Skill building, tracking and optimization, knowledge retention and measurement of workplace effectiveness - those are the aims of some of the software industry's hottest companies. SuccessFactors got bought last year for $3.4 billion by SAP. Taleo got bought by Oracle for $1.9 billion last week. Salesforce bought Rypple and Workday is one of the hottest companies in the world.

Why is this sector so on fire? I presumed it's not just because everyone is suddenly excited about personal professional development, so I asked a few experts in the field. This is what they said.

The PricewaterhouseCoopers 2012 Global CEO Study addressed the question of talent and found that senior executives around the world are feeling pressure related to managing talent. Those survey results made me think that Human Capital Management (HCM) technology is hot for the following reasons:

  1. Companies are constrained in their efforts to meet their goals by a shortage of talent in their ranks.
  2. They have inadequate means of measuring the impact of their investments in talent optimization.
  3. They can't identify specific skills gaps well enough.
  4. And they can't figure out who works best with teams in a scalable way without software.

I asked a number of different experts in the field and none disagreed with the thoughts above, but most argued that it is more complicated than that.

First, this market has been growing and consolidating quickly for years. Most of the leading vendors getting acquired by enterprise giants grew themselves through years of acquisitions.

Most recently, one company in particular has been pressuring everyone else to scramble to protect their market share: Workday. "Workday is eating Oracle for lunch in HCM," asserts enterprise software blogger Dennis Howlett. "I predict Workday will be a $1 billion business in the 2014-15 timeframe. They have a very good value proposition and solution that is well differentiated from the incumbents."

That all makes sense from a business perspective, but are there culturual and technology trends that are contributing to HCM's hotness?

Jason Averbook, CEO of Knowledge Infusion and the former Senior Director of Human Capital Managment Marketing at PeopleSoft, explains it like this:

"LinkedIn knows more about our employees than we do as CEOs and leaders of organizations," Averbook begins.

"While we work hard to get people paid and give them benefits, we do little to understand their true interests, talents and backgrounds that could help us engage and retain our workforce." This disparity of engagement is almost taunted by a growth in technology-enabled opportunities.

"The world of Software as a Service combined with access to technology in an unlimited number of ways through mobile, broadband, etc creates a major transition for all HR and talent leaders in the world," he says.

Scarcity of skills is a major factor as well. "Many people say we are in a War for Talent, while this is true, it is truly a War for Skills," says Averbook

"We don't have the right skills in the open market to fill the available jobs. The War for Skills is even more deadly than a war for talent because the only place to get the skills is from the competition. We now, more than ever, need to know what we have from a talent standpoint, what our competitors have, what we need and what it will cost to get it. The Knowledge Economy has finally caught up to the Manufacturing Economy in the need for Supply Chain Intelligence, just not of parts but of people and skills.

"We have a workforce that like to collaborate, likes to think differently, is being raised without filter and is open to trying many new things. There are no more career ladders, but hopefully career vision that we can provide the workforce to stay with our organization. This will only get worse as the economy improves."

I first heard about HCM with regard to the retirement of baby boomers, and Averbook cites that still today. "There is nothing we can do about that," he says.

"HR leaders worldwide are losing more people that have been employed by their orgs for the past 20 years than they are gaining new workers. Knowledge is walking out the door and is not replaceable by new talent. This has leaders scared to death and scrambling for what to do about it.

"[Furthermore,] more and more contractors and contingent labor is becoming the norm. This is something that the HR function is not good at measuring and monitoring, and for the most part, have not paid attention to. This trend is also causing this market to boom.

"What has always been seen as a transactional expense in organizations is finally being realized to be a competitive differentiator that is a must to have 'right' to drive an organization forward. Without this, every year an org doesn't act on these issues puts it 3-5 years behind its competition.

"This market is real and will only get hotter. The answer is in retooling HR with new processes and technology to drive true business value, not just transactional excellence."

What does that retooling look like? "HR used to be boring," says Laurie Ruettimann, a leading HCM consultant and Director of Social Media, Principal Strategist at The Starr Conspiracy.

"We hired and fire people. Now every individual step related to screening, hiring, paying, managing, training and firing someone is part of a software package. Data is everywhere. The industry is huge. And the people in charge of HR aren't your grandmother's HR. They are younger, smarter, and better educated. For real."

Employees and hiring are key cost centers, and optimizing the scarce skills of existing employees is a powerful competitive step for businesses to take.

I like to think about personal growth and skill building. I like to think about it from an organizational perspective. I like to think about online services that specialize in doing that kind of work. I think the above are viable explanations of why this sector is so hot. Do you?