The SAP HCM world has changed more in the past two years than it has in the previous 20. And with these changes come new terminology, functionality, deployment options, and platforms for users to become familiar with and learn. There is also quite a bit of confusion in the marketplace. The messaging seems to differ depending on who is speaking and who the audience is.

Reading this Computerworld article (January 2014) that quotes a Gartner analyst as saying, “On-Premise technologies like SAP may soon be classified as legacy systems as soon as 2016, although it may take 10 years or longer for a majority of companies to move to cloud-based ERP,” one would think that everyone is moving to the cloud, and right away. On the other side of that coin, at the SuccessConnect 2014 conference, Mike Ettling (President, Cloud & On-Premise HR at SAP) projected that it won’t be until the year 2020 that a third of all HCM data will be in the cloud.

So which is it? Is there a major urgency to move right now, is SAP shutting off support to on-premise legacy applications, or are there options available to users regardless of platform?

There is also quite a bit of confusion regarding duplication between on premise and SuccessFactors of some of the Talent solutions (like Recruiting) and the actual maturity and saturation of some of the SuccessFactors solutions. Here I will explain the differences of each, and what each system does.

My goal is to help you understand the options and how the decisions you make now will impact your landscape of the future, as well as determine which decisions you need to make now and which you do not.

The best place to start is the beginning. The terminology for SAP ERP HCM functionality has evolved over the years and now all the various modules are placed into distinct categories called Core and Talent modules. SAP consistently has been a leader in core HR and payroll, and they are popular as a part of the big three in this competitive space. Although SAP’s Core modules have always been well regarded, their Talent modules (Figure 1) were often not as well matured, integrated, or adopted.

Figure 1

SAP on-premise Core and Talent modules

In previous years, many companies running SAP were unimpressed by SAP’s talent offerings and they instead began going outside of SAP to get best-of-breed solutions. This resulted in a loss of revenue for SAP. Additionally, SAP also experienced trouble competing with cloud-based technologies as they emerged in the market.

SAP’s initial stance was espousing integration—having everything in one place, all one solution, but it was rapidly losing potential customers to the best-of-breed talent-module vendors. This SAP solution also came with increased complexity and integration issues with multiple vendors. As a result, other competing HCM solutions began to close in as cloud-based technologies were defined as the future direction.

The big three (SAP, Oracle, and Workday) in this space have been fighting to become the top provider of next-generation cloud HCM systems for large organizations. Here are some stats that I found illuminating:

• More than 25,000 large organizations worldwide currently run on-premise HCM systems
• Of SAP’s estimated 14,000 HCM customers, approximately 700 currently use its cloud solutions from SuccessFactors

In 2014, a leading HR systems survey (the 17th-annual Sierra-Cedar HR Systems Survey [formerly CedarCrestone]) projected that, by 2016, the number of organizations running cloud core HR systems will overtake those running licensed, on-premise or hosted systems. There was quite a bit of debate over how much that extends to payroll- or core-specific modules but, nonetheless, that’s a big shift and SAP was not necessarily as competitive as it could have been. With all these considerations, SAP needed to do something to address this gap.

Enhanced On-Premise Usability

It’s my opinion that those factors, combined, were the impetus for big change, and SAP made two big changes. It started with creating a better experience for SAP on-premise customers. SAP began to develop and deploy initiatives, such as HR Renewal and its enhanced user interface (UI5) via the portal, to make it more user friendly and competitive against other solutions. I remember the old days when SAP had trouble competing against PeopleSoft until it deployed the more eye-pleasing SAP GUI interface with SAP’s Enjoy GUI.

SAP appreciated that one of the major complaints was its usability, specifically its technical looking, non-user friendly German-style engineering interface. A common comment was that the UI functionality and design were lacking compared to cloud-based solutions like Workday and SuccessFactors Employee Central.

On the left of the graphic in Figure 2, you can see what standard SAP Manager Self-Service (MSS) looks like (e.g., the front end that most managers see when accessing SAP). It’s functional but not flashy or engaging for a user. What SAP did to address this issue was to re-engineer the on-premise user experience with SAP HR Renewal. On the right side of the graphic you see SAP’s MSS entry screen using the new HR Renewal.

Figure 2

SAP ERP HCM MSS view versus SAP ERP HCM MSS with HR Renewal

Launched in March 2013, SAP HR Renewal 2.0 is based on SAP Enhancement Package 7 for SAP ERP HCM 6.0, and has new features including: a new UI, substitution lane and applications based on SAPUI5, a new SAP Payroll control center add-on, retrofit of add-on payroll country versions to SAP ERP Central Component, role-specific start pages, and a mobile-enabled HTML5 interface. (HR Renewal is referred to by many names, including Enhancement Package 7 for ERP 6.0 or SAPUI5.)

This deployment reiterates that SAP is showing a commitment to the on-premise SAP environment for those not moving to the cloud. The important thing to note here is that I am still talking about SAP on-premise. This is not part of SuccessFactors. This advanced design and functionality is for companies using SAP who are committed to staying with their on-premise SAP ERP HCM Core modules and simply would like an enhanced usability and user experience.

As a part of this renewal effort, SAP not only provided a state-of-the-art experience for employees and managers, but also changed the experience for HR professionals including payroll professionals. When you think of SAP’s traditional HR portal, you have an Employee Self-Service (ESS) tab, a separate tab for MSS, and then you may have created one or more additional tabs for other self-services; maybe one for HR or for a specialist, for example. In this new design you have these lanes (chips), and you no longer have the concept of tabs or a sidebar. Depending on the technology you use and the type of portal you use, this concept of lanes is very similar to how other Software as a Service (SaaS) companies actually deliver their self-service content.

Other features include a new Payroll control center add-on that includes functionality for the payroll administrator role by providing support for master data validation and reconciliation. With the HR Renewal 2.0 Feature Package 1, the payroll process manager (the person operating the payroll) gets a new UI that makes the process more understandable and at the same time easier to audit. Companies can start using the SAP Payroll Control Center when they have SAP ERP HCM on Enhancement Package 7 and they have their SAP NetWeaver on the 7.4 release. The payroll data on which the validation rules are running is stored in the declustered tables. Therefore the declustering business function must be switched on.

SAP recommends using SAP HANA due to its potential performance improvement and its ability to build complex validation rules. However, SAP Payroll control center also runs on non-SAP HANA databases. Therefore, when data is declustered on a non-SAP HANA database, this results in a data size that is larger by two to five times. That is challenging on traditional databases and also results in a situation in which it’s not possible to create validation rules with the complexity that most companies require. So, with HR Renewal there is a great deal of new functionality offered for on-premise SAP ERP HCM customers who do not plan to move to the cloud in the near future.

SAP’s Acquisitions to Meet the Cloud Challenge

The second big change that SAP made was in 2012, when it purchased SuccessFactors (and other companies) to leverage the best-of-breed solutions themselves and incorporate them as part of SAP’s offerings. These acquisitions helped include SAP in the service-over-the-Internet and in-the-cloud type solutions, and made SAP instantly competitive with other vendors who had been ahead in the cloud-solution world.

At the time that SuccessFactors was acquired it was then the second largest, next to Salesforce, cloud-based software solution. SuccessFactors has its services translated into 32 languages and currently has more than 6,000 customers with more than 32 million users in 60 industries in over 185 countries.

Changes to the Landscape of SAP

Now that you know the history of SAP and the two major changes made by SAP, I will shift the discussion to exploring the landscape models and where those fit in.

With these big changes in the past few years, including HR Renewal for on-premise and SuccessFactors for cloud, companies find themselves navigating in a new landscape with even more options. Again, this comes with a whole new set of terminology—platforms, lingo, and acronyms—that come into play. First, let’s talk about the landscape options.

Many of you are already familiar with the distinction between on premise and cloud, but I’ve included a brief overview in Figure 3 as a simple reference. On premise is software that is locally installed on a PC (like Microsoft Windows, for example). Cloud-based technologies do not require any local installation; they simply require access to the Internet (like Gmail). Currently there are four active models in the marketplace for SAP deployments.

Figure 3

Basic terminologies for on-premise installations versus the cloud

The diagram in Figure 4 shows each of the four options that companies have for their SAP/SuccessFactors landscapes. Some are familiar, like on premise, and some are relatively new, like the side-by-side model.

Figure 4

HCM installation options offered by SAP

The first option is on premise, which is old school, the way SAP has been for decades. This is having a server sitting somewhere in your office that houses your SAP data. Next is the talent-hybrid model, which is slowly migrating from on premise to the cloud. This has been the most popular option and will continue to be for the next several years. The definition of this model is using SAP ERP HCM on premise for core HR and combining it with one or more SuccessFactors talent applications.

What’s worth pointing out here is that many companies already have this scenario in place without realizing it. The reason for this is although the terminology for the talent-hybrid model was popularized when SAP acquired SuccessFactors, this type of hybrid model has been the standard operating procedure for many years before the consolidation of the two companies. For example, many companies using SAP use core on-premise SAP HR and payroll but also use a best-of-breed software, such as Taleo for recruiting, in addition to their SAP systems.

Remember the quote I mentioned earlier, about how it is projected that by the year 2020 a third of all HCM data will be in the cloud? This talent hybrid model scenario counts toward those numbers. In my opinion, SAP/SuccessFactors marketing’s messages try to create a sense of urgency to encourage companies to move fully to the next option, which is the full cloud. However, it’s important to note that the talent-hybrid model will continue to be the option chosen by many more companies that will have some cloud technology in the year 2020.

The third option, full cloud, means that the company has moved its core HR functionality (from SAP to SuccessFactors Employee Central), including its talent management functionality (recruitment, performance management, learning, succession planning, and so forth) into the cloud. This full-cloud solution can include the optional deployment of an SAP-hosted payroll option called SuccessFactors Employee Central Payroll. The SAP-hosted payroll option, in the previous sentence, is worth discussing in a bit more detail. SAP positions this full-cloud model, including Employee Central Payroll, as moving everything to the cloud and, indeed, a large amount is moved to the cloud. However, it is important to know that SuccessFactors Employee Central Payroll (often shown in the SAP’s model diagrams in a cloud shape) is actually just a hosted version of the SAP payroll solution. The configuration setup, installation, and so on, all happen exactly the same was as they do now in an on-premise SAP payroll system, via the IMG. The one difference is that instead of hosting payroll on your company server, SAP hosts it for you as a service. Employee Central Payroll is relatively new—of the approximately 25 licenses SuccessFactors has sold for their Employee Central Payroll, approximately six companies are using it to actively pay employees.

The fourth option (currently the least popular but the newest landscape) is called side by side. In this design, companies keep their core SAP modules on SAP ERP while also using SuccessFactors Employee Central for some of their core HR needs. Both the Talent module and Employee Central Payroll are optional in this model. For example, companies keep their core HR and payroll in SAP ERP on premise but also deploy smaller countries or units as hosted in SAP Employee Central Payroll (in the cloud).

This brings me to the next big question: Is there a requirement to move to the cloud today?

The real is answer is not really. SAP has delivered on its declared principle of “innovation without disruption” by stating that SAP ERP HCM software will continue to be supported until the year 2025 for SAP Business Suite 7 core application releases, including SAP ERP HCM 6.0. SAP will also continue to deliver innovations for on-premise versions of SAP, and Business Suite customers will continue to benefit from state-of-the-art technologies and business processes. The innovation roadmap for on-premise companies also enables companies to integrate the SAP portfolio of cloud solutions at their preferred speed. In SAP’s own words, “These prolongations of the mainstream maintenance represent 11 years of predictability, long-term commitment from SAP and protection for customers’ investments, giving customers additional time to develop their individual approach for innovations and the cloud.”

Indeed SAP’s re-design of on-premise SAP ERP HCM and its continued advancements around HR Renewal and UI5 make clear its commitment to supporting and adding new functionality for SAP premise HR and payroll customers.

One of my favorite presentations from SAPinsider’s annual HR conference in Singapore was by Ralf Wagner, of SAP. In it he shared SAP’s roadmap for continued enhancements for on-premise customers, including improved role-based consumability (HR Renewal) and the new SAP Payroll control center.

Start Anywhere, Go Everywhere

So back to my earlier question, do you have to move to the cloud today? The SAP and SuccessFactors official tagline and campaign “Start Anywhere, Go Everywhere” is designed to convey that there is no sense of urgency to run out and replace all your SAP ERP HCM systems today with cloud-based technologies (e.g., SuccessFactors), but you can if you want to.

The most common question I am asked about all these options is, where do I start? For CIOs, who should always be looking 10 years out, my answer is there should be a long-term strategy in place for their organizations’ HCM landscapes in light of the SAP/SuccessFactors 2025 deadline. In terms of immediate needs, however, the best answer is you start where you have a pain point. What I mean by this is, if something is not working, for example you require a new recruiting solution because your old one is not meeting your requirements or is no longer supported, you should start there. Take a look at SuccessFactors Recruiting and see how it can embed with your existing SAP on-premise HR/payroll system. If you have more than one pain point you can consider killing two birds with one stone and investigate SuccessFactors On-Boarding and Recruitment modules, for example. However, if your company is like many organizations and has already invested large amounts of money in your SAP Core HR and payroll on-premise solutions, there is no sense of urgency for you to replace it or move to a cloud-based environment immediately as long as you have a long-term strategy in place for where you want to be 10 years from now.

Danielle Larocca

Danielle Larocca is currently the Senior Vice President of Human Capital Management for EPI-USE Labs. Previously she was the Executive Vice President of Operations/Chief Knowledge Officer at a technology start-up. She has more than 20 years of strategic leadership experience in multi-national business, business process re-engineering, and project and people management. Danielle is an expert on SAP Human Resources (HR) and reporting and has authored four best-selling books on SAP. She is a regular speaker at numerous conferences around the world on topics such as HR, technology, change management, and leadership. She is an official SAP Mentor, a global designation assigned to less than 160 professionals worldwide, who serve as influential community participants in the SAP ecosystem. This group is nominated by the community and selected by the SAP Mentors’ Advisory Board to keep SAP relevant. Danielle also serves as an expert advisor for SAP Professional Journal.

You may contact the author at me@daniellelarocca.com.

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