rewritten performance-management application will both sit on a new technical platform for integration and workflow coming out this year, called 2.x, with a new user interface and Autonomy's newest search engine used throughout. Pricing hasn't been determined.

Sterling would not say whether the new product was based on any one of the three existing products, as Oracle's Fusion HCM is based on Oracle's HRMS. And unlike Oracle, Kenexa is actually getting it out the door quickly.

The company has five recruiting clients already in beta (none from BrassRing) and expects it to be generally available at end of the year. Performance will come a bit later. Kenexa is still looking for beta clients, which it hopes to have running by the end of the year.

snip

Perhaps the most impressive thing about Kenexa is how fast it has gone global. Through both acquisitions and organic growth, Kenexa now has at least a sales and service presence in 18 countries, and 40 percent of its more than 1,400 employees work outside the United States, including 200 in London.

But its crown jewel is the recently opened 100,000-square-foot R&D site in Vizag, India. Kenexa bought 25 acres on the Bay of Bengal, designed and built the five buildings (obviously with lots of acreage left), directly employs all the people in them and basically owns it all! Karsan caught the offshoring wave early and personally went to India years ago to make it happen.

The result? "Our $35 million R&D budget for 2008 is like $75 million when it's spent in India," he says. A second brand-new site is planned for Cyberjaya, Malaysia. Kenexa is definitely ahead of this curve, though doubts persist about how good the new software coming out of any offshore facility will be.

Kenexa will be deciding soon about adding full compensation and learning applications, to become a true talent-management-suite vendor.

Besides surveys, the only world-class software Kenexa owns today is BrassRing. But with 15 percent to 20 percent of revenue coming from outsourced recruiting services alone and total revenue tripling since going public, maybe that, too, doesn't matter.

HR Technology Columnist Bill Kutik is also co-chairman of the 11th Annual HR Technology Conference & Exposition® in Chicago, Oct. 15 to 17. The full agenda is finished and will be available this month at www.HRTechnologyConference.com ,where a printed brochure can also beordered. He is also host of The Bill Kutik Radio Show available on iTunes. He can be reached at bkutik@earthlink.net

Editor's Note: On May 6, Taleo announced it was acquiring competitor Vurv. Kutik and others comment on the implications of this development here .


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