This content is part of the Essential Guide: A guide to SAP HR management

SAP HCM market weighs in on SuccessFactors deal

SAP’s acquisition of SuccessFactors, a maker of on-demand human-resources apps, could bring a number of potential benefits and risks for SAP customers, according to analysts.

SAP’s acquisition of the on-demand human-resources software maker SuccessFactors raises further questions about SAP’s on-demand roadmap -- at least for the immediate future -- even though SAP human capital management (HCM) customers may benefit in the long run, according to one consultant.

“Customers have complained about the clarity in SAP’s cloud roadmap,” according to Jarret Pazahanick, an SAP HCM consultant with EIC Experts, a Houston-based IT consulting firm. “It became just that much more complex with buying SuccessFactors.”

On Saturday, SAP announced a tentative agreement to buy SuccessFactors, a San Mateo, Calif.-based maker of on-demand HR applications. The deal, worth $3.4 billion, will create an “end-to-end offering of cloud and on-premise solutions for managing all relevant business processes,” according to SAP. 

SuccessFactors claims to have more than 15 million subscribers spread out over 3,500 companies.  “SuccessFactors has a broad global footprint. Its solutions are deployed by business in more than 60 different industries and in all major markets around the world,” SAP co-CEO Bill McDermott said Monday. 

While the agreement is a good move for SAP, it also means the software maker will have to make some tough decisions going forward, according to Pazahanick.

There are areas where the two companies’ software overlap, Pazahanick said.  For example, SAP has on-premise applications around learning solutions, performance management, and talent management that overlap with SuccessFactors' best-of-breed solutions in the same areas.

“As a customer, I would ask, ‘Are they going to continue development on the on-premise side or focus all of their efforts on the on-demand applications?’ ”

Focusing only on Software as a Service (SaaS)-based applications from this point forward would make integration between the two companies’ applications even that much more critical, he added.

“SAP customers are going to expect that integration between SuccessFactors and SAP is going to be seamless and that will be a big undertaking for SAP,” Pazahanick said.

The future of SAP HR applications
The acquisition calls into question whether on-demand applications that SAP has been developing for HR will be cancelled.

For one, SAP has a performance management application in the works called Career OnDemand, scheduled for May 2012, which conflicts with the talent management application already in SuccessFactors’ portfolio.

“My guess is that SAP Career OnDemand does not launch. We’ll have to see what the roadmap is. [Will SAP] continue to invest in the on-premise performance management or do they try to steer customers towards the SuccessFactors products?” Pazahanick said.

One advantage to the deal is that SAP customers that will be able to buy “innovative, proven, fast-growing” cloud systems knowing the software maker is now part of SAP, Liz Herbert, principal analyst with Cambridge, Mass.-based Forrester Research Inc. wrote on her blog.

That isn’t to say there aren’t risks for customers, Herbert wrote. SAP customers will be affected, including SAP customers that are running SuccessFactors. Approximately 14% of SuccessFactors’ customers are running SAP, and 35% are running Oracle ERP, according to SAP executives.

“Pricing and contract terms are likely to change, and the pace and direction of innovation could slow down as [SuccessFactors] moves from a nimble, niche supplier to a new parent company with many competing initiatives,” Herbert wrote.

The deal is also significant for SAP users because it’s a multibillion investment in cloud computing by the industry leader in on-premises enterprise software, according to Steve Bogner, managing partner of Insight Consulting Partners, based in Cincinnati.  

“SAP is showing the industry and its customers that cloud computing is the future of ERP,” he said. “SAP and its clients have huge investments in on-premise software, so the way SAP handles this move will impact the way clients invest, plan and use the software for years to come.”

The agreement gives SAP a chance to win back some of its ERP customers that may be running Oracle PeopleSoft for HR, according to Joshua Greenbaum, principal consultant at Enterprise Applications Consulting in Berkeley, Calif.

Those Oracle HR customers are coming up against a new upgrade that’s going to require a re-implementation of the application, Greenbaum said. That’s causing a lot of them to look outside of Oracle for alternative solutions, including on-demand applications. Some of those may gravitate back to SAP because of the SaaS applications that SuccessFactors brings to the table.

“The timing is pretty good for SAP and pretty bad for Oracle.”

Dig Deeper on SAP SuccessFactors