This is a bold and somewhat risky strategy. Let me explain just a few of the challenges (and opportunities):

First, the Employee Central strategy will likely take years to execute. SAP HCM is a highly integrated set of talent management systems which have been in development for 25+ years. The SAP HRMS and payroll solution has been designed to meet the needs of 50+ countries with many industry-specific modules. While the system is highly complex and not particularly easy to use, it is now used by some of the world's largest companies (AT&T, Starbucks, Disney, Rio Tinto, Comcast, Merck, for example.)

The task of moving this HRMS functionality into Employee Central is daunting. Workday, which is now at least 4-5 years ahead of SAP here, has spent well over $200 million in the last 7 years building this type of system and has more than 200 enterprise customers. Oracle's Fusion HCM is 5+ years in the making and now shipping.

SAP is now "restarting" its cloud-based HRMS business. While I would never under-estimate SuccessFactors' ability to execute quickly, there is a huge amount of complexity and domain expertise needed to build an enterprise HRMS.  It could least 3+ years for Employee Central to reach the status of a competitive enterprise HRMS.  (Please read our research on the The State of HRMS Systems for more details.)

Second, existing SAP HCM customers are likely to be upset. SAP HCM, which has not been a broad market success, is used in part by many large enterprises (thousands). While many of these organizations would like to use SuccessFactors, they use SAP HCM because it is tightly integrated with SAP HR. SAP's announcement stated that the company would only include "selected innovations" to the talent modules (learning, performance, succession) going forward. I hear "end of life" in that comment.

Will these companies rapidly shift their investment in talent management software toward SuccessFactors? To a degree yes, but SuccessFactors products themselves are still not fully integrated (the Plateau LMS, JAM, Cubetree, and Inform are not fully integrated into a seamless platform for reporting, for example). My guess is that many of these companies will slowly move, but without a deep level of integration between SuccessFactors and SAP HCM (not even discussed in the announcement), this will not be easy.

Third, the company announced interest in integrating Business Objects, HANA, and SuccessFactors Inform into a new breed of HR analytics solution. This sounds like a great direction, but it is a lot of work. Most of the original Inform employees have left SuccessFactors and the market for integrated HR analytics solutions is still very young (but huge). While the company clearly has some great building blocks here, the integration of Inform, HANA, Sybase IQ, and Business Objects will take a lot of work, added to the efforts listed above. (And PS, Oracle's HR Data Warehouse is available today and gets good reviews.)

As I mentioned above, the strategy is bold. It represents SAP's need (and desire) to build a clean, end-to-end cloud ERP strategy. It will certainly drive great adoption of SuccessFactors in existing SAP accounts. But there are quite a few disruptive moves here, some of which will take years to implement.

This direction is far different from Oracle (who already has Fusion HCM shipping and is the HRMS market share leader), who plans to maintain and invest in Taleo as a separate product line. And it fully validates the strategy of Workday, a company which is already growing at breakneck speed and will now become even more prominent in the marketplace.

Noone every said the enterprise software market was easy, and SAP has a lot of domain expertise and leadership to draw upon. This strategy will certainly drive great SuccessFactors revenue in existing SAP accounts. But the longer term strategy will take time and requires a lot of engineering (and risk).  Will it ultimately pay off? Probably yes, but in the near term there is a lot of work to do.

(For more details on this merger and the implications of the Oracle-Taleo merger, research members please read our just-released research bulletins on these deals.)