SAP looking to make capital from SuccessFactors acquisition

SAP has rolled out its roadmap of where it's going with SuccessFactors and all the indications are they're on the right path

Yesterday's announcement of the SuccessFactors/SAP roadmap for human capital management caught many analysts off guard. Rather than being a messy patchwork quilt of solutions, the two companies have come up with a roadmap that looks surprisingly coherent.

IDC's Lisa Rowan, in a message to one of the LinkedIn HR interest groups summarised the position well:

Netting it out, we're pleased they came out of the gate with a well articulated plan and what appear to be concrete go-forward steps.

IDC's client report (only available to clients) can be found here.

The general consensus among other analysts specialising in this area was broadly similar. Not everyone was so happy. VentureBeat attempted a swipe saying the press release was 'the most jargon filled press release ever.' That was about their best shot. For those who engage with SAP, there is a version of SCN Buzzword Bingo to which I am sure aficionados will add their own take! Elsewhere, SAP HR implementation expert Jarret Pazahanick said:

Overall I am impressed as it appears some tough decisions were made especially in some of the areas where there was product overlap between SAP and SuccessFactors.

As always there is no such thing as perfection and despite the warm reception, there are holes in the roadmap and question marks remain over the larger cloud picture.

Immediate Customer Impact The impact of analyst acceptance should not be under estimated. In recent years, SAP has had considerable difficulty in getting much more than a lukewarm response to its initiatives. What is abundantly clear from the way SAP has come out of the gate is that hybrid on-premise/cloud is where they are going in the immediate and foreseeable future. No rip and replace. That fits very well with the company's 'innovation without disruption' message. It also means that it will be much easier to up/cross-sell many of SAP's existing customers who believe they already have a world class HR system of record.

Note that in the messaging, SAP is making little play about net new customers either as 'green field' or acquired from competitors. Media statements reiterated the fact that there is only 14 percent overlap between existing SAP and SuccessFactors customers. Other analysis I have seen suggests that figure could be wildly under stated. We will not know the true extent of overlap until the joint salesforce deliver results.

In the short term this is good news for SuccessFactors sales teams because they now have a large pool of captive SAP customers on whose doors they can knock. The position is less clear for SAP. Historically we have seen that SAP's sales people have difficulty getting their heads around subscription pricing, a fact that Jim Snabe, co-CEO acknowledged when we last met. The trick will be in persuading the sales teams they can do just as well by selling multi-year subscription deals as they can selling on-premise licences.

The longer term impact is far less clear. After SAP acquired BusinessObjects, prices were hiked, much to the chagrin of existing customers. In conversation with Snabe, he said the company has found a way to make SuccessFactor profitable. He has not elaborated on that but one must presume that price increases are part of the plan. The alternative is that SAP believes it can achieve far deeper penetration than is currently possible. That means SAP will play a large volume game in much the same way as Workday hunts for large companies. Once again, we have to wait and see.

There is also the question around which of SAP's customers this announcement is really aimed. The commentary so far seems to veer towards BusinessSuite customers. That makes sense because that's where the largest number of potential seats can be found.

But we should not ignore the fact that in the pre-nuptual blizzard of hype coming from SuccessFactors, they made great play of accessing the whole of SAP's 176,000 customer base. That is far out in the distance as far as I am concerned and in any event, you'd have to discount all customers with less than 50-100 employees. They don't need much beyond HR admin and payroll. That lops the whole of the BusinessOne off the equation straight away plus a proportion of the All-in-One group.

The Roadmap As outlined, the roadmap is extensive and detailed. If you wish to see an analysis then Constellation Research's Yvette Cameron has offered a comprehensive take that is well worth studying.[Disclosure: I am a CRG pro bono board advisor.] Here are the key highlights as outlined by Yvette with my commentary added:

Employee Central (SuccessFactors solution)

My Point of View (POV): Employee Central, used today by about 100 SuccessFactors customers, will be rapidly built out to meet the demands of a fully globalised core HR solution in the cloud. A significant number of SAP resources will be redeployed to this effort. It is important to note that an end-to-end cloud HCM offering is still elusive, however, as there is no immediate clarity on how payroll, benefits and workforce Management will be delivered in the cloud. ...

...Core SAP HR customers will continue to receive support and innovations across many areas, but with so many SAP resources redeployed or co-assigned to the Employee Central and other SuccessFactors initiatives, the anticipated pace and volume of innovation will decline.

Today, Employee Central is a bit player in the larger market. The fact SAP is devoting significant resources to this element should be taken as good news. However, it will be some time before we see the fruits of those development labours. The challenge will come in SAP being prepared to release early and often, a key ingredient in cloud release strategies.

I am aware that very senior people at SAP are pushing hard for this new approach to software delivery but we cannot forget that this is a company with a very specific culture of engineering excellence as its mantra.

Talent Management

My Point of View (POV): With this announcement, the real future of SAP HCM is placed squarely on the shoulders of the SuccessFactors Cloud platform... ...As with the limited data on mobile, the path to social HCM is incomplete: SuccessFactors Jam is the solution for social learning in the cloud, but broader leverage of this or other social networking tools such as SAP Streamwork remains unclear.

That pretty much says it all. It was already clear from discussions around SAP enhancement packs for the Business Suite that investment in this part of SAP's portfolio was stalled. This gives SAP a much needed boost. The mobile element is interesting and I will return to that in my later comments on the competitive landscape.

The Streamwork topic is interesting. Once a solution looking for a problem, the SAP Streamwork team are much better focused on what they need to do. [Disclosure: SAP was a recent consulting client on Streamwork technology and go to market.] They know they need to have in depth discussions with their SuccessFactors counterparts but I have no insight into those discussions at this time. However, if Streamwork survives - and it should - then we can expect some very interesting developments, especially in those tasks requiring collaboration.

Prioritising BI and Big Data

My Point of View (POV): Both SAP and SuccessFactors have significant business intelligence assets, some overlapping, and all of which can be bolstered by the SAP HANA platform. Unfortunately the good work done to date on SAP’s Strategic Workforce Planning (the first HANA-enabled SAP HCM solution) has been stopped, and those efforts will shift instead to augmenting the SuccessFactors Workforce Planning solution. Customers can expect a hybrid BI model moving forward, accessing different capabilities through a combination of on premise and on demand offerings from a combination of SAP and SuccessFactors-led technologies.

Leveraging SAP HANA to improve performance and enable real time analytics within the SuccessFactors BizX suite makes complete sense, and aligns to SAP’s plans to run SAP ERP on HANA by the end of 2012.

If this is the short term analysis then I wonder if SAP/SuccessFactors have truly understood HANA. I have had numerous conversations with SAP in this topic but my feeling is that people don't truly understand what's going on. Yes, SAP is devoting considerable resource and focus on HANA as a way of massively accelerating analytics. But that is the tip of the iceberg.

Vishal Sikka, executive board member and the person responsible for HANA has told me that HANA provides a way of completely rethinking applications. His vision for the applications of tomorrow is very different to what we see today. Rather than solely representing a speeding up of the present, he believes (as do I) that we need purpose-driven applications that much more closely meet business need. This is not your mother's back office ERP. This is not about doing what we do today only more efficiently. It is about doing what we do more effectively. However, for the immediate future, this element makes sense and will be welcomed.

Open Integration

 My Point of View (POV): Integration is a key focal point, not just for SAP and SuccessFactors, but also across an increasingly complex HCM landscape, and so accelerating offerings in this area is paramount... ...In keeping with their fist comment about openness and interoperability, and in recognition of the complex HCM landscapes of most organizations today, SAP would be well served to productize these 3rd party connectors as well; ease of interoperability is really the secret sauce in software (and platform) as a service...

...One approach SAP has used in the past to manage rapid implementation, migration and integration is through their Rapid Deployment Solutions (RDS), which consist of pre-packaged software, services and content. Today there are three RDS solutions for SAP HCM, and new RDS solutions should follow quickly in support of those customers using solutions spanning the SuccessFactors cloud portfolio and SAP on premise HCM products.

Integration has been a lively topic of conversation at the main LinkedIn HR discussion group with over 300 comments. If you want to be part of that conversation then click here to gain access. The whole topic is a minefield and one upon which there are divergent opinions.

Where there is consensus, it is to say that large players like SAP/SuccessFactors and Oracle need to operate common standards. History teaches us that is very difficult to achieve. History also teaches us that there is no such thing as a two/three company market. HR presents special challenges across many dimensions because there are so many pieces to the puzzle and many players to consider. I am not a fan of RDS except in very limited scenarios. That is because they constrain organisations to do things one of a very few ways. SAP may well attempt to persuade customers this is the correct approach but I have my doubts whether they will be successful.

Execution Everyone agrees that SAP/SuccessFactors ability to execute is critical to keeping customers happy. As Jarret says:

One of my favorite quotes is by Walt Disney “The way to get started is to quit talking and begin doing” and many people will be watching to see how quickly SAP can deliver on their promised roadmap.

Disney is an SAP customer but is independently minded enough to know where SAP technology fits and where it is better to go alone. Siemens is another which eschewed SAP in favours of SuccessFactors for its 400,000 staff. In other words, customers may be comforted but they will want to see proof that SAP doesn't stifle SuccessFactors along the way.

The Competitive Landscape Some commenters have argued this puts pressure upon Workday, which up until present has been the de facto pure play for HR in the cloud. They are wrong. Workday [Disclosure: Workday has been a recent technology analysis client for financials.] has powerful allies among the analyst community. Most I speak with see Workday as representing the architecture of the future and are net positive on the company. I am bullish on Workday but less for technical reasons and more because Workday is a much easier company with which to do business than SAP or Oracle. That matters in today's market.

While invisible to end users, its pure approach to the cloud is accepted as best in class by both analysts and customers. SAP says that Workday is only present in two countries. That doesn't matter. The markets in which it plays are large enough for Workday to become a powerhouse without impinging significantly upon what SAP or Oracle are doing.

Workday can argue that SAP/SuccessFactors' current approach is little more than holding the line while SAP works out how to get all its assets into the cloud. Workday's real problem comes in how it approaches its current relationship with Taleo, which is in the process of being acquired by Oracle.

In a recent conversation with Aneel Bhusri, co-CEO Workday, I asked about the impact these transactions are having on sales and pipeline generation. He was adamant that since the announcements of the SuccessFactors and Taleo acquisitions, he was seeing more inbound inquiries from both Oracle and SAP customers. He is very confident for the future.

As a side note, Workday is no longer commenting on the much anticipated IPO. Bhusri wants to make sure he does nothing to hype the IPO because he knows that can be extremely damaging. My sense is that it will happen in 2012. If right then that will provide the market with confirmation that Workday believes it has a bright future. Just as important, Workday has a credible mobile strategy and is aggressively rolling out mobile apps over the next year. This will be a game of cat and mouse for all companies in this space.

The wild card is Salesforce.com. That company picked up Rypple last year and brought John Wookey on board, signalling a foray into HR/HCM. Wookey knows the cloud challenges very well and is respected for the tough challenges he met during his time at both Oracle and SAP. Salesforce.com has something that no other competitor can offer - a platform play. That opens it up to many developers. How well the company leverages that asset going forward will tell us how serious it is about HR/HCM as part of its expanding portfolio of solutions.

Oh - and if anyone is wondering about Oracle's position? It is rolling out the big guns tomorrow for a webinar explaining how Oracle and Taleo will go forward.

Final Analysis  SAP/SuccessFactors have done a solid job in articulating the immediate future. There are product casualties along the way like Career OnDemand. That was to be expected. However, we have yet to hear a much broader cloud strategy that involves the other 95 percent of SAP's massive solution portfolio. There are significant engineering and sales eduction challenges which don't evaporate on the back of a press release.

The next 100 days will be a testing time for everyone impacted by this acquisition. By the time we get to SAPPHIRENow in May, analysts will expect/demand much more detail on the broad picture plus an update on progress. That is around 90 days away. Stay tuned.

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