Cornerstone, the newest kid on the global HRIS block

RIO DE JANEIRO

Entering the global HRIS fray

In August 2015 I wrote a post predicting that Cornerstone would have no choice but enter the global HRIS space with a core HR (or HR Admin) offering which I called Cornerstone HR. A couple of months later, at its annual event the company did indeed announce such an offering, calling it Link (here's the post)

A couple of weeks ago, at the annual event held in London, Cornerstone announced a more beefed up version of Link which it now calls ...Cornerstone HR! Since I have the prior claim on the brand name, I facetiously asked CEO Adam Miller for copyright royalties, which drew laughter from the analyst audience gathered at the Hilton Metropole.

So, it is now clear that there is a new player in the game, rattling the global HRIS apple cart. Cornerstone will now start receiving more HRIS RFPs (vs pure learning or talent based ones) and you can expect an increasing number of companies, especially from its installed base to acquire Cornerstone HR. It is more likely that initially there will be more Cornerstone customers, especially those who have never had a global HRIS system in place, that will move up the value chain with Cornerstone HR. But I also expect  net new customers to go down the same road sooner rather than later.

However, for Cornerstone to live up to expectations, reach functional parity with its major competitors and make a success of this new strategy it needs to:

• Have a strong product management team that understands global HR admin requirements 
• Rewrite some parts of the underlying data model to move to a person model rather than a user one
• Beef up substantially several parts of the offering where it lags behind its competitors (see examples in the below graph).
• Include unique differentiators, maybe on budgeting and planning or around the integration with learning
  
              

 A global HRIS star is born ...

but still needs to complete its homework

With this homework done (not an easy feat - just look how long SuccessFactors struggled with Employee Central and it's still WIP), the three global HRIS musketeers will now become four, a development I always felt the market needed. And, remember, in the Alexandre Dumas novel, the three musketeers were actually four. Can you name them? (Don't cheat - I'm providing you with the names below)*

A big question, which corporate buyers may want to ponder, though, is: will this development stabilize Cornerstone as the second independent, pure HR vendor (after Workday)? Or will it make it even more attractive to predators? Rumors have been swirling around that an acquirer was in the wings, ready to pounce. Let's hope that the fourth musketeer remains independent for the benefits of the HR community and the spirit of healthy competition.

Merry Christmas and a Happy New Year to all!

(The blogger is having a tropical Christmas this year before heading back to the Northern Hemisphere)

NOTE: Data in this post are the intellectual property of Ahmed Limam and cannot be reproduced without prior written consent

*Porthos, Athos, Aramis and, of course, D'Artagnan.

SOW - A Comparison of 3 Global Cloud HR vendors: SAP, Oracle and Workday

GENEVA & NEW YORK

The leader, the follower and the laggard

I have been asked for a while to share my system-evaluation and -implementation experience with the community and my readership by comparing the three most frequently shortlisted cloud HR systems: SAP (SuccessFactors), Oracle (Fusion) and Workday. I will from now on refer to them as SOW, to be pronounced either to rhyme with "low" (as in "low adoption") or to sound like a female pig since some of these vendors' features are no better than lipstick on a pig. *

Of apples and oranges
Although there are more than three cloud-based HR vendors, the reason I am limiting myself to the SOW usual suspects is because they are the only ones with a global reach to meet the complex requirements of multinational companies. Despite attempts to the contrary, Ultimate is still a US vendor, Meta4 has all but disappeared, HR Access has been folded into Sopra and Cornerstone has yet to make up its mind whether to develop a full-fledged HR Admin module - and without an HR system of record you cannot have a global HRIS worth its salt. ADP is mainly a payroll outsourcer with multiple products (some in the cloud and covering various HR processes) but not a global HR system of record. Infor has yet to rationalize its product offering à la Fusion and its Lawson offering was never a truly global HRIS. And some of these vendors' "cloud" offerings are really nothing more than a quick repackaging of their old hosting business. So, here we are, stuck with SOW.

This being said, it is worth remembering that to a large extent  we are comparing apples and oranges since there are such key differences between these vendors that some evaluation exercises can turn to the surreal. Oracle, for instance, is mainly a database vendor with a strong anti-cloud history and a PeopleSoft legacy customer base which has yet to endorse Oracle Fusion. SAP, which comes from the application world, has therefore more serious credentials, reinforced by its continuing investment in the SuccessFactors platform. Its main issue is that, in addition to some questionable product decisions, it has yet to articulate a cogent cloud-based ERP strategy.  This is the main reason why I refer to Oracle and SAP (along with some others) as dinosaurs in a popular blog post. Workday, on the other hand, is of course a native cloud vendor which has quickly shot to the top of the league table with an offering, business culture and service quality that the other dinosaurs can only dream of emulating. Yet, Workday is far from perfect and also has some serious issues.

SaaS and cloud
Some companies may not care about the differences between SaaS and cloud, some may even be ignorant of them, but it is good to remind my readership of the meaning of these  two concepts which are often and wrongly used interchangeably. SaaS is the most advanced form of the cloud where all parts of an offering (hardware, database, software) come from a  single vendor. All you the customer need to provide is a browser-toting device (desktop/tablet/smartphone) and you're in business. Workday is thus a true SaaS vendor. SuccessFactors, whose offering relies on some on-premise legacy features which are hosted, is getting there but cannot be considered 100% SaaS. As for Oracle, who first developed its Fusion product as  an on-premise solution, and can deliver it as a hosted system, it is therefore in the cloud but of course not SaaS. So remember this key differentiator: All SaaS systems are by definition cloud-based, but the reverse is not true.


Stats wars
As the community knows, I have zero tolerance for fanciful figures, especially around customer numbers. Some of the fairy tales I hear are so absurd that I am unsure whether to laugh or sob when I hear them. The below scorecards provide a reasonable count of LIVE customers as per each cloud system. If the customer is still on PeopleSoft for HR Admin and has interfaced it to Taleo or some Fusion talent modules, Oracle will refer to this misleadingly as Cloud HCM. I don't. Same thing for SAP: If Employee Central is not implemented, then I do not count SuccessFactors as a reference - it is only a talent project, not a global HR one. Workday is easier since, by definition, their system cannot run without core HR as a foundation (although some customers use a light HR version to start with talent processes such as performance.)

Integrated/interfaced/unified/organic etc.
After phony customer count figures, the biggest source of BS that comes from vendors has to do with how well integrated the offering is. Here misinformation is rife, with Oracle the undisputed leader. Fusion, which can come in different flavors as mentioned earlier (public cloud, private cloud, on-premise - see below) does not necessarily cover all HR processes and most customers prefer to hang on to the legacy core HR. Talent features can come from either Fusion or Taleo. And within Taleo remember that the Learn.com product was built on .NET technology whereas Taleo was built on Java.

SAP SuccessFactors at least developed Employee Central on its own technology stack; however Plateau was not a 100% SaaS offering, and Concur and Fieldglass are based on other technologies. The other SF modules are also on different technologies which means a customer running the whole suite will have different code bases AND versions. (And as for Multiposting, well, nobody knows when/if it will be integrated in SF/EC.) Not pretty, and not full SaaS. And, of course, Employee Central Payroll is anything but an Employee Central payroll.

Workday, on the other hand, as befits a product developed from scratch and organically, has the cleanest data model with all HR processes now available, except Learning. Payroll is largely work in progress, with the last two countries released (UK, France) yet to go live with a customer. I still have my doubts as to the ability of a single global SaaS payroll vendor to deliver the goods in an efficient manner.
I can already hear some jump and say, "Hold on a second. Workday, too, has integrated third-party technologies after acquiring Cape Clear and Identified." Most true, but there is a fundamental difference when you integrate a third-party product as part of your underlying technology and when you do it to cover a specific HR domain. With the latter you find yourself with a different look and feel, different workflows, a different data model. Any HR user who had to struggle with different products would tell you what a nightmare it is.

3 -VENDOR ANALYSIS: COMPANY COMPARISON

Oracle Fusion has come a long way from an on-premise, complex-to-implement, functionally limited product with an ugly look and feel (those overloaded screens with horrid blue!), to one that can be deployed in the cloud. To get a sense of Fusion's background, refer to my post "Error 404: Oracle Fusion not found".) Since then, it has made progress (especially on the  UI front when it moved from FusionFX to Skyros), but its two other competitors, both cloud natives, have moved faster and often better. Oracle still misses many key HR domains (see the product scorecard below) and its vision and roadmap at best are fuzzy, at worse don't make any sense: Why waste its time developing unneeded products such as Employee Wellness, Reputation Management, My Volunteering or low-priority ones such as HR Help Desk, and still miss, Tier-1 country localizations or Recruitment on the Fusion platform? The co-existence or hybrid approach is not a meaningful differentiator, but actually a sign of weakness: Missing key bits, Oracle tends to lump everything together and it's up to the customer to make sense of what is what and how to integrate it, not an easy task when Oracle is still not very forthcoming when it comes to its offering, as explained below.

Public Cloud, Private Cloud, and Cloud ServicesThe Taleo product line is a case in point: Officially rebranded as Oracle Talent Cloud (but on their website still referred to as Oracle Taleo Cloud) it is supposed to be the Recruiting offering to be interfaced to Fusion Core HR. However, the overlap issues (Fusion Performance vs Taleo Performance, say, or Fusion Compensation vs Taleo Compensation) has yet to be resolved. Ask the question and  you'll get a mumble from poor sales executives who are none the wiser. Note that Taleo is a hodgepodge of various acquisitions itself: Learn.com (with its scaling issues), Jobpartners, Recruitforce and Vurv, and Wordwide Compensation. (Not to mention that there are two Taleo flavors that go by the Enterprise and Business monikers)Talking about Compensation I find it a pity that Fusion does not allow user-defined logic to go into compensation elements, for instance to add a regional rate to a pay rate and calculate an employee's compensation on that basis.
Fusion, born as an on-premise product, can be hosted in a private cloud (customer's own environment) or shared (public cloud) with different deployment implications.
As if  the (con)Fusion was not enough, you have PeopleSoft Cloud Service which is as far from a SaaS offering as St Petersburg, Florida is from St Petersburg, Russia.
Then there is a host of other products such as Right Now Policy Automation (benefit eligibility), another acquisition, which Oracle throws at befuddled customers.
Making sense of Oracle's offering is clearly not for the faint-hearted.

Great products are built by great people. The converse is also true: Mediocre people build mediocre products. Oracle, with its stifling bureaucracy and awful management, has problems attracting and retaining quality people, especially in the HCM ¨product line. Add to that the fact that in Oracle's highly political culture the technology side has always had the upper hand versus product, and that HCM has always been the Cinderella application, only getting attention when a top leader emerges (first PeopleSoft, and now Workday.) This explains why the company never features in Great Places To Work league tables and has suffered from a steady hemorrhage of its best and brightest from PeopleSoft who have been poached from Workday, leaving a lot of deadwood behind.

An even bigger biggest issue with Oracle is how it (mis)treats its long-suffering customers. Just this week, an old customer, the  French Civil Aviation Authority, who has had enough of Oracle's abusive licensing and audit practices, decided to discontinue the use of all Oracle products. Last year, two other French companies, Carrefour and AFPA, went to court over the same issues and won. In 2014, a survey by the Campaign for Clear Licensing of 100 global Oracle customers found that 92% of them were deeply unhappy with the vendor. In the US, none other than the federal government decided in 2012 to ban Oracle from bidding for its business due to the vendor's questionable sales practices. Well, you get the idea. Unless you evince a particularly strong masochistic streak, selecting Oracle often  means tough times ahead.

On the technology front, Fusion, contrary to the vendor's spin, is not a "fusion" of its portfolio applications, but neither is it exclusively based on its unpopular EBS product line even if it borrows many features from it such as FastFormulas and Flexfields - the latter permeates Fusion even more than with EBS thus allowing good customization possibilities. However, Forms have mercifully been retired in favor of more modern Java and SOA-based technology. Outbound integration is a big headache as is data migration, even from Oracle's legacy systems. It is noteworthy that if many Oracle customers prefer to implement Fusion in the cloud rather than on-premise it is (in addition to the natural preference for the cloud), because, first, the HR Admin part has yet to reach functional parity with PeopleSoft (or Workday) and, second, the technical complexity of doing so is not to be ignored (just the sizing requirements would discourage the best-intentioned customer.)

Although initial pricing can be quite seductive (Oracle heavily discounts Fusion in order to drive up customer adoption, or offers a credit to swap on-premise applications for cloud-based Fusion), the vendor's customer-relations record, as mentioned earlier, is far from reassuring. Also, if you are an-on premise customer and are renewing/extending your license, Oracle will throw a cloud subscription at you included in the package. You might as well take it, even if you are unsure whether you'll actually move to the cloud.

In summary, customers  who already run an Oracle HR application (PeopleSoft, EBS, JDE), have a good rapport with the vendor (admittedly a rare occurrence), negotiate a financially interesting migration, do not need cutting-edge technology or terrific look and feel, and don't mind not being pampered or the complex integration behind products that come from disparate technological stacks, can look at Fusion seriously, especially when taking into account a strong point: its reversibility. Surprising as it may sound, there are still companies out there that are wary of the cloud (after the NSA snooping scandal and the current legal tug-of-war between US authorities and Apple and Microsoft you can't really blame them): With Oracle you can bring your HR system within your corporate firewall without having to switch systems and go through another complex implementation. This advantage comes at a hefty price, though: no single code line for all customers since, depending on what flavor of Fusion customers have, they can stay on their version much longer than public cloud customers. There are therefore multiple versions of Fusion at any given time, which increases the cost of running the product. And, as we all know, the customer always ends up bearing the costs. And if you are a customer who is still on the old look and feel, moving to the new one is not a straightforward process.

The world's largest business-software vendor, and the one with the most localized payrolls, took a leaf from its nemesis Oracle when it went down the acquisition road by acquiring SuccessFactors (SF). However, as I explained in detail in my blog post on their strategy just after the transaction was announced, SAP differs markedly from Oracle: Rather than build from scratch a product for the cloud, in which neither had any experience, SAP decided to continue investing in the SF platform by beefing up its Core HR/HR Admin product a.k.a. Employee Central (EC). Although the latter has grown significantly since its earlier releases, it has yet to catch up to the group's leader, Workday.

One increasingly important strong point of SF is that it belongs to a European vendor. With all the data-privacy issues raised by NSA snooping, many companies (especially European ones) are loath to go with a US-based vendor with a loss-of-data Sword of Damocles hanging over them.

Three weaknesses from SAP SF have yet to be solved:

-SF is still missing a payroll module based on its own platform, and the misleading Employee Central Payroll (in reality a hosted SAP Payroll) is no substitute for a truly integrated offering. SAP brought us the largest number of localized payrolls on earth; Why can't it use that expertise to enhance SF and make it a truly global and comprehensive HR offering? No full-fledged global HR system has come to market without its own payroll, so the jury is still out on whether SAP can be the exception that proves the rule.

- The multiple code lines and releases that make up the SF platform need to converge on a single code line and release based on EC. It is bad product design and worse customer support not to inform a customer that they are not enjoying a critical feature because they are on a older release  as happens with many customers. (Workday would never allow that to happen if only because the window customers have to move from one release to another is expressed in weeks, not months or years as is the case with SAP or Oracle.)

- SAP is also the vendor that brought us the integrated ERP. But it seems that all the strongly vaunted advantages of a single-platform ERP got lost in the move from on-premise to the cloud. All the HANA'ing in the world cannot hide the fact that the company that gave us the on-premise integrated business software is incapable of pulling the same trick in the brave new world of the cloud.

In a recent blog I compared SF's and Workday's pricing so no need for me to repeat myself since that analysis is recent and  therefore up to date. Oracle's talent-retaining issues are not unknown to SAP (I covered it in my recently updated blog post "Could the last executive leaving SAP turn the lights off, please?")

Another issue SAP needs to fix is the implementation methodology. SF came with its own methodology, SAP had another one, and integration partners are at times unaware of which is which. This will hardly help in building confidence in the offering. And the implementation template that SF provides does not list implementation activities in detail so you are often on your own. (Compare that with the fastidiously detailed documents you get from Workday)

Noteworthy is SAP's equivalent to Oracle's co-existence deployment model called here the Talent Hybrid model. The two approaches are not much to write home about since customers have been doing it for a while: Integrating their on-premise HR system of record with cloud-based talent features. Actually, customers started doing it even before SAP and SF found themselves under the same roof.

Who is the most likely customer for SF as a global HRIS? Experience shows that it is mainly SAP's on-premise customers who move to the cloud with it, especially if they are already using SF for their talent needs (in particular Performance or Learning.) However, an increasing number of SAP's on-premise customers include Workday in their cloud evaluation, and a worryingly lengthening list have decided to go with it. SAP, as a vendor, and SF, as a product, need to make themselves more attractive to retain these fickle customers.

3 -VENDOR ANALYSIS: PRODUCT COMPARISON

The HR thought leader and Wall Street darling has revolutionized the HR technology world (that search-based navigation was truly something out of this world when it first came out) and has just passed $1 billion in revenue (in comparison, Oracle's cloud HR business makes up less than 1% of its total revenue.) Workday also has more customers using it as a cloud-based HR system of record than Oracle and SAP  put together. They say that plagiarism is the best form of flattery; considering how many features of Fusion and SuccessFactors were obviously copied from Workday who premiered them, the newest kid on the block still retains its thought leader's crown.

What is attracting the crowds is a native-cloud product, built with consumer-grade usability, a depth of functionality that only those who built PeopleSoft could engineer, a customer focus and engagement that is still unique in the industry. The latter has made the vendor evolve its approach significantly: For instance, from the four releases a year at the beginning to a more manageable two now. Workday has also listened to customers and forsaken its rigidly neutral system-integrator (SI) approach: it will now recommend a specific SI for a specific project, something that was anathema for so long.

All the oohing and aahing about Workday, most of it well deserved, cannot hide that not everything is hunky-dory in the Pleasanton, CA-based HRIS heaven. You can read my Open Letter to Workday's founders for a discussion of these issues. There are still some surprising holes to plug in the offering such as the production of contracts and offer letters or some workflow limitations (despite the fact that their workflow framework is the best of the three.) So far, Payroll has been limited to North America and no date has been set for the release of the Learning piece. The talent features have been improved significantly, in no small measure through the addition  of a Recruitment module (some integration issues with their Core HR need  to be fixed), but Workday has yet to reach functional parity with SuccessFactors in the talent space.

Reporting is undoubtedly one of Workday's strongest suits. For those who use PeopleSoft, it is such a relief not to need to be a PeopleTools expert to write Workday reports. To a large extent you can even say that Workday is a collection of reports since wherever you are in the system you can pull up the relevant reports many of which are "actionable" to use the hackneyed word. But, careful, user-friendliness here is more for the HR team, not occasional users, and it may be better to restrict the creation of reports to a core reporting team rather than jeopardize consistency by having any/everybody duplicating existing reports.

Customization, or lack thereof, is the hallmark of SaaS systems. Unfortunately, in the  real world companies need a certain amount of customization which will not be lost when upgrading. Squaring the circle, you may think.  Workday's custom objects is a move in the right direction, but it has its limitations: There are only so many custom objects you can have, you cannot use them where you see fit and cannot pull them up necessarily where needed. SuccessFactors, with its Metadata Framework-based extensibility approach (especially in Employee Central), does a better job in that respect and so does Oracle (with Flexfields, as mentioned earlier), as befits a product that is available both on-premise and in the cloud.

Workday's greatest success has probably been that a significant segment of their customers comes from companies that either had a Tier-2 vendor or did not have a single, global HR system of record (they used various payrolls and different talent tools.) When these customers finally get their act together, they tend to look at Workday first, rarely at SAP or Oracle. However, cloud-seeking SAP and Oracle customers will almost always evaluate Workday, even if they don’t systematically select it: that does not bode well for the dinosaurs’ cloud future.

3 -VENDOR ANALYSIS: TECHNOLOGY COMPARISON

NOTE ON SCORECARD METHODOLOGY
The grading is based on the many RFPs I have worked on and demos I have attended, along with my own knowledge of these products (derived in no small part from my own use of the systems) and feedback from customers other than the ones I have worked for.
The analysis has been done based on three sets of criteria: Vendor, Product and underlying Technology. Where awarding a grade does not make sense (such as pricing: expensive does not in and of itself mean bad, since often quality comes at a premium) I have left the relevant cells colorless. An explanation of most of the grades can be found throughout this blog post, but I have also mentioned them in the scorecards so that the reader can understand why a vendor is getting a YELLOW rather than an AMBER, for instance.

NOTE ON SOURCES AND COPYRIGHT
All data and graphs are by Ahmed Limam who is hereby asserting his copyright. They can be referred to with proper copyright and authorship acknowledgement.

*Some of the ideas in this post were first presented in an article I wrote for TechTarget in January 2015.

(In addition to the vendor-specific posts I mention throughout this piece, there are many more I wrote in the past few years focusing on a vendor or a particular issue. The most popular ones can be found in the list provided in the top-right corner and automatically updated based on viewer number. For other posts, you'll have to scroll down and search for them one by one). 

Pricing and contracting with your cloud vendor: Tips and tricks

RIO DE JANEIRO

As a new year starts, many of you will be busy working on an RFP for a new HR or ERP system. One aspect that draws little attention from the myriad  reports and posts on system evaluation deals with pricing, contracts and other T&Cs (terms and conditions). This means that because of the inherent knowledge imbalance between vendor and customer, the latter is always the loser as they tend to learn after the fact (the reason for this knowledge imbalance being that vendors respond to RFPs all year long, whereas customers  engage in new RFPs only once in a while, and their procurement departments cannot be expert in all business domains and vendors -especially for smaller-sized companies.)

So, as a New Year's gift to my readers, here are some advice and information which I am sure you will find useful as you negotiate the perilous shoals  of cloud contracting.

No public price list
Unfortunately for user organizations, cloud vendors are playing this game with their cards close to their chest. It is almost impossible for a new customer to find out what is the "true" price of a specific module - "true" meaning how much a comparable company has paid for the honor of becoming a user. Don't expect any customer to share that information freely at Workday Rising, SuccessConnect, Oracle World or Cornerstone Convergence. And as for the vendor, mum's the word. In other words, you're pretty much on your own here.

The basics

(This post focuses on pricing issues related to software vendors. Of course, an HRIS project often involves another  vendor, a system integrator, which brings pricing and contracting issues of its own. I will discuss those in a later post)

    

Burying the bad, sad joke of Safe Harbor and what it means for cloud users and vendors

LONDON

Apart from famous Mozart and infamous Hitler, Austria is not known for its oversupply of men who will leave their mark on mankind. Since this week we must add to the list Max Schrems who, with admirable boldness, stamina and single-mindedness, has convinced the European Court of Justice to pull the plug on the charade that the so-called EU-US Safe Harbor agreement was.

For those of you who hear about Safe Harbor for the first time, suffice it to say that it was a cosy arrangement whereby (mainly US) technology firms pretended to ensure their customer data were safe (especially from an increasingly nosy US government) and European governments and companies pretended to believe them.

Enter the young Austrian and things will never be the same again. Although an early and enthusiastic advocate of the cloud, I have repeatedly warned my Europe-based clients that going with a US cloud vendor now entails significant data-privacy risks. This does not mean you should stop considering Salesforce or Workday, but you should be aware of the risks posed by your employee and customer  data being siphoned off to the US and finding their way to a competitor – or worse. One of the largest European manufacturers, whose only competitor is based in the US, is about to move from SAP HR to a cloud solution (NDA commitments prevent me from mentioning the client's name). It has the option of either sticking with its well-known vendor and adopting SuccessFactors, or picking HR's favorite, Workday (with Cornerstone for LMS.) The option is therefore between a comforting European vendor and two US vendors which could pose a significant risk since this client's business is basically a duopoly between them and the American competitor.

European hero

Let’s not be naïve. Industrial espionage is a reality and just like European governments try and help their companies win new markets so does Uncle Sam. Except that the US government  has at its disposal cutting –edge technology and an arsenal of acts of  Congress that gives it unparalleled  power to do basically what it wants. If the US government had the moral stature of the Dalai Lama we probably wouldn’t worry. Unfortunately, trust in the US government (never very high to start with - remember Nixon, the Criminal-in-Chief of the 1970s?) has been steadily eroded by the Bush and Obama administrations’ continual assaults on public freedoms and individual rights.

In Europe, whose contribution to civilization includes the two most powerful totalitarian regimes of the 20^th century, we take data privacy way more seriously than across the Pond. Hence the Safe Harbor agreement we insisted on for lack of a better alternative. Except that the agreement soon turned out not to be worth the paper on which it was written, as we realized that technology firms’ self-certification didn’t amount to much.

With Safe Harbor now in tatters, we have a unique opportunity to fix this issue in a more credible way. One key demand of Europe which must be met is to put an end to America’s extra-territorial laws. Just as European laws cannot apply in the US, the arm of American law cannot extend beyond its shores. Facebook/Google/Apple/Amazon/Workday/Salesforce/Microsoft must NOT be forced by US courts to hand over data stored offshore. (Hats off to Microsoft for steadfastly refusing to comply with orders to hand over European customer data) User organizations must insist on their data being stored in their own region with full guarantees that no access from the US would be allowed.  Of course, this is easier asked for than complied with. If a vendor’s California-based support technician accesses a   European customer’s system to fix an issue,  the data may well find itself replicated on a US server where it would fall under US jurisdiction. (And careful about that spreadsheet of employee bonuses being emailed from a European office to a manager in the US - that may no longer be legal).

At Cornerstone's Convergence event in London this week, I asked their founder and CEO, Adam Miller about it. He promised they would never transfer European customers' data to the US.

"What if a  US court requests you to hand over the data? Will you refuse to comply?"

"We will not  hand the data over, because it is not  ours. It is our customers'," Adam replied categorically.

I always find it very entertaining to see some SaaS vendors insist that, during implementation, all customer data to be migrated can only be  sent via a secured, encrypted STP server, never by email or a thumb drive in order to ensure system integrator (SI) consultants never have  a copy of your data. Well.... Many screens or reports can easily be exported in Excel or PDF format on a desktop or laptop. No SI checks at the end of the day that their consultants’ laptops are clean. Nor do they prevent external hard drives being hooked up to their computers.

My advice to my clients: be vigilant. Model clauses are a way to go, but may not be enough.  Know what is at risk, what you can live with and what you can’t. And challenge your cloud vendor. Tell them that being compliant with their home government is fine, and even mandatory in many cases, as long as it doesn’t adversely affect you. But one thing's for sure: with this landmark ruling , data privacy in Europe will no longer be the bed of roses it has been for American vendors. Their cost of doing business has clearly gone up one notch.

Could the last executive leaving SAP turn off the lights, please? UPADTED Dec. 2015/May 2017

LONDON

On-premise revenue is dwindling much faster
than cloud revenue is increasing. How much
longer can SAP afford to dither? 

When it rains it pours, they say. It sure felt that way this week at the world's largest business-software company where a wondering workforce watched as one top executive left after the other. Two and a half years ago I wrote a blog post questioning SAP's acquisition of SuccessFactors ("Acquisition #13: SAP's $3-billion cloud(y) adventure") which I then updated when SAP announced its new cloud HR strategy.

Since then I have been very vocal, both in private to my clients and in public in various forums, about the many issues that SAP is still grappling with on its way to cloud nirvana: to wit,

1. A reluctance (inability?) to build a payroll based on the SuccessFactors technology (along with other functional holes it needs to plug),
2.  The confusion raised by the availability of its legacy product (Business Suite) in the (private) cloud as it thus competes with SuccessFactors,
3.  An absence of how a fully integrated cloud ERP will be developed from the various bits and pieces acquired here and there. 

Customers who already felt confused about the lack of a compelling strategy could be excused for being at their wit's end when watching the accelerating speed at which top executives are leaving the company. The move started exactly a year ago and has been gathering pace since the beginning of the year (see below graph).

And then there were none
(Updated Dec.2015/May 2017)

Nothing wrong per se about a top executive deciding to leave their company for "personal reason" as the hackneyed phrase goes. But what SAP is going through is a flood of Noahesque proportions. I cannot remember any other software vendor that has gone through such churn in such a short period of time. And this is happening at the same time when co-CEO Jim Hageman Snabe is relinquishing his post (but staying on as board member.)

DEC. 2015 UPDATE: It is only fair to mention that some of these departures have been made up for by the arrivals of well-known executives  Mike Ettling (poached from partner NGA), Thomas Otter (from Gartner and to cover for Dmitri) and my former PeopleSoft colleague Yvette Cameron. Yvette was enlisted clearly as a desperate attempt to plug the hole of Dmitri's defection which will be sorely missed since he had become the public face of the SuccessFactors product, in particular the Employee Central development efforts.

MAY 2017 UPDATE: Mike Ettling throws in the towel. I have little respect for the job-hopping, mercenary corporate apparatchiks so prevalent in the software industry who bring little value but do a lot of damage, if only by stalling and maintaining status quo and stagnation (those who read my book, High-Tech Planet, will remember Frank Dupont, based on a character many have recognized.) Mike Ettling is a notable exception. He was instrumental in bringing SuccessFactors in the Core HR mainstream, and also reduced the gap with Workday in many respects. The fact that he didn't manage to close the gap and, under his stewardship, SAP lost many marquee accounts to Workday (e.g. Airbus, Walmart and a global car manufacturer whose name I cannot mention since I am currently helping them move from SAP HCM and SF to Workday) may be ample proof that the SAP ocean liner is too hard to turn around. Or to use a phrase I have made popular, the dinosaur is dead but is not aware of it. Adam Kovalevsky's departure is another hard blow and will slow down SuccessFactors' catchup efforts with Workday.

SAP has always been quite unique in the software industry for its two-CEO structure which it brought to an end in 2009 when Leo Apotheker was named sole CEO.  Less than a year in the office he was fired and SAP reverted to its dual management structure. Now, it's back to just one CEO.

For how long?

A software product is not built or sold sui generis. It is the result of decisions made by senior executives, some who become strongly associated with it (like Sikka with HANA) or are the face of it before customers. Every time a software vendor changes the head of a product line or a business customers are justify to wonder what new directions to expect.  It is increasingly obvious that the once great company which brought integrated business software (ERP)  into the mainstream, no small achievement, is adrift with an unclear strategy and a lack of continuity which only stable management can provide. To many observers SAP appears like the proverbial rabbit caught in the glare of (cloud) headlights and doesn't know which way to go. And how to get there.

Should customers be worried? Especially those I deal with on a daily basis: HR buyers? Of course they should. And for three reasons: First, some of these executives had direct responsibility for the HR offering. Second, an overwhelming majority of SAP customers bought the HR module as part of their ERP project. Anything that can affect the ERP product will therefore affect them. Third, SAP's cloud business is still in its infancy and therefore fragile: why should customers adopt SuccessFactors when there is no guarantee that it will be the preferred cloud platform in the future?  An HR buyer wants to put his/her implementation dollars where SAP puts its development dollars. So far, SAP has failed to clarify how it will move to a cloud ERP future. Maintaining and developing multiple platforms is unsustainable in the long run and, until and unless SAP makes up its mind, customers will be very cautious before selecting SuccessFactors.

Or staying with the on-premise solution.

Time for SAP to become bold and display vision and thought leadership. Or face gentle decline.

Could it be that SAP is already dead? And just doesn't know it?


(The blogger is spending a good part of the month in London, the UK being the most advanced cloud HR market in Europe. During his free evenings, he indulges his taste for the theatre and strongly recommends the following two plays: King Charles III, an astonishing Shakespearean political-fiction production; and Blithe Spirit, a Noël Coward farce, starring a sprightly Angela Lansbury. The audience did not seem to be particularly concerned about the fate of SAP - or any other software vendor, for that matter.)

Acquisition #13: SAP's $3-billion cloud(y) adventure

PARIS (UPDATED Feb. 27, 2012)

Unless you are superstitious (which I am not since my grandmother always told me it brought bad luck to be superstitious) you will  be thrilled with the news that the biggest HR software company in the world  decided last weekend to buy SuccessFactors (SFSF), one of the up-and-coming web-based vendors, in this year's 13th M&A deal. Well, you might be thrilled at this acquisition until you start looking at the details. 

Context and rationale of the acquisition

Although SAP is hardly a novice at acquiring other software companies (Business Objects is one such prominent example), their product and customer strategy has always been mainly of the organic variety until it showed its limits. And limits it has shown in two respects, the enterprise area and the newish cloud-computing business. 

First, the enterprise area: SAP created the enterprise software and it therefore is quite embarassing that in one of the fastest growing enterprise areas, talent management, it has failed. Global companies running SAP as their HR system of record have repeatedly gone for the likes of SFSF and Taleo, deemed more in line with their talent needs than their incumbent HR vendor (Oracle and PeopleSoft do not fare any better in that respect, by the way. ) And many companies, such as US-based Kimberly-Clark, have simply moved the whole HR suite, if not their financials applications as well, to cloud-based Workday. This is bad for SAP (and the two members of the "SOP" triptych) since every customer that jumps ships means less high-margin maintenance revenue. And when you know that maintenance now makes up the lion's share of traditional ERP vendors' bottom line, it is not hard to understand the future is not very bright. 

Second, the reason why corporate customers have been adopting best-of-breed systems is that they provide the needed functionality in a radically new way: on the web, rather than the good old implementation within their company's walls, with a new way of licensing, maintaining and upgrading the system (see my blog comparing the two approaches, "Old Versus New".)  Like the other software dinosaurs as I call them, SAP could see the market changing tacks and had to do something to prevent the coming customer hemorrhage and its market irrelevance. So, taking a leaf from the book of its nemesis, serial acquirer Oracle, it decided that  "if we can't beat'em, let's buy 'em."


Third, SAP's own efforts at building a web-based offering, Business ByDesign, has been, to put it charitably, far from successful. It has taken inordinately long to develop and customers have not been exactly running in a  stampede to buy it.


Why SuccessFactors?
A good question to start with is "why SFSF?" There are other vendors in the HR space, even with a product footprint similar to SFSF's. Taleo is the most obvious name, but as a European company why didn't SAP look at vendors closer home? As I showed in my blog on M&A activities in HR technology, American vendors tend to buy other American companies and European software makers their counterparts from the same region, if not the same country. SAP could have acquired UK-based Lumesse or France-based TalentSoft (with their own issues of being privately owned,) or (also privately owned) Swiss vendor Umantis which brings the double advantage of being in the German-speaking area SAP dominates as well as the talent management partner of SAP's Business ByDesign offering.  


But clearly SAP wanted a vendor that would not compete too much with its own HCM solution while being global and large enough to help it increase its market share meaningfully. That left only two vendors of more or less equal size, Taleo and SFSF. Since Taleo had grown more organically than SFSF (even if it has acquired a couple of companies of its own) it was a closer fit to SAP's culture. However, when I looked at my HR customer database (what I call the WOW database -Who Owns What) I saw that there are more SAP HR customers running Taleo than SFSF. It therefore makes more sense to go after the company with fewer joint customers since it offers more cross-selling opportunities.  The fact that SFSF was founded by Lars Dalgaard, a Dane, was an added bonus as SAP felt  that a European senior executive would fit more easily in Walldorf. Only time will tell whether they were right on this point.


A more intriguing question is why SuccessFactors management was keen to sell (out?) Apart from the nice premium for shareholders, why would Lars Dalgaard want to become a mere senior executive at unexciting SAP when he was top dog with the company he founded? The answer is that with the number of acquisitions, and in a short period of time, SFSF bit off more than it could chew and found itself overwhelmed with the task of integrating disparate systems. With SAP it can find the people and financial resources to fix the integration issues which were threatening to bring down the company. Not to mention that now that it is part of a large and profitable company, SFSF's losses can be diluted in SAP's balance sheet with no need to answer the recurring, embarrassing question: "When will you become profitable?"

Overpaying for...

The acquisition is already starting with the wrong foot. In a volatile market, SAP could have bought SuccessFactors at a much better (i.e., lower) price than a whopping 16 times revenue. When Oracle bought PeopleSoft (PSFT) in the mid-2000's, an operation I was involved with, it initially offered $6bn, that's just twice what SAP has offered for SFSF. And yet, PeopleSoft had ten times more customers  than SFSF (and I'm talking here only about PSFT HCM, to avoid being accused of comparing apples with oranges.) PSFT was profitable when SFSF is still losing money. PSFT was the undisputed #1 in HCM, and #2 in ERP, a global vendor when SFSF's global reach is limited, a leader in just a segment of HCM, and even in Talent Management it faces strong competition from Taleo. Oh, and we are talking about 2003 dollars, which means the deal's value in inflation-adjusted currency is even higher. If you want a more recent acquisition as a comparison point, Taleo's purchase of Jobpartners last June was at a reasonable 2x revenues (more information on the wave of consolidations in the above mentioned blog.) No matter how you slice and dice it, the amount paid by SAP is hard to justify and is evidence of how desperate SAP is to "do something."

...too many issues... 

Once you start at looking at what SAP bought there is no way you can escape the fact that it will create more problems than it is likely to solve.

The pros: Let's start on a positive note. Now, SAP can claim with a straight face that it has a SaaS talent management offering, something they knew Career OnDemand was NOT (see my comments following the demo I attended at the HR Technology Conference in Las Vegas last October.) But looked at from a customer's perspective, what has changed? Customers will still have to interface SFSF with the HR admin features in SAP, regardless of who the owner is: the work will still have to be done until there is an off-the-shelf integration.

The cons: Integration nightmare. Even when there is full compatibility (meaning no feature/module overlap between the two offerings) creating a "seamless" integration (data, process, user experience) takes years. In this case, the complexity is compounded by the fact that:


(1) SFSF is itself busy integrating the various pieces it has bought since last year (For details see my above-mentioned post, "2010-2011: Two momentous years of consolidation in the HR space")  


(2) What will happen to the still-unproven HR admin piece (Employee Central) SFSF had developed to compete with...SAP, among others? There are only three possible options:
 

- Will SAP kill it? Then how can it say it is moving to a cloud model?

-Will it keep it (maybe integrating it within its Business ByDesign cloud solution) and then compete with itself? That would be shooting itself in the foot as the cloud offering cannibalizes the old one.

- Will it then kill the old, on-premise SAP offering and move to the SFSF/Plateau offering? Unthinkable when you know there are thousands of customers on the on-premise offering, who have spent years and (for some of them) hundreds of millions of dollars to  implement it. Moving them will not be easy, if at all feasible.

(3) the issue of overlapping offerings such as the Career OnDemand module I mentioned earlier or SAP's reporting functionality (HANA) which will compete with the one SFSF has bought from Inform, not to mention the two Learning applications both have (see below graph on the product overlap of the three vendors: SAP, SFSF and Plateau acquired last April by SFSF.)  I am willing to bet the best sauerkraut in all Germany that come April 2012 when Career OnDemand is supposed to be released, nothing will come our way, and it will be quietly buried, acknowledging SAP's failure to evolve towards a true, organically grown SaaS model. 

Contrary to SAP's claims, there is quite a lot of duplication in its new offering.
Sorting it out will be a big challenge for which SAP has little experience.
(For simplicity's sake I am  identifying the major offerings based on
where they currently sit, SFSF or Plateau)

Sales/marketing issues: Integration between the two companies goes way beyond products. As experience shows, people buy from people. If SAP hasn't been able to make a killing in the TM space, it wasn't only because its offering wasn't on a par with the best-of-breed solutions, but also because SAP sales reps sell what they know best: traditional SAP software by stressing its engineering prowess. SFSF's culture is more start-up-like and its sales people know how to make the SaaS pitch which is different from the on-premise one. It reminds me of when Oracle moved from the database business into applications and couldn't understand why it wasn't as successful. Only when it realized that business applications are sold to CFOs and heads of HR and not CIOs, and that  you have to talk business value and processes  and not about the beauty of data clustering, did they start making some inroads. SFSF's marketing organization is also more attuned to the market's needs than SAP's gigantic machine. Expect some significant attrition from the SFSF ranks, especially when the jobs market improve.




...and little return

You might say in SAP's favor that since many of their customers were moving to SFSF, well, they might as well have the company in SAP's fold so that the revenue comes to SAP. First, considering the price SAP has paid, it will take at least 6-8 years for the transaction to be financially profitable. Second, this overlooks two facts: customer behavior and Talent Management (TM) as part of ERP.

Customer sentiment: many customers selected SFSF or Taleo, among others, because they wanted to move away from all the issues involved with what I call the software dinosaurs (see my blog from earlier this year, "Can software dinosaurs reinvent themselves as web-based vendors".) Now that SuccessFactors is being SAP-ized, customers may think twice before selecting that particular vendor (of course, SAP's hope is that the market will believe that the opposite is going to happen, that it is SAP which will be SuccessFactor-ized - but just look at the asymetry in size and you will have the answer to your doubts.) Actually, I already know of two companies (one of them a client) running SAP HCM and who were looking for a TM system; they had shortlisted SFSF and are now dropping it from the shortlist. Of course, two anecdotes do not a trend make, but it is worrying.  It is far from assured that this move will protected SAP's installed base but one thing is already clear: non-SAP customers will be less inclined to adopt a TM system highly interlocked with a competing HR system.

This is talent management, not ERP: Considering SAP's $16-billion overall revenues, SFSF's $200 million  are so puny that one can wonder how it will make any difference to the company's bottom line. In all fairness, compared to just SAP's HCM revenues, SFSF will add a not insignificant 20%, thus pushing Oracle further down the league table, but again at what price, assuming customers are not put off; and if SAP wants to become a SaaS vendor it will have to look beyond HCM. Even by adding SFSF's revenue to SAP's subscription revenue, it barely grows to a paltry 5% and of course you are mixing true SaaS with non-SaaS in a catch-all "cloud" category.


Even if SAP were to discard its traditional Jurassic-era HCM offering in favor of SFSF, which is as likely to happen as is Christmas to become a national holiday in Iran, SAP will need to keep on making many more and bigger acquisitions of SaaS vendors. I wonder whether there are enough companies out there and how SAP will be able to execute on so many acquisitions and integrations to become credible. At best it will become a dual-offering company, with all the cultural, strategic, and product schizophrenia associated with such a hybrid model. This muddying of the software waters is bound to create much confusion in the market (in addition, remember that SFSF comes with its own hybrid issues with the on-premise customer base from the legacy Plateau offering.) At least Oracle did the right thing after it bought all those different companies: it rationalized them all on the successor product, Fusion. What Oracle lacked in execution, it made up for (partially) in clarity. No such clarity is coming from SAP. 


The only strategy that is likely to pay off in the long-term is to develop/acquire a true SaaS product (and not that half-baked on-premise + hosted offering) and then start moving customers to it. For example, build all new talent management + additional countries on this new SaaS product (SFSF -based or other) and tell customers that if they want to use the new features they have to move towards the cloud. Not only will that give customers an incentive to do so, but by reducing the numbers of customers SAP has to support on the on-premise solution, makes the business more profitable. This of course entails doing it not only for HR but for the whole ERP offering, a difficult, even risky, move fraught with many dangers, but some software companies (such as Ultimate in the HR space) have done it, so it is not a completely outlandish idea. So far, however, the noise from Walldorf does not seem to countenance such a move.

And the winner is...Workday, so far the only true SaaS company in the ERP+HR space, which sees a serious competitor taken out of the equation (even with SFSF, SAP's core HR offering remains an on-premise one, not in the cloud) as well as its SaaS-based approach vindicated by the day. Worse, the biggest strategic failure of SAP (and also Oracle) is that they don't seem to get that SaaS is not just a functional hole to be plugged with an acquisition: it is a radical departure from the old ERP business model. In the olden days, you were missing a decent CRM system? No problem, just buy Vantive or Siebel. If what you were looking for was a winning HR system, well, just buy PSFT. But you can't buy your way into the SaaS world: the culture, product architecture, selling, maintenance, upgrade, absence of need for hardware, it all is so different. You need to reinvent yourself completely. Somebody explain to me how giant SAP will do that by buying tiny SFSF.


SFSF, customers and the wider industry, would have been better off had SFSF been left to continue to develop as an independent company. It was on its way to a bright future. With its new HR admin module, and provided it integrated well the different pieces it had bought,  it could have competed with Workday for the trophy of successor to PeopleSoft as HR vendor leader. Sadly, this was not to be. As the Jesuits' motto goes, Sic transit gloria mundi ("How the glory of the world passes.") For those more cinematically inclined, I am reminded of Marlon Brando's memorable line in the 1950s movie The Waterfront, where he expresses his frustration and disillusion at the prizefighter career that could have been his: "I coulda been a contender."

Most studies find that at least half of acquisitions fail to deliver tangible results and a decent ROI. Based on the above there is little doubt in my mind which half this acquisition belongs to. The only people that would gain from this acquisition (and are on cloud 9, if you'll allow me an easy pun) are SFSF stockholders who get an incredible 52% premium and advisors JP Morgan and Morgan Stanley who, as is their wont, encouraged the premium price, knowing that the higher the price paid, the higher their fees. 


I would go further and say that, barring the swift adoption and execution on the from-on-premise-to-cloud strategy I outlined above, the only M&A operation involving SAP which would make sense is one where it is not the predator, but either the prey or an equal partner with one of the three following companies: IBM, HP or Microsoft. That may well be the only way SAP can credibly stand up to the Oracle threat. Everything else smacks of desperation, is evidence of limited strategic view and is more likely to fail than succeed. 

UPDATE: Feb. 27, 2012


I know that several of SAP's top executives have read my blog, whether that has had any impact on their thinking and decision-making process, I do not know. But for the first time in years SAP has blown my mind away, with the Feb. 22 announcement that SFSF will become the basis of SAP's HR cloud offering and that, while continuing to invest in the traditional on-premise product (the R/3 product line now known as SAP ERP HCM), customers will be encouraged to move to the true SaaS product. I had to pinch myself and rub my eyes several times to make sure I wasn't dreaming. Could it be true? Yes, SAP finally is getting it. Unlike Oracle, which is still touting a mongrel on-premise + hosted product and slapping the SaaS label on it, SAP is finally showing it understands what being a true cloud vendor means and following (or at least mirroring) the advice I gave in this very blog post. Some of the product direction seems almost taken literally from my analysis. 


On EmployeeCentral, I wrote "Will SAP kill it? Then how can it say it is moving to a cloud model?" SAP decided to keep it and expand it


"...the market will believe that ...it is SAP which will be SuccessFactor-ized": that is happening to a larger extent than I thought with the SFSF team, product being retained and its SaaS culture emphasized


"The only strategy that is likely to pay off in the long-term is to develop/acquire a true SaaS product (and not that half-baked on-premise + hosted offering) and then start moving customers to it." This is exactly what SAP has announced.


I further gave an example of how SAP could do that: "Build all new talent management + additional countries on this new SaaS product (SFSF -based or other) and tell customers that if they want to use the new features they have to move towards the cloud. Not only will that give customers an incentive to do so, but by reducing the numbers of customers SAP has to support on the on-premise solution, makes the business more profitable." Again, largely what SAP has decided to do. 


I then added that this strategy was unlikely to happen since "So far, however, the noise from Walldorf does not seem to countenance such a move." I wrote that on Dec. 4: two months and a half later Walldorf changed its tune and embraced the strategy I devised for them.


Should I ask SAP for royalties based on this unacknowledged picking of my brain?  Of course, this strategy could be derailed at the execution stage but considering how clear, detailed and compelling  the product direction is, I'll give them the benefit of the doubt. Seems that there is still fire in the old dinosaur, after all.


Compare this with Oracle's own hastily put-together webcast announcement on their plans with Taleo two days later (they are clearly feeling the pressure from SAP)  where the presence of President Mark Hurd, Taleo CEO  Michael Gregoire and Product Development Thomas Kurian could not hide the fuzziness of the "plan" (if there is such a thing). Also, whereas SAP put the SFSF talent firmly in charge of the new business, Oracle who suffers acutely from NIHS (Not Invented Here Syndrome) gave no indication what Michael Gregoire's role will be (once the acquisition is completed, you can expect him to quietly depart.) The only clarity was that Oracle continues, against all market momentum, to stick to its hybrid model, refusing to bow to the inevitable: that true SaaS is here to stay, and instead of rejecting it they should embrace it. Oracle will probably come round to it at one point in time, but by then SAP will have stolen a march on them.