SAP On Cloud HR: Q&A With Mike

Ettling

SAP has combined SuccessFactors and on-premises HR apps into a single business. Unit president Mike Ettling talks Workday, Oracle, and the "journey" to cloud HR.

SAP faces fierce competition from Workday and Oracle to meet fast-growing

demand for cloud-based human resources applications. At the same time, many

SAP customers want to continue to run their core HR system on-premises while

adding cloud-based edge apps such as talent management, recruiting, and

learning management.

Rather than treat on-premises and cloud-based HR apps as two separate silos,

SAP last year combined the two into one business unit and named Mike Ettling

president, HR line of business. Formerly CEO of NGA Human Resources, a

global HR and payroll services firm, Ettling is no stranger to HR, and he has

experience with all the leading cloud and on-premises platforms.

[ Want more on the HR cloud race? Read Workday Q&A: COO Talks Oracle,

SAP. ]

Since its 2011 acquisition of SuccessFactors, SAP has built that vendor's

Employee Central app into a complete cloud-based system that includes core HR

and payroll services. What are the triggers of cloud adoption, and how does SAP

stand apart from Workday and Oracle? Read on for Ettling's take on how HR

deployments are changing.

InformationWeek: How has SuccessFactors evolved since it was acquired

three-and-a-half years ago?

Mike Ettling (ME): It was a strategic HR offering back then, meaning it offered

talent management, recruiting, learning management, and all the strategic

requirements. Two and a half years ago [SAP] started building core HR in the

cloud, which we call Employee Central. Overall, we've more than doubled the

business in terms of revenue since it was acquired, and my goal is to double it

again within three years. With core HR we've added 450 customers in two years.

If you compare that growth rate to our competitor [Workday], they're now above

700 customers, but that took them eight years. We're clearly on a faster growth

trajectory.

IW: What about Oracle?

ME: We don't see much competition from [Oracle] Fusion at all. We see a lot of

competition still for [on-premises] PeopleSoft upgrades, but in terms of moving to

the cloud, we don't come across Oracle too much in HR.

IW: Really? Oracle reports that HR is one of its hottest cloud categories, and

they do have public numbers showing a sizeable SaaS business.

ME: I think a lot of the public numbers on SaaS aren't granular enough to break it

down into specific functional areas -- HR, finance, supply chain, and so on. When

I look at SAP deals and our opportunities, the number of times we're competing

with Oracle is not very high.

IW: Do SAP cloud deployments now typically include core HR?

ME: Yes, and in that space my view is that it's a two-horse race at the moment:

SAP and Workday. We tend to see Oracle more when it's a PeopeSoft

replacement, rather than SAP customers moving to the cloud.

IW: SAP CEO Bill McDermott and Oracle CEO Mark Hurd often cite wins against

Workday during earnings calls. But Workday executives tell us wins against them

by SAP and Oracle are typically for edge apps, such as talent, recruiting, and

learning. Is that true?

ME: That comment is correct and incorrect at the same time. We sell end-to-end

HR that has everything, or you can buy it in a modular fashion, which Workday

doesn't do. We do have a huge number of cases where existing customers are

adding talent management, recruiting, and learning to a core HR system that's on

premises. That hybrid world is going to be a reality for many years to come. The

competitor's rip-and-replace approach is not going to work for everyone. Most

people want more of a risk-managed approach to migration.

At the same time, as I mentioned, our core cloud HR system, which replaces on-

premises HR, has seen phenomenal growth to more than 450 customers in two

years. We track and count those wins separately, and right now, particularly

outside of North America, we're winning a far bigger share of the market than is

Workday. Inside North America, it's a closer battle -- probably 50/50 at the

moment.

IW: What's the typical size of those core HR deployments?

ME: SAP is predominantly focused on the enterprise market. Unlike Workday,

which started in the small- to medium-sized business market, and are now trying

to move up into the enterprise, when we started building Employee Central, we

built it for the enterprise market. We have customers with more than 250,000

employees and multinationals that do business in more than 70 countries. I

would say our average employee base is way higher than anyone else in the

market.

IW: Can you cite some of those big, core HR cloud wins, particularly in North

America?

ME: Sitel, the call-center company, is an end-to-end Employee Central customer,

and it has more than 58,000 employees in 23 countries. Allstate, the insurer,

uses Employee Central and SuccessFactors with more than 39,000 employees

and 11,000 agencies for a total of more than 70,000 professionals. Timken, an

automotive parts manufacturer, has end-to-end HR for more than 19,000

employees. Those are more recent wins, but some of our largest HR customers

include PepsiCo, which has more than 270,000 employees in multiple countries.

IW: What's the trigger, generally speaking, for a total cloud deployment?

ME: This is about a journey from A to B, not just choosing the sexiest software at

point B. The majority of the risk in these programs is in how you handle that

journey. The triggers are all different, and no two journeys are the same.

Some clients may have a latest-version SAP on-premises application as their

core HR system. Their big pain point may be around adding talent, recruiting,

and learning capabilities, but they still want to get a return on the investment in

their on-premises system. Other customers have multiple instances of SAP HR,

including older versions. For them, trying to rationalize instances and upgrades

may make less sense than moving everything to the cloud. Every client is

different in that regard, and that's why it's important to understand the journey the

HR leaders are looking for.

[ Want more on SAP? Read SAP Forecasts 7X Cloud Growth, Previews

Next-Gen ERP. ]

We also have clients who have PeopleSoft alongside an SAP ERP environment.

Clearly the integrations to the rest of SAP are interesting, because HR systems

and finance systems can't live in a vacuum. You need the org structures from HR

in finance, and you need the cost centers from finance in HR. We do that very

elegantly because we can offer both sides of the equation, even if one side is on-

premises and one is in the cloud. Customers will use the hybrid model as part of

a journey, not the end game, but we're in the best position to help clients on that

journey.

IW: Does that boil down to offering a mix of on-premises and cloud options?

ME: It's because we've productized so many of the integrations that customers

might need. For example, we have something called Side By Side, which is for

customers who started deploying an HR system, but they only got part of the way

through and then they stopped for whatever reason. Maybe they have 20

countries on core HR on premises, but they have 40 countries with nothing --

using spreadsheets or whatever. We can help them deploy the cloud option for

those 40 countries while still getting an integrated view across the on-premises

system using the side-by-side integration.

We've built a lot of prepackaged integration, which enables customers to solve

their pain points without having to embark on a lot of rip-and-replace programs.

They can get to point B with less risk and better ROI while addressing the pain

points more quickly. With many of our competitors, you have to replace the core

HR system to solve a talent problem. There's no way to do it any other way.

IW: SAP also likes to tout its global coverage. Is that mostly about language

localization or payroll?

ME: It's both. Globalization and localization play at the HR level and at the payroll

level. Employee Central has configurable localization for 72 countries, so that

means all the HR data that you need to keep at a local level will be there,

whether it's by French law or Korean law, with whatever workflows and process

approvals are required. German law might require that Works Council has to

approve something before an HR manager or line manager can approve

something. In the UK, it might be okay for the line manager alone to approve a

decision.

IW: What's the breadth and depth of coverage on the payroll side?

ME: Employee Central Payroll is localized for 26 countries, and we have

configurable data fields that enable you to configure and store the data you need

to drive payroll in other countries. SAP on-premises payroll handles 100-plus

countries, and it integrates with Employee Central … In payroll the attitude is that

if it ain't broke, don't fix it, so many customers who run multinational payroll are

running the SAP Payroll on-premises application, and they really don't want to

touch it.

IW: What are the biggest priorities for what you call strategic HR apps?

ME: Talent has clearly been the most popular add-on. But I would say the most

strategic is learning. The learning space is going through a massive reinvention.

We're shifting from a traditional top-down, train-the-student learning model to a

sound-bite, bottom-up, everyone-is-a-teacher and everyone-is-a-student model.

It's about teaching people in 10-minute to 15-minute sound bites on mobile

devices. We've seen massive adoption of these learning techniques as well as

through MOOCs (massive open online courses).

Learning is a really exciting aspect of HR at the moment, and it has massive,

transformational implications for companies in terms of how they can create

courses and drive learning. We've released something called Quick Guides,

which allows people, on their iPhone or Android device, to create a short learning

module, including video, pictures, and text, that they can publish to the learning

environment.

Think about field engineers or shop assistants showing how they fix something,

or how they display merchandise. When retailers put out a new product or

promotion, now they can publish them quickly and they're available to sales

assistants on their mobile phones. It's up and running quickly in time to drive fast-

changing promotions.

IW: I understand you're going to be based in San Francisco. What's the business

structure, and why San Francisco?

ME: We've taken SuccessFactors and on-premises HR and we've put it all

together into an HR line of business that I run end-to-end. I'm responsible for

everything from product through to sales. The magic of that model is that we can

be independent, fast-moving, and nimble, so we can cater to line-of-business

customers. We can also exploit the entire SAP machine, including sales,

infrastructure, data centers, and everything else SAP is famous for. It's a unique

model because it gives us the best of both worlds.

The reason I'm moving to San Francisco [from London] is that North America is

the biggest and fastest-growing market for HR, for one, but also Silicon Valley is

the innovation hub for HR worldwide. Much of my team is based in Silicon Valley,

and that's where we see a lot of the innovation emerging.