SAP released its Q2 2021 earnings this week, and like every quarter, top executives met with shareholders to discuss the results. Cloud offerings were among the top topics of conversation as SAP continues its transition from a primarily on-premise software vendor to a software-as-a-service (SaaS) provider.
The area of human capital management (HCM), or human experience management (HXM) as SAP now bills it, was among the first areas where the vendor paid the pivot to the cloud with SAP SuccessFactors.
The foundation of its HXM offering is SAP SuccessFactors Employee Central, and SAP CEO Christian Klein stated that cosmetics company Clarins had selected that core human resources (HR) offering over key competitors:
“Many companies are looking to our human experience management solutions as they navigate a new normal in the workplace. Clarins selected our full HXM suite, including Employee Central,” said Klein. “And we won against Oracle and Workday to transform their HR function and better support their more than 8,000 employees.”
Integration Drives SAP Customers
SAP has cloud offerings in many areas beyond SAP SuccessFactors. For example, the cloud is available for ERP with SAP S/4HANA, procurement with Ariba, contingent labor with Fieldglass, and travel and expanse management with Concur, to mention a few.
SAP acquired many of these solutions and has been working to integrate them to try and emulate how its traditional on-premise solutions were offered in a unified suite. Klein said this is frequently what SAP customers want.
“Oftentimes, these customers don’t not only want finance or logistics, they also want HR. They also want procurement, and this is highly integrated. And now in the cloud when they make this move,” explained Klein.
SAP’s on-premise ERP (often referred to as ECC) customers are still the foundation for their business, and moving them to the cloud is clearly a priority. Integration is part of what those customers are looking for if they make a move to the cloud—and that’s where the RISE with SAP, SAP’s cloud transformation service, comes into play
“An ECC customer who wants today HR on-prem and procurement says, okay, I do the move to this new platform. I do this move to S/4HANA cloud. But I still also want to hire to retire end-to-end,” said Klein. “I still want procure to pay end-to-end, and then its logic that the next buying decision is then, okay, I go for Ariba, I go for Fieldglass, I go for SuccessFactors. And that’s actually also a rational behind [RISE wth SAP] what we should not forget about.”
HR’s Ties to Financial Compliance
That desire for integration across applications and processes is tied to profit and loss (P&L) compliance. He posited that this quest for compliance is directly tied to HR.
“We did our homework on integration, the same data model for all of our applications, the same security model,” said Klein, “And when you are now wanting finance and you’re wanting HR, you better make sure that, for example, your vacation accruals are 1:1 booked in a compliant way in your P&L or when you are changing your business model, and you have to change your compensation models.”
He said that P&L compliance had driven one “very large customer” in particular to update their core HR systems alongside their finance systems.
What Does This Mean for SAPinsiders?
SAP is a publicly-traded company with responsibilities to its shareholders and those responsibilities are ultimately the driving factor for the executives of the company. So for SAP customers, there is value in listening to what SAP leadership says on these quarterly investor calls, as it gives a nice insight into where the company is headed. Here are the key takeaways from SAP’s Q2 earnings call:
Integrating cloud apps like SAP SuccessFactors is a primary focus for SAP. According to Klein, SAP on-premise customers are looking for high levels of integration between various applications—such as HR systems to ERP—before they move to the cloud. Klein cited that as a rationale for RISE with SAP and said, “[cloud] is not so monolithic anymore. It’s much more agile, but we offer now the same kind of integration capabilities as our customers were used to in non-cloud.”
Tying HR to finance may be a path to new HCM technology adoption. In our 2021 State of the Market research, we saw that HR is last in line for investment. Similarly, in our State of Human Experience in the Workplace research, budget constraints and prioritization were cited as roadblocks to adopting new technologies. As a result, HR organizations looking to modernize their systems need to find ways to tie HR to the bottom line. Klein’s example of connecting HR processes such as vacation accrual to P&L compliance is one more tool in the HR upgrade business case toolbelt.
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Craig is an HCM and GRC analyst for SAPinsider. He has covered the SAP technology ecosystem, including an emphasis in SAP SuccessFactors, for more than eight years. In that time he has forged important relationships throughout the industry, worked with customers and vendors to optimize investments in enterprise technology, and helped to tell the important stories along the way. Follow Craig on LinkedIn and Twitter for more HCM and GRC insights.