SAP on Wednesday released details for its road map for HCM (human capital management) software following the US$3.4 billion (£2.2 billion) acquisition of SuccessFactors, which focuses on cloud-based applications.
SuccessFactors is to be run as an independent subsidiary of SAP, with its CEO, Lars Dalgaard, continuing in that role as well as leading SAP's broader cloud strategy.
Now SuccessFactors' Employee Central product will be "the go-forward core human resources (HR) offering in the cloud," and SAP will "boldly invest" in it, according to a statement. SAP will continue selling its on-premises HCM application, for which it plans "significant investments in functionality, user experience, mobile and in-memory technology capabilities in the future," the company added.
For talent management applications, which cover areas such as recruitment and employee pay, a number of SuccessFactors products will lead the way. These include SuccessFactors Performance Management, SuccessFactors Compensation Management, SuccessFactors Recruiting and SuccessFactors Learning Management, along with the Jam "social learning" application, SAP said. Talent management capabilities within the on-premise HCM product "will be continued with selected innovations for the next decade," it added.
SAP also plans to make integrating the SuccessFactors software with its HANA in-memory database a "key priority," both for improved analytics and faster processing times, according to a statement.
Integration of SuccessFactors' portfolio and SAPs on-premises HR software is also planned, as well as increased development of integration with third-party applications.
SAP was SuccessFactors' "toughest competitor," but now SuccessFactors will be able to sell more effectively into SAP's much larger installed base, Dalgaard said in an interview. The companies currently have a roughly 14 percent overlap in customers, according to a statement.
Dalgaard has been meeting with SAP executives, including board member and technology chief Vishal Sikka, and the talks have gone very well, he said.
He described the merger as beneficial for both companies.
SAP and SuccessFactors have a lot to offer each other
For one, while localisation has always been a strength of SuccessFactors, joining SAP gives it "the domain expertise that we don't have, and it would be very hard to get," Dalgaard said. "It's just going to be a lot easier than it was."
Work is already under way to integrate the companies' products. SuccessFactors actually made an investment in HANA some time ago and "started out with five projects in parallel," Dalgaard said. "We're already seeing positive results there." However, he declined to provide specific timelines for the completion of that work and other integration projects.
Meanwhile, some observers have questioned whether SAP should try to reduce the amount of cloud development platforms and architectures it has following the SuccessFactors deal, in the interest of streamlining and focusing its overall efforts in the cloud.
SAP also has the Business ByDesign on-demand ERP (enterprise resource planning) suite and is building a series of line-of-business applications with ByDesign's underlying technology.
Dalgaard downplayed the importance of platform consolidation. "The reality is that it's a big market we're approaching," he said. "Having some platforms is not the biggest problem in the world."
The real goal is to create "magical applications that work well together," he added. However, "for sure, we'll find ways of consolidating where it makes sense," Dalgaard said.
He also expressed little concern over threats from the likes of Workday and Oracle, saying that the degree of high-level executive backing as well as the deep reservoir of intellectual property and know-how provided by SAP will push the company's cloud efforts ahead of the competition.
SAP plans to discuss the joint product road maps in greater detail at an upcoming event.
Cloud-based core HR software is a high-growth market
"It's exactly what I expected," Forrester Research analyst Paul Hamerman said of Wednesday's announcement. "[SAP needs] to have an offering in the cloud for core HR." That's due to competition from the likes of Workday, which has landed large, high-profile contracts for its own cloud-based HCM application, Hamerman said. "Workday is having an impact in the marketplace. That's part of what drove this deal."
While SuccessFactors has done some good things with Employee Central, it's not yet fully built out, according to Hamerman. "They need to add in country-specific localization they have in the on-premise HR systems." SAP's on-premise application "has the most regulatory support of any HR system," he added.
It may take SAP and SuccessFactors a few years to get Employee Central to where it needs to be, according to Hamerman. "They have to get into employee benefits and compliance issues across a number of countries. It's a significant job."
But cloud-based core HR software is also a high-growth market, Hamerman said. "The majority of customers running on-premises systems will stay put, but there's going to be a significant level of attrition over the next few years," he said. "As much as 10 percent will migrate to a cloud-based solution and SAP needs to be in a position to offer that."
SAP will also be able to go down-market, selling Employee Central to growing companies that want their first serious HR system to be cloud-based, Hamerman said.
Oracle recently made a big move into cloud HR software earlier this month when it announced the acquisition of SuccessFactors competitor Taleo. Oracle is paying $1.9 billion for Taleo, a significantly smaller sum than what SuccessFactors cost SAP.
"SAP paid more but they have a lot more to work with here in terms of assets," especially on the talent management front, Hamerman said. "What Oracle gets is a tier-one recruiting solution, but the other assets they're getting are not necessarily going to benefit them as much."