Behind the Big SAP-SuccessFactors Deal: 3 Trends and 3 Critical Questions

attractive fighter pilot with hat and glasses era

This past weekend, the talent management systems market reached an inflection point.

SAP acquired SuccessFactors, a leading provider of cloud-based recruiting, performance, learning and workforce planning solutions. Although market consolidation has become the standard in talent management technology, this acquisition permanently changes the landscape for both end users and solution providers.

At a price of $3.4 billion and $40 a share, this acquisition may be considered a risky investment. Yet, SuccessFactors’ 15 million users will undoubtedly bring SAP tremendous growth (including former customers such as Siemens) especially during a time when the demand for SaaS ERPs is skyrocketing. The next leader in HR technology has clearly been established and the rest of the market needs to respond in a big way.

Key trends in the SAP-SuccessFactors deal

What are some of the key trends in talent management driving this acquisition?

  • Cloud: The “cloud” has become much more than a buzzword in talent management technology. It is now a key factor in decision making. According to a recent Aberdeen study published by Nick Castellina, 39 percent of “High Growth” organizations planned to invest in cloud computing in 2012. Not surprising, organizations are looking for stronger integration and better access to data. What is surprising, however, is that these organizations are looking for cloud computing from their ERP provider. Earlier this year, SAP made a commitment to be a “leader in the cloud.” By acquiring SuccessFactors, with its cloud-based infrastructure, SAP clearly gains credibility in all things cloud.
  • Workday: Workday’s influence on this acquisition is hard to deny. Its growth and momentum over the past few years has created additional pressures on traditional ERP’s now forced to compete with its far superior user experience. A few examples include outlook integration, partnership with Salesforce Chatter, embedded analytics and an iPad solution. SAP’s only chance to compete with this type of product leadership is through the acquisition of an equally innovative provider.
  • Innovation: Innovation is at the heart of any technology decision today. Yet, what distinguishes one provider from the next is how innovation is used to create efficiencies. According to Aberdeen’s HR Executive Agenda report, 43 percent of best in class organizations foster a culture of innovation. These organizations are looking for technology that will enable them to achieve this goal. Long viewed as a traditional, back office provider, SAP has transformed its image in the talent management arena. The challenge moving forward will be to make sure they continue to innovate, offer depth in functionality and, at the same time, provide seamless integration.

3 questions to ponder

What can we expect in the next year? How will the market be affected? Below are a few questions to consider:

  1. ERP vs. Best of Breed: The back and forth debate between ERP and best of breed is widespread in talent management. Over the past few years, ERP’s have been losing market share in talent management. With SAP’s acquisition of SuccessFactors and the anticipated aftermath, the tendency may strongly favor ERP’s again. If organizations can get what they need from their ERP in terms of delivery model, functionality and integration, the technology decision making (and relationship between HR and IT) will be a much easier process.
  2. Oracle’s response: With SAP gaining significant market share and leadership in the talent management market, Oracle will need to respond in a big way. Customers can expect either a major acquisition or partnership from Oracle in the next year.
  3. Business by Design: SuccessFactors will be integrated in SAP’s Business By Design portfolio but will operate as a separate business unit under the direction of SuccessFactors’ CEO, Lars Dalgaard. What will this mean for the future of Business By Design and the cloud portfolio? How will this be integrated? Customers and future customers should negotiate cloud pricing now during this period of ambiguity.

In today’s talent management systems market, consolidation seems contagious. One acquisition puts pressure on other providers to follow suit. We are seeing providers today becoming more strategic with consolidation, understanding who they are buying and what it brings to their customers. This acquisition redefines and reshapes the talent management market and brings SAP into a new realm.

About the Author

Madeline Laurano is the Research Director, Talent Acquisition Solutions, within Aberdeen's Human Capital Management research practice, and is responsible for leading and collaborating on Aberdeen's research coverage across a range of HCM topics, including talent mobility, workforce planning, sourcing strategy, recruitment process outsourcing (RPO), employer branding, onboarding and talent acquisition. Additionally she is responsible for delivering research findings via published works, speaking engagements, on-line events, and Aberdeen's annual Human Capital Management Summit. Before joining the Aberdeen Group, Madeline was a talent systems analyst for the Newman Group, driving the company's success in the area of Talent Management Technology Evaluation and Selection. Madeline joined The Newman Group from Bersin & Associates, where she served as Principal Analyst of Talent Acquisition. Prior to joining Bersin, Madeline served as the Research Director for ERE Media where she created the ERE webinar series, published the Talent Acquisition Industry Analysis and Buyers Guide, lead the community discussion groups, and conducted various research products and services.
  • Jacque Vilet

    The problem is — how will it take for SAP/Success Factors to “intergrate”.   I don’t see this is a winner but a loser to the people that have been happy with Success Factors.   Hope these acquisitions don’t continue to happen.

  • Graham Kelly

    I agree as Success Factors is a collection of technologies which will be difficult to “integrate ” with SAP – the roll out could take years!