Little more than a decade after it was set up, human capital management (HCM) software company SuccessFactors saw its world change forever when it was acquired by German computer giant SAP in December 2011.
Founded in 2001 in California by Lars Dalgaard and Aaron Au, SuccessFactors had gone public in 2007, rebranded in 2009 as a provider of business execution software to appeal to a broader market, and become the first triple-listed technology company when it moved to the New York Stock Exchange, NYSE Euronext and the Frankfurt Stock Exchange in July 2011. Its acquisition by SAP moved it into a whole new league.
Landing on the aircraft carrier
Founded by two ex-IBM employees, SAP is one of the largest software companies in the world. It initially made its name in mainframes before the enterprise shifted towards client-server technologies and then the internet.
“SAP has proven over 40 years the ability to embrace and deal with change,” says Thomas Otter, VP of product management at SuccessFactors. “SAP has bought companies like Ariba and SuccessFactors because it brings in new sets of ideas and people to challenge the way we’re doing things, and that’s very important.”
With SuccessFactors, SAP was again adapting to the demands of a new market – the cloud.
Response to the acquisition was mixed. Many, includinganalysts at Standard & Poor’s, thought SAP had overpaid. The $3.4bn it paid for SuccessFactors represented a 52% premium on the share price or 10 times 2011 revenues.
There were other concerns too. What would SAP do to the SuccessFactors culture of innovation and fast growth? When a fighter jet lands on an aircraft carrier, it is protected by its host’s vastly superior bulk and firepower, but its manoeuvrability may be compromised by the carrier’s limited ability to change direction rapidly.
Some two years later and it’s clear that its acquisition by SAP has helped SuccessFactors. The company has added functionality for 10 new countries in the February 2014 update. This would not have been achievable without SAP’s decades of intellectual property and local-level experience. SAP has a department called Globalization Services, with several thousand people around the world, teasing out the effects of legislative changes on the compliance environment.
The acquisition has also been good to SAP. SuccessFactors had previously bought embryonic social platforms Jambok and Cubetree and reworked them into Jam, its own social layer. This functionality now permeates the entire SAP product portfolio.
And for the customer?
Mark Martin, who implemented SuccessFactors as a learning management system (LMS) during his role as HR director at Direct Line Group, says: “I have to be honest – when I heard SAP had purchased SuccessFactors during the project period I was concerned.
“I believe SAP has played this acquisition very well, providing support where requested but giving SuccessFactors the freedom to continue its evolution. I hope this continues and SAP does not give in to the temptation to integrate or, put another way, kill off SF, and try and pretend that it has transformed to the ‘new age’ business that SuccessFactors was. So far, so good!”
SuccessFactors is a cloud-based, multi-tenant system serving an isolated application instance for each customer, which improves security and helps prevent customer data from mixing.
The product is built on a hybrid database approach designed to enable scalability – SuccessFactors has at least two customers with over a million employees – and configurability.
While all customers use an identical database schema, customer data is segmented at the database level, which allows configuration by redefining the relationship between different schema objects using a combination of XML objects and the Meta Data Framework (MDF).
The company is both customer-centric and market-sensitive.
Otter says: “We must find a balance between listening to customers and understanding their needs and deriving from those needs what we need to build to be ahead of the market.”
That culture also drives product development. The company’s engineering team remains relatively unchanged since its acquisition by SAP. Otter says: “A couple of years ago, customers weren’t asking for iPads. This was driven by the thought of an engineer, not necessarily from customer feedback.
“As a product manager you want to be listening intently to your major customers, synthesising their messages and at the same time looking and always questioning if there’s a better way to do it. You need to get that mix from listening to customers and beating your own innovation path.”
Mark Banbury is global CIO at children’s charity Plan International. It operates on a massive scale, working in 58,000 communities with over 600,000 volunteers.
“Oracle was never an option for us – we have no Oracle expertise in-house,” says Banbury. “We evaluated Workday alongside an SAP/SuccessFactors hybrid solution. Overall the SAP/SF solution provided more functionality and more closely met our business needs and it was shown it could be configured to work in the wide variety of countries we work in.
“One of the other deciding factors was that when it came to performance management, Workday brought a partner to the table but would not front a single contract for one system, unlike SAP/SuccessFactors.
“In addition, we already run an SAP financial solution for our finance, grants, and projects and we wanted to provide future integration, including an aligned authorisation and organisational hierarchy tree that we felt could be more easily accomplished with the SAP/SF combination.”
Banbury adopted the agile approach to configuration and roll-out, which helped with engaging the business owners. Showing them standard system features during the initial project phases helped with overall buy-in.
“The SuccessFactors consultants we engaged for each of the modules were keen to understand any unique needs we had as an organisation and during each of the three design/configuration iterations were able to discuss and agree the best options for Plan.
“It did go incredibly smoothly, and our approach was first to roll out a particular module at our international headquarters where we could test on 200 employees, before rolling out each module to the full 10,000 people in Plan. Our approach was to configure and not customise, and SF lent itself very well to that approach. It included best-in-breed processes built-in, and we adopted/adapted our business to these processes.”
Pre-acquisition, SuccessFactors was turning over $324m but wasn’t profitable, which is partly why SAP was criticised for overpaying. Since the acquisition, SAP hasn’t published separate financial data for the SuccessFactors portfolio.
According to SAP’s Q1 2014 earnings statement, the company earned $219m from cloud subscriptions and support, a 60% year-on-year increase. This figure includes revenue from all SAP’s cloud-based products, not just SuccessFactors.
The bulk of revenues from cloud models come from long-term subscriptions, so companies offering software as a service should see greater returns further down the line than those that sell software as a product.
From the customer’s point of view, what does SuccessFactors need to do?
For Banbury, SuccessFactors must work towards a more robust core HR module. Plan International chose on-premises RDS from SAP – rather than SuccessFactors Employee Central – for its core HR activities, such as organisational management, and time and absence management.
“Employee Central was not strong enough, particularly in the areas of time and absence, compared to SAP RDS,” says Banbury.
“This obviously means that we have integration that needs to occur between the two systems and the cost of maintaining the two separate systems is something we would like to eliminate in the future. SAP and SF have the challenge to fully integrate the functionality of what has been on-premise into the cloud-based Employee Central as SAP follows its strategy of moving its core apps to the cloud.
“We suspect that within 18 months, Employee Central will be capable of replacing the core SAP HRIS module which we host.”
Support needs to be improved
Ongoing SuccessFactors support also needs work, says Banbury.
“The level and quality of support at SF does not currently match what we expect from SAP. We have worked with our implementation partner Atos and SF to correct and improve the level of support coming from SF.”