Just last week we delivered a webinar on trends in the Talent Management Systems market, and discussed the fact that this market is rapidly becoming commoditized and that the big vendors were starting to make a major impact. Listen to this webinar to get a good understanding of where this market is going. (Click here for the replay.)
Since this news is brand new, let's address a set of issues immediately and we will put together a more detailed Q&A for members in the coming week. This acquisition creates far more questions than answers.
1. Why did SAP acquire SuccessFactors? Primarily for cloud computing expertise.
The big message from SAP is cloud computing. SAP has a stated goal to generate $20 billion in the cloud by 2015, and SAP management sees SuccessFactors as a key to this strategy. Remember that SuccessFactors is only a $320 million company, so to SAP this is still a very small step forward in this strategy. It was interesting that the launch materials and SAP executives hardly mentioned the need or interest to integrate SuccessFactors with SAP's existing talent management systems, which are quite extensive. So this is not an acquisition initially designed to create a next-generation talent management solution - but rather one to help SAP build a winning cloud-based ERP solution.
The SAP executives talk extensively about the company's "in-memory database" architecture and the value of using SuccessFactors' analytics capability as a core part of the company's analytics strategy. Remember that SuccessFactors' analytics software was acquired from Infohrm only a few years ago, and is far from a complete business analytics solution today. It is not a modern SaaS-architected BigData system at all. The SAP executives have high expectations for technology and cloud expertise from this acquisition.
I talked about this topic with Sanjay Poonen, SAP's President of Global Solutions at SAP and he made it simple. SAP wants to take its Business OnDemand offering and make it much bigger and more successful. They see SuccessFactors and Lars as the key to this success.
Consider the huge price multiple. SAP has a price to sales ratio of 3.7, so SAP shareholders will only see a return on this investment if the SuccessFactors acquisition leverages itself into three times its revenue ($1.2 billion) - which is years away. Financial analysts are already asking questions about the impact of this acquisition on earnings (SuccessFactors is not a profitable company by Gaap standards). So this transaction is focused on building a major future cloud business, not only Talent Management.
2. Sales synergies: some positive, some negative.
From a SuccessFactors standpoint, there is a huge upside simply from cross selling. According to the launch information only 14% of the customers overlap today, so there is a huge set of SAP customers who can be sold SuccessFactors software. However there is a major downside to this: every Oracle or non-SAP customer who currently has SuccessFactors is going to think twice about that investment - and non-SAP customers are now very unlikely to select SuccessFactors.
There are close to 2 billion working professionals around the world, and SAP claims to have around 450,000 of them running some form of SAP software. This means that 3/4 of the potential buyers of talent management software are using a competitive HRMS of some kind, and may not be interested in "SuccessFactors, an SAP Company." So while the selling opportunities are now great, the number of potential new customers also gets smaller. Think about all the big Oracle or PeopleSoft customers who purchased Successfactors or Plateau. They are unlikely to want to build a long term strategy around these products going forward - unless SAP convinces them to change out their core HR applications.
Also consider the reaction of the 3000+ customers who license SuccessFactors or Plateau today. The 84% of them who are not SAP customers are going to seriously question whether their SuccessFactors investment is right over the long term. As I discuss below, this acquisition is going to create a chain reaction of other acquisitions, which makes these customers highly vulnerable to switching vendors.
3. Product Integration: lots and lots of questions. And what happens to SuccessFactors innovation?
The long term trend for ERP-based Talent Management business is driven by integration and product features. Once this acquisition is completed, buyers will want to know why the SuccessFactors-SAP solution is more integrated, function-rich, and easier to use than a Taleo-Peoplesoft solution, a Workday solution, an Oracle solution, or another combination of vendors. The HR software market is highly fragmented, and for this acquisition to pay off over time the companies must build a strong integration roadmap.
In the conference call the point was made that "the two product sets are already integrated." This is absolutely not true. What about SAP's other business on demand software? What about SAP's 10 year investment in its own LMS, talent management software, HCM data models and capability models, payroll, and other highly complex HR applications? SAP has a performance management system and a very carefully developed competency and job model which has been developed over 7-8 years.
The SAP engineers (and SAP is an engineering-driven company) are going to have to make hundreds of decisions about how to integrate and rationalize SuccessFactors products with SAP products. And all this effort typically slows down innovation and takes lots and lots of intellectual energy. I just read a quote by John Chen (CEO of Sybase) describing his experience with the SAP acquisition process (and I used to work at Sybase so I have some experience with that culture). He mentions repeatedly that the product integration is going far slower than he expected because there are so many SAP engineers (and projects) to work with.
Remember that the ERP vendors (SAP, Oracle, ADP, PeopleSoft) generally did a very poor job of building talent management software in the first place. It was that lack of innovation which enabled SuccessFactors, Taleo, Cornerstone, SilkRoad, Saba, and other vendors to even exist. And today there is a whole new breed of innovators coming to market, including such names as LinkedIn, JobVite, Jobs2Web, Rypple, Achievers, Globoforce, Wisetail, Branchout, and hundreds more. This market is not waiting for SuccessFactors to build new capabilities - it takes on a life of its own. If this acquisition slows SuccessFactors' ability to innovate, having an SAP logo on the company wont necesssarily make it win business.
As we discuss in the webinar, there are huge numbers of new innovations taking place in talent management: social recruiting, social and agile performance management, social learning, social rewards, and social career management (listen to the webinar for more details). If SuccessFactors gets bogged down with lots of integration, will they be able to keep pace with the billions of dollars of investment going into the "next generation" of talent management? History says no, but time will tell.
4. Lars Dalgaard and his role.
Lars Dalgaard is a gifted and highly talented executive who has built a hard-driving, innovative software company which in many ways legitimized the talent management software market. If this acquisition takes place, Lars will take on a new role as head of cloud computing for SAP - and join SAP's board. He will now have many new products and businesses to integrate.
The level of complexity is now an order of magnitude greater, and this new role gives him a greatly expanded set of responsibilities. It is not obvious that Lars will fit into the SAP culture, but time will tell. And one might ask who continues to drive and lead SuccessFactors?
We had one of Plateau's brand-name customers come to us this week and notify us that SuccessFactors had decided to stop support of one of their critical products and that their professional services and support contracts had gone away (SuccessFactors explicitly stated they do not want to be in the Plateau professional services business). This customer's reaction was that perhaps it was time to look for a new provider when their contract comes up for review next summer. This type of behavior is not uncommon in enterprise software - companies make very strategic investments and when they see their products poorly supported they look for a new provider. Even though Lars claims that the Plateau integration was done in 45 days, customers still have to weigh in and understand what this kind of acquisition means to their long term investment. If Lars is now running cloud computing for all of SAP, someone is going to have to step up and deal with many integration and support questions for SuccessFactors in the short term.
On the positive side, SAP now has a smart, hard-driving leader to help build its future cloud applications strategy. On the "risk side" will the company continue to have the drive and innovative leadership it has had to date? Other leaders will have to step in.
5. The Chain Reaction: Workday, Oracle, Taleo, and others will react.
This move is likely to set up a chain reaction. Oracle could decide to acquire Taleo. ADP could decide to acquire Cornerstone. Mercer could acquire Peoplefluent. IBM could decide to acquire another series of vendors. While I think this acquisition still has many questions to answer, large vendors will now see this as "the beginning of the end" of the era of independent talent management vendors - setting off a chain reaction of other acquisitions. I believe this market is still very young and has a long way to go - but the bigger vendors may just feel it's ready for consolidation.
And the sales and marketing story of these other companies will now change. Workday and Oracle will show how much more integrated their products are and how far they are ahead in end-to-end integration. Taleo, Cornerstone, Saba, SilkRoad, Peoplefluent, SumTotal and the other talent management vendors will demonstrate how open their platforms are and how quickly they can innovate... and they will make sure to remind you that you do not have to replace your HRMS to implement talent management. The company that really looks vindicated here is Workday, and this will even further accelerate companies considering the Workday integrated platform.
Today, while more than 1/3 of all buyers would like a single vendor solution, customers do not want their talent management software highly interlocked with their HRMS. Experience has shown that when this happens companies can no longer upgrade their talent software, because they are so dependent on upgrades to their HRMS. So what is SAP's vision here? Will SuccessFactors stay open? This creates a dark cloud of confusion about how open SuccessFactors will be in the future, especially given the other ERP vendors focus on talent management.
What does all this mean to you as a buyer or owner of SuccessFactors or Plateau software? I think this move incents you to take a deep breath and wait. Listen to the company's detailed plans for integration and future product support. See what additional investments in R&D the company plans. Try to understand which elements of the product set are likely to continue and which may be discontinued. And if you are a committed non-SAP HRMS customer, listen carefully to the company's strategy to integrate its products. (Plateau customers are just starting to understand what SuccessFactors' plans are for all the software they are using - now they have to realize that there is almost a 100% overlap between Plateau and SAP's offerings and should wonder what happens next to their investments. Plateau customers have now gone from being the primary customer of their vendor to being the secondary and now third in line in priorities and investments.)
Remember that from SAP's standpoint, the company wants to build a $20 billion Cloud Computing business based on integrated end-to-end ERP applications. From your standpoint as an HR or Talent Management leader, you need a product set which delivers what you need today. Your interests and SAP's may or may not be aligned - so now is the time to rethink your strategy.
More to come as we gain more information - and we will be publishing a detailed Q&A for members in the coming week.
Update: On December 6 SuccessFactors announced the acquisition of Jobs2Web, a company that provides integrated recruitment advertising and employment branding tools for talent acquisition. Jobs2Web is a best-of-breed solution which greatly improves the candidate experience and gives recruiters an integrated platform for social and traditional recruiting. This is an excellent complimentary acquisition which helps SuccessFactors compete with Taleo and gives SuccessFactors customers a more integrated end-to-end Talent Acquisition platform.
Bersin & Associates New Research on this Market: Talent Management Systems 2012: Market Analysis, and Talent Management Systems 2012: Buyers Guide and Market Analysis.
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Monday, December 05, 2011 03:21
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Monday, December 05, 2011 03:28
Great article and analysis, Josh (as always!) BTW, the hyperlink to the recording of last week's TM trends webinar is broken (it is missing a colon after http//)
Posted by Anonymous
Monday, December 05, 2011 05:13
Shame that the author of this article has missed, either through ignorance or deliberate intent, the bigger game being played out in the ERP Cloud market. The analysis seems so short-sighted and narrowed to HCM, and to serve the interests of Workday who have the most to be concerned about this news.
Monday, December 05, 2011 05:43
Love the multiple of 10x
Monday, December 05, 2011 08:06
Just to respond to the comment from 17:13 - right now the Cloud-based ERP market is very small, while the Cloud-based talent management market is huge. I agree that SAP's ultimate strategy here is to build an end-to-end Cloud ERP solution (similar to Workday) which includes highly robust talent management - and this is Lars's new job. In the short term, however, we do believe that the pace of innovation in talent management continues to be very fast and customers are still looking for an excellent talent solution separate from their core HRMS. When the two are interlocked (and one has to upgrade the HRMS to get new talent features), customers fall behind - so SAP's ultimate goal here is to fix this problem and bring to market a fully integrated, but not interlocked, solution.And remember there are thousands of non-SAP companies out there who wont replace their existing HRMS without a lot of pain.
Posted by Josh Bersin
Monday, December 05, 2011 20:51
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Monday, December 05, 2011 21:02
Question: How will all those PeopleSoft customers (still about double SAP's HR market share in the US) who also use SuccessFactors react? Will this be one more reason for them to switch to Workday? Or will they finally do what their folks in IT have been urging them to do and jump on the SAP wagon?
Monday, December 05, 2011 21:59
Interesting article but where does Salesforce.com play in this arena - the new SAP/Successfactors business will include the first end-to-end solution in the new world - financials, BizX/HCM AND CRM. I agree with one of the comments above - Workday are in danger here. They are HCM - with big efforts to build financials. I would expect Workday, Taleo, Cornerstone and Saba to be acquired in the next 12 months. This would leave SAP, Oracle and SFDC? as the dominant cloud businesses.
Monday, December 05, 2011 22:26
No one has a crystal ball. Let's remember that everyone. SAP may have a strategy to eventually build an end-to-end Cloud-based ERP solution and may have bought SuccessFactors to get that ball rolling but the only way that ball stays rolling is if it has momentum. The only way it gets momentum is by continuing to improve and strengthen what it already has, which is now a world class TM solution. My prediction, and yes this prediction is just as valid as Josh's, is that SAP will leave SuccessFactors completely alone for a long time to come. SuccessFactors will continue to operate as though it was never acquired with the one minor acception - it now has a much larger customer-base to tap into. In my opinion, and as Josh has eluded to, SAP didn't buy SuccessFactors for it's world-class TM solutions. It bought it for its intellectual capital, namely Lars Dalgaard and his ability to be highly successful in the cloud. As a customer or prospect I wouldn't be worried about ripping out SuccessFactors or not choosing SuccessFactors for a long time to come. Remember people, these are SaaS-based apps. What's the one beautiful thing about them? They don't require a large investment from an infrastructure standpoint, thereby not tying you to them. If, in a few years, everything Josh has warned you about comes true, then simply don't renew. Rely on the reasons why SaaS is becoming so popular to begin with - low investement-to-return.
Monday, December 05, 2011 23:06
Josh, how does SumTotal fit in (or not)?
Monday, December 05, 2011 23:33
I cannot understand why Mr Bersin seems to think that non-SAP customers (by which I assume he means organisations using a HRIS that is not SAP), "are now very unlikely to select SuccessFactors" Talent Management Suite. Is it simply because it has a SAP badge on it? Let's not forget that those same organisations are likely using a Financials App, Payroll App, Supply-Chain App from SAP, already alongside a non-SAP HRIS. It would be madness to suggest that SAP would do anything to lessen the current integration capability of the SF Talent Management suite. An important competitive differentiator for SAP is that the SF Talent suite can be used alongside ANY of the customers HRIS, something I believe is not possible with the Workday offerring.
Tuesday, December 06, 2011 00:18
Let me answer a few more here. On SumTotal - the company is over $200M in revenues and definitely plays in this market. However the company has not fully integrated nor does it market its solution as an end-to-end ERP suite, so they are still selling independent products. Accero, the SumTotal's Payroll solution, along with its HRMS, does compete with SAP and SuccessFactors and in many companies they will compete for a total solution. SumTotal is a 'best of breed' vendor with many products integrated, and more integration coming over time.On the topic of non-SAP customers - time will tell. As of today we have had three companies call us for advice, and the primary question we are getting is "if I am a Peoplesoft customer, should I continue to use SuccessFactors?" I cannot answer that question well right now. That's the question, not whether or not SuccessFactors will integrate its solution with SAP HCM.
Tuesday, December 06, 2011 00:31
Mr Bersin - my comment referenced a specific statement you make in your article...."non-SAP customers are now very unlikely to select SuccessFactors".
Would you kindly elaborate on why you believe this to be the case.
Tuesday, December 06, 2011 01:31
Sure: A customer who may have millions of dollars invested in Oracle or PeopleSoft, for example, will want to buy talent management tools which are optimized to work with these applications. They will consider Fusion HCM (Oracle's products) or third party applications which work well with Oracle. Once SuccessFactors starts building deeper integration with SAP's HRMS, these customers will likely want to make sure that the commitment to Oracle continues... and Oracle in fact may make it harder for SuccessFactors to integrate. Remember that Oracle and SAP are at war with each other.
Tuesday, December 06, 2011 03:08
btw, its 20B euros total revenue for SAP by 2015, not "in the cloud"
Tuesday, December 06, 2011 05:21
Thank you for your reply Mr Bersin. However, I am still unclear as to what you mean. In you reply at 14:31 You refer to "talent management tools optimized to work with these applications". You cite Oracle Fusion as one, "or third party applications which work well with Oracle" as an alternative option.
I am not sure if you are aware that a significant percentage of the SuccessFactors customer base has Oracle HRIS, and has successfully used the SuccessFactors suite integrated with the Oracle HRIS for a number of years.
This fact stands, and will continue to be the case, even in the event that SuccessFactors develops a "deeper integration" with the SAP HRIS. I believe that SuccessFactors has offered its customer base its own HRIS (Employee Central), with such 'deeper integration' for about 2 years now, however that has not deterred customers from selecting their Talent Management suite to work alongside the resident Oracle (or other) HRIS.
Finally, with regards to your point about "Oracle making it harder" I would respectfully suggest that you may be mis-informed about the basic 'integration' requirements between SuccessFactors Talent Management suite (or any other pureplay vendor suite) and HRIS (Oracle or other). 'Integration' may be a too sophisticated and perhaps misleading description - Interfacing maybe more appropriate. SuccessFactors, along with all othe TM suite vendors, use a simple CSV file based interface to transfer the basic data fields from HRIS to the thrid-party suite, and such a transfer is done as a batch process.
Hence, I reiterate my point. SuccessFactors+SAP are far better placed than Workday to offer the market a choice of options: either stay with your resident HRMS and use SF TM suit in the cloud, or alternatively if you are ready, consider SF TM suite along with a cloud-based HRIS (both leveraging SAP innovations such as HANA). Workday are unable to offer customers the choice. With them the choice is simply to throw out the resident HRIS and switch to Workday; all or nothing. Meanwhile the other pureplay vendors such as Taleo, Cornerstone, Lumesse, etc have a weaker TM offerring than SF, and nothing to offer in the HRIS space other than a desperate alliance with Workday.
Tuesday, December 06, 2011 07:33
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Tuesday, December 06, 2011 20:17
thanks for that Lars
Tuesday, December 06, 2011 21:43
LOL! I suspect Lars is a tad busy right now with other matters to spend time posting on blogs.
Wednesday, December 07, 2011 02:07
So I vote that posts should not be anonymous. If you believe in what you are saying, then have the courage to own it.
Posted by Larry Israelite
Wednesday, December 07, 2011 02:41
Dear Mr Israelite - the pure content and logic of my post is the most important thing. My anonymity ensures that the reader is focussed on that, and not detracted by who I am and with whom I am employed. I absolutely and passionately own and believe in the content of my postings, which is why I take the time to write them.
Thursday, December 08, 2011 03:43
PS, Sorry, the member webinar is Friday. And I'm with Larry - we are going to turn off anonymous postings soon, to encourage everyone to take an honest stand.
Thursday, December 08, 2011 04:39
Going back to the comment above from 12/05 - first it would be great for you to identify yourself. Second, I just have to disagree. Time will tell how "open" SuccessFactors is in the future. History shows that software companies tend to integrate their products, and they want to cross-sell, not add value to direct competitors. We are going to discuss this on our member webinar on Wed.
Friday, December 09, 2011 03:23
Oh my! Did we suddenly get two mystery spammers posting? Just when there were calls to disallow anonymous posts? what coincidnce! what luck! I guess the truth is sometimes too hard to deal with, especially when it goes against grain. You have the power to shut down this channel for 'dissenters', but you will never silence the voice of truth.
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Thursday, April 05, 2012 18:44
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Josh Bersin writes on the ever-changing landscape of business-driven learning, HR and talent management.
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