SAP, SuccessFactors, mergers, acquisitions, valuations, SaaS, cloud, cloud and more cloud. Did I mention cloud? With the announced acquisition of SuccessFactors by SAP, there has been a flurry of communications from both companies and a deluge of analysis from every major financial and industry analyst who even remotely cover this space. We’ve read about cloud powerhouses, cloud DNA, platforms, technologies, new executive roles, synergies… You know what we haven’t heard much about this week? Customers. Not from SAP, not from SuccessFactors, not from analysts. Since no one else seems to be talking about this issue, I think maybe it’s time to ask: “what does this consolidation mean for customers?” Naturally you’ll need to take all of this with a healthy grain of salt given my employer, but as a 20 year veteran of this space and a participant in multiple consolidations, I have some perspective I’d like to share.
Talent Management and HRIS Value Propositions
Before we consider what consolidation means for customers, we should first frame the value add for each solution in customer terms. Let’s start with talent management. Talent management solutions are, not surprisingly, about the talent. They answer fundamental talent questions like:
- How do I source and hire the best talent?
- How do I onboard that talent quickly and effectively?
- How do I train them?
- How do ensure that they are in the right roles?
- How do I develop them into new roles as the company’s needs change or their own personal aspirations evolve?
- How do develop the next batch of leaders (and the next and the next)?
- How do I properly deploy resources across a multinational enterprise?
- How do I measure performance and ensure that everyone in the company is rowing in the same direction?
- How do I marry compensation and reward models to performance and outcomes?
These challenges aren’t just bread and butter issues for talent management. These are the bread and butter issues of business.
Where do ERP / HRIS solutions fit in the above? Well, according to some points of view, they “own” the employee record: stuff like role, job code, reporting manager, salary, benefits, hire date, and payroll. So what’s the value prop of HRIS? HRIS is about back-end transactional HR stuff – it’s about keeping the lights on, the bills paid, and trains moving on time. It’s important and quite strategic in an operational sense, yet anything but strategic in terms of maximizing the value and contribution of talent to the bottom-line. An HRIS isn’t ever going to move the needle on engagement, but talent management interventions have been shown to impact not only engagement, but productivity, innovation, time-to-competency, and a host of other business variables.
Consolidating Data Sets and Solutions
Given the above, one argument for consolidation is the combining of the HR / Talent Management data set, but this rings hollow from the start. This already happens and has been happening for almost two decades, starting in the 90’s with LMS solutions. Today, the import of relevant HR data (job roles, reporting managers, salary, benefits, hire dates) from HRIS into Talent Management solutions is table stakes. Any reputable talent management system can do this through web services or batch processes (or both). This is integration 101 stuff. So scratch consolidation — not much of a customer win there given that it’s table stakes in this industry.
Data consolidation as a customer value-add with this particular consolidation is even more specious given the overlapping platforms, data models, and solutions. By my rough count, they need to rationalize more than five major platforms; four versions of HRIS; three performance management tools; two LMS’s, two recruiting tools, two social tools, and what? A partridge in a pear tree? And that doesn’t even really describe the full complexity – there is also the whole question of “SaaS vs. on-premise migration issues” which both companies were already facing. These overlapping data models and product lines resulting from the merger are going to vastly complicate rather than simplify data consolidation and database rationalization. Given this, I think it’s safe to say that customers aren’t winning on the questions of a “unified data set” anytime soon. Instead, customers need to figure out pesky little questions like: “Will my LMS be supported next year?” “Will the product I’ve invested in for three years be the one they standardize on or will I be forced to migrate?” “Am I going to get lost in the shuffle?” Big questions. No answers yet.
One Back to Pat, One Throat to Choke
Another possible answer to the question of consolidation might be “one back to pat, one throat to choke” arguments: fewer vendors to manage, streamlined pricing and contract process, clear accountability and ownership particularly around integrations… While there is often quite a bit of merit to these arguments, particularly across logically connected solutions, at some point the arguments get a bit more tenuous. If all ERP, HRIS, and Talent Management solutions need to be handled through one vendor for some grand purpose, why stop there? Why not connect all of this to Office apps, social enterprise tools, and Salesforce too? Hell, let’s throw in PhotoShop and MovieMaker while we’re at it.
The key issue of course is the balance point between synergy and complexity. When such mergers realize significant efficiencies from code line consolidation (taking advantage of core platform functions, Single Sign On, profiles, etc…) and database consolidation or normalization, it’s usually enough to offset the increase in complexity that comes from integrating product roadmaps, release schedules, tighter feature integration, cross solution support training etc… When this equation is net positive, the result is faster innovation, faster time-to-market for new features and fixes, and a fast track to a more tightly integrated solution. When it’s negative, it means slower releases, less innovation, and less integration less quickly. Obviously, the number of code lines and the degree of product overlap play into this heavily as does the presence of competing models – SaaS and on premise, pricing, support… All that stuff needs to get rationalized before the efficiencies kick in, and in the meantime, customers see slower innovation, less responsiveness, fewer answers. SAP and Successfactors clients will need to decide for themselves how this will play out in their case. My take is best echoed by immortal words of Professor Hinkle: “Messy, messy, messy.”
One final point about the customer value-add of “one back to pat, one throat to choke”: it’s predicated on the idea that there will be a back or throat in the equation. While it seems like SAP is eager to get an infusion of Lars’ “cloud DNA,” if he’s splitting 50% of his time between CEO of SuccessFactors and cloud evangelist within SAP, who’s minding the store? I suppose if SuccessFactors was on auto-pilot, this might work, but they’ve made multiple acquisitions this year (one just a few days ago) and despite Lars’ bombastic claims that some of these systems were fully integrated in 45 days, anyone who’s worked in this space for more than five minutes knows that there is a lot of work left. SuccessFactors is a “wholly owned” and separately run company within a massively complex business ecosystem, managing multiple complex integrations of technology and people, all run by a part-time CEO. Really? How is this good for customers? I don’t see it.
Innovation
Another obvious issue related to the above is the question of release cadence and innovation. HRIS has not innovated at anywhere near the pace of SaaS-based talent management solutions. One could even argue that it was the lack of innovation and lack of speed in HRIS that led to SaaS-based talent management in the first place. So when you start really linking these at more than a data feed level, when you start linking roadmaps and UIs for example, you end up in lowest common denominator land, a magical place where the pace is dictated by the slowest runner, rather than the fastest. How this will play out between SuccessFactors and SAP is anyone’s guess, but I wouldn’t be surprised to see the best and brightest players at SuccessFactors grow frustrated with the pace of change and leave, perhaps back to their roots with other rapidly growing SaaS talent management solutions.
Two Good Bets
One thing that customers can feel quite good about is that they made the right choices: SaaS was a good bet, as was Talent Management. Just about every analyst regards this and other recent purchases by HRIS and ERP vendors as a proof point that traditional on-premise software is dying. This is also proof point that Talent Management is now finally getting some of the attention it deserves as a key business system that can improve the bottom-line. For HR professionals that have bet on SaaS approaches, these are unequivocally good things. Beyond that? I’m afraid that there isn’t much good news in this for customers.
As a long-time veteran of the LMS space, I feel particularly bad for the Plateau customers. Plateau was a well-run, well-respected company in our space, known for solid design and technology. Making a bet on Plateau was a smart move, one that could be defended easily. No buyer could have foreseen the current mess – disintermediation of the performance solutions, winding down of on-premise solutions, and now the confusion of overlapping performance and LMS solutions from SAP. Not fun and certainly not deserved.
Summary
Consolidation itself isn’t bad, and even consolidation between talent management and HRIS isn’t bad by default, provided the integration leads to synergy, as in: 1+1 = 3. This consolidation feels more like 1+1 = 1.5 – at least from a customer perspective. As with all of these kinds of mergers, the devil is in the details – and the databases and the code lines and the platforms. And the more of all that you have, the more devils you find. I hope at some point we see more analyst focus on what this will mean for clients. Maybe it’s just too early and people haven’t fully wrapped their heads around it. I hope that’s it, because the focus on customers has been pretty light to date, which is all the more ironic given that this is supposedly the core business of this business.
Consolidation may be inevitable in our space, but I, for one, hope that in this process, we start talking more about what this means to customers and users and less about company valuations, cloud, SaaS, and the CEO’s. I’d humbly submit that we need to pivot a bit in the way we analyze these sorts of transactions: the measure of success for any merger or consolidation shouldn’t be primarily share price or market share, but about people. How does this help customers hire better, onboard quicker, train faster, align deeper, plan longer… We need to be talking about customer’s needs: improved customer service, improved product offering and a better product. HRIS and talent management solutions are first and foremost about people problems, not technical ones. We’d serve ourselves and our industry better if we make them the subject of these conversations rather than the footnotes.
