My 2014 HCM Predictions

I recently published My 2014 HCM Wish List of 5 things I wanted to happen in 2014, but now it’s time to look at what I think is going to happen.

1. Mobile and Analytics to grow slowly

As much as I really want customers to adopt HCM and Talent analytics, I still feel that that HR organizations are behind the times when it comes to analytics. Reporting is useful, but doesn’t give the value of analytics and certainly the value of predictive analytics cannot be understated. I do see predictive analytics heating up, but overall I believe growth will not be where it should be. This is a prediction I hope to get wrong.

Mobile has been hotly tipped but I still see slow growth in this area. The SaaS vendors have got mobility high on their agenda with some good functionality on Apple’s iPhone and iPad devices. However, Android applications are still behind their Apple counterparts despite massive growth for Android in the smartphone market. Many on-premise customers are suffering from the struggle by on-premise vendors to produce rich mobile functionality or who see mobility as an additional revenue stream for customers. With the high cost-to-implementation and inclusive mobile offerings of Cloud vendors, I don’t see this growth changing any time soon.

2. On-premise Core HRIS will continue to decline as Cloud growth accelerates

After this week’s announcement that SuccessFactors CEO Shawn Price will take over SAP’s Cloud business along with some of its on-premise operations, I feel even more confident that this prediction will ring true. Investment in SaaS HCM – particularly Workday and SuccessFactors – has already been evident over the last 12 months, with SAP HCM and PeopleSoft being the main casualties for customers who are ripping-and-replacing their core HRIS. SAP’s pre-SuccessFactors investment in on-premise SAP HCM (e.g. HR Renewal) will be nearing its end-of-life and despite SAP’s Customer Connection program that is unlikely to yield any significant functionality enhancements then I don’t see much growth in this area. Oracle’s investment in Fusion HCM doesn’t really give confidence in a strong future for PeopleSoft, especially as they want to get more customers onto their Fusion HCM Cloud product suite.

I would go as far as saying that most investments by customers will be niche sectors like defense or those customers that have been (mis)advised to go with on-premise. Customers who are not moving to the Cloud should be putting any investment on-hold while they await SaaS HCM maturity – should this be the only thing stopping them from moving. I would recommend listening to Jarret Pazahanick talk about this topic on DriveThruHR from the 5:45 mark.

3. Full Cloud HCM takes over Hybrid HCM

It has become quite evident that the level of investment to “integrate” (that’s interface to HR technology experts) SaaS solutions – particularly core HR – with on-premise ERP systems is high and time-consuming. Additionally, it is a temporary effort to keep the lights on for a little longer. The Hybrid approach has been quite popular with Talent Management, but to obtain true value customers should be looking at moving their core HCM to the Cloud in a rip-and-replace exercise. There will always be integration – especially for customers using wider ERP processes – but from a HCM standpoint it just doesn’t add up.

4. Integration will remain complex

For those customers choosing to integrate a SaaS core HRIS with their on-premise HCM systems are going to come across a myriad of integrations with varying levels of complexity, depending on what processes and other ERP functions that they are using. With payroll, financials, benefits, Environmental Health & Safety, time and attendance, etc. – and outsourced Payroll and/or Benefits providers – then things can start to get a little messy even if a customer does a full rip-and-replace of its core HRIS. Unfortunately this is an inevitability, but keeping an on-premise core HR system as the system of record below a SaaS core HRIS doesn’t make any sense. Going with the current popular hybrid model means additional complexity, cost, and time to an implementation. For talent management hybrid scenarios I have heard of some customers who are worried about integration, but with minimal data flow and with – disappointingly – many customers not yet leveraging analytics capabilities there should be little worry from these customers.

SAP are providing standard integration packages for SAP HCM on-premise and the SuccessFactors HCM suite, but this is more for a reluctant install-base and really only serves to reduce the complexity rather than removing it. But what choice does SAP have when many customers don’t yet want to lose their expensive core HR system? From another perspective, SAP are doing well with introducing standard integrations to connect SuccessFactors Employee Central with other SaaS solutions in niche spaces like Benefits, Time & Attendance and hosted/BPO Payroll.

As mentioned above, integration is a necessary evil for some customers – but if customers are going to choose a halfway state then they might be better of trying understand what is really holding them back from taking the full plunge. What fears and anxieties are keeping CIOs and CHROs up at night?

5. The war for the public sector to heat up

Public Sector – particularly higher education and healthcare – have become somewhat of an underground battlefield for SaaS HCM vendors. 2014 could be a fruitful year for Public Sector customers as vendors introduce industry-specific verticals into their existing portfolios. Many Healthcare customers are migrating from Lawson HR – historically a stronghold in this vertical – and 5 of the world’s 6 biggest Pharmaceutical companies are moving to a SaaS HCM solution. Universities in particular are looking at Learning and Public Sector customers have had a long love affair with recruiting. New functionality this year will make the difference to the vendors that focus R&D dollars in this area.

Summary

2013 was a great year for HCM. It saw the rise of SaaS as a dominant technology and the emergence of SaaS core HRIS systems, Platform-as-a-Service (PaaS), and HCM and Talent analytics. 2014 will continue much on this vein but with more substantial growth. Whether any of my predictions come true is yet to be seen, but I’m confident that we’ll see a great movement further towards the Cloud.

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Changes at the top: the impact of SuccessFactors’ Shawn Price taking over SAP Cloud

SAP has announced that Shawn Price, President of SuccessFactors, will be promoted to a new position heading SAP Cloud after Bob Calderoni resigned. The position – President, Global Cloud & Line of Business – comes amid a reshuffle that will see Shawn Price run the current SAP Cloud business units along with a number of on-premise line of businesses. He will report to Rob Enslin.

What does this mean for SAP?

I believe that for SAP this is going to even further accelerate SAP’s move to the Cloud. Certainly SAP on-premise customers should be mindful about SAP’s future investment in on-premise and overall direction. Or maybe that should be limited investment in on-premise. But should customers be concerned? Well, if you want to remain on-premise in the long-term then very much so. If you are planning on revamping your enterprise software investment then this should be seen as another reason to consider the Cloud sooner rather than later.

And what about SuccessFactors?

SuccessFactors will now be looking for a new President and Price’s will be tough shoes to fill. Executives Dmitri Krakovsky and Thomas Otter would make good appointments but this may be shifting the problem elsewhere as they both play critical roles within SuccessFactors core product team. David Ludlow has been the face of HCM at SAP for some time, is well known within the industry, and has an outside chance of taking the role. Unlike Price’s appointment, which came at a time when Dalgaard had departed SAP, outside cloud leadership is not so important now that SAP and SuccessFactors have merged the cloud and on-premise HCM businesses. However, Shawn is likely to keep a strong focus on HCM as the forerunner of SAP’s cloud initiative and could retain his role as part of the broader Global Cloud position. Overall there should be little change as SuccessFactors’ product direction is determined largely by Krakovsky and his influence will continue to be present.

Summary

All change at SAP Cloud again, but a great move by SAP. However, will Shawn last longer than his predecessors? My belief is that he will; both Lars Dalgaard and Bob Calderoni were coming into this role from the outside and Price has already established himself in SAP/SuccessFactors at an executive level prior to this appointment and should already have an understanding of the executive mechanisms of SAP. But whatever reasons led to the departure of Dalgaard and Calderoni – and these have not and probably will not be fully disclosed – may still linger and one hopes that there is more stability in the Cloud business going forward.

The Consulting-as-a-Service model (CONaaS)

In a comment to my recent blog post Belgium: An example of Cloud changing the SAP HCM consulting market, Steve Hunt, Senior Director, Customer Value Research at SuccessFactors mentioned Consulting-as-a-Service as a consulting delivery model. Of course, consulting is all about delivering services, but as technology and the related consulting market transitions to the Cloud, the way in which services are delivered and consumed will also change.

Steve’s description of Consulting-as-a-Service – which I will abbreviate to CONaaS from hereon – was simply of consultancies delivering small chunks of services over a prolonged period of time, rather than high-volume services into large projects and then ending the engagement once Go Live is reached (with exception of standardized enterprise support contracts). I don’t believe that we will see the end of this type of consulting as it is a necessity for getting new technology and practices implemented into organizations, but we may see services consumed by customers in a different way than we do today. There are some consultancies that deliver regular services and some that already deliver services on a CONaaS basis, so this is not something new. However, we may see this become more of the norm as customers get more used to the on-demand delivery model for technology and require partners that can offer them consulting services on a similar basis.

Ultimately as technology delivery and markets change, and as businesses adapt, so too will the suppliers of these companies. Invariably those that can and are willing to adapt will no doubt survive the transition, and it might mean adopting a business model and strategy that seems much less lucrative. Synonymous with the transition to the Cloud, it will be those companies that are adaptable and willing to take risks that will be the survivors. Trying to hold onto the consulting gravy train will ensure short-term survival, but in the long-term this will only serve to mask the necessity to transform into an organization that has to survive with lower revenue.

Another interesting facet of a CONaaS model is billability/chargeability, either as a subscription or in the form of units. Currently consulting is billed by the hour or day and even fixed-price proposals are based on a number of days. In a CONaaS model it would be more likely that a fixed subscription gives x number of hours to the customer – a sort of retainer, as you like. This would provide value when it comes to working with customers on explaining new features and benefits of a quarterly SaaS release. Another option is that units are based on a business outcome or specific delivery and that will have a fixed cost associated to it. The revenue would most likely vary from unit to unit and would be based on the exact deliverable and/or perceived value of the outcome of the deliverable. Customers want business outcomes and the CONaaS model allows them either to have work on demand or to buy specific outcomes when they want it.

It is worth noting that some consultancies and vendors have tried this in the past… and failed. That may be because of the infancy of Cloud in some areas or just the fact that these organizations have struggled to win enough business in their respective market to prove the business model. It certainly does not constitute a failure with the model itself. In addition, there are also issues with the middle men – or layers – within consulting that cannot proposer with this type of model. In his blog Full time culture and the non-value-adding middle man, Sven Ringling makes some excellent points about this and also about the full-time culture that has developed in consulting. It is definitely worth a read.

As Cloud becomes more prevalent and the consulting markets being to change it is inevitable that new models will arrive. Of course, the usual disclaimers about quality versus price apply and vigilance by customers should not change. A bit of research and reference-checking goes a long way to achieving those business outcomes, albeit indirectly. Whatever happens in the market, there will almost certainly be changes to how consulting services are delivered and it might be the most innovative methods that drive success.

Belgium: An example of Cloud changing the SAP HCM consulting market

I live in Belgium, but rarely work there. However, I have many friends in the consulting space and have been following the market closely over the last 3 years. We’re beginning to see a slowdown in the market; rates are dropping by half, the market is crowded with SIs and is saturated with contractors, and many of the big projects have all been completed. And now Cloud has gained a growing foothold within Belgium and many consultancies cannot compete with pocket size implementation rates that competition is bringing to the market.

So, is this a trend that we can expect to see in other markets in the future?

I believe it is. I believe that Belgium is an example of how the SAP HCM consulting space is going to change in other markets. The biggest factors are the shorter projects with lower costs. There is a need to bill consultants, but with SuccessFactors it will be a matter of 1 FTE – or less – on a project. The days of 20+ FTEs on a project for 150+ days will soon be over.

There is going to be a contraction in the consulting market. With less business to go around, it is inevitable that there will be SIs going under. I don’t think we’re going to see many large casualties – the likes of Accenture and Deloitte have other successful and profitable lines of business – but there are some that will simply be unable to be profitable in the Cloud. One tactic I have already seen by some SIs is using junior consultants on SuccessFactors projects to ensure profitability. However, as a long-term plan that is a flawed strategy. The value of Cloud is not in the technology, but rather in what it offers to the business. Do juniors really understand how to offer this value when they are still learning the technology?

And that leads to another fundamental mistake some SIs are making: they are treating SuccessFactors like just another niche technology, as if it was Nakisa or OpenText. By sidelining it, being reactive, and using juniors then SIs are making a recipe for their downfall. While on-premise is where the money is, the future is all about the Cloud. Not being able to proactively build a business, create relationships with the vendor and their sales executives, and not being able to provide true value will make it very hard for SIs to transition.

Having seen what is happening in Belgium and understanding the revenues that SIs need to make, I find it hard to see how many of the SIs are going to survive as Cloud becomes bigger and bigger in the SAP HCM market. With diminishing project revenues and stagnant costs, is there going to be consolidation of the markets? I can only see it going that way.