SAP extends HCM on premise support to 2030 – smart move or major mistake?

SUMMARY:

SAP has announced a sidecar extension of HCM on-premises support through an as yet to be developed HCM S/4HANA offering. This throws up a mass of questions.

terms of employmentLate yesterday my LinkedIn notifications lit up like the proverbial Christmas tree with commentary about SAP’s announcement of extending support for HCM on-premise through 2030. Protagonist-in-chief of the SuccessFactors LI group Jarret Pazahanick describes it as a ‘major mistake’ while analyst Holger Mueller sees it as a bet he’s won. Which way is it?

First the announcement under the unassuming title of: Product Note: SAP HCM On-Premise Option for SAP S/4HANA. Basically, this boils down to a choice for customers. Remain on premises for HCM provided they switch over to S/4HANA  and, in doing so, get extended support through 2030 or go the SuccessFactors cloud route. Support for other HCM ERP versions ends in 2025. The announcement is clear:

Our investment strategy follows this market demand, with the bulk of the planned innovations for our HCM portfolio focused on SAP SuccessFactors solutions.

SAP also continues to support our customers using SAP ERP HCM, our on-premise HCM solution. While an increasing number of them are migrating to SAP SuccessFactors solutions to accelerate their digital HR journeys, we also recognize that every customer journey is unique and must be undertaken at each customer’s own pace. For some SAP customers this includes a desire to deploy their HCM solution in an on-premise environment for the foreseeable future. To support these customers’ needs, we plan to offer a new on-premise HCM option based on SAP ERP HCM with a comparable functional scope (except for the SAP E-Recruiting application and SAP Learning Solution).”  It is intended to be deployed alongside, and integrated with, SAP S/4HANA. The solution is planned for availability in 2023, with maintenance planned at least through 2030.

Pazahanick’s immediate reaction was one of barely concealed incredulity. From his LinkedIn group post:

In my opinion, #SAP has  made a major mistake with the announcement below and will ultimately regret this strategic direction.

The bottom line is SAP has really struggled to convince their ~12,500 SAP HCM customers to move to #SuccessFactors as the last provided info had ~600 out of the 2,000 SuccessFactors Employee Central customers coming from SAP HCM. Many of these customers understandably want some assurances that SAP will continue to support SAP HCM further out than 2025 which could have easily been provided by getting agreement to move the entire Business Suite out to 2030. Instead, SAP has decided to introduce a new licensed offering called SAP HCM On-Premise for SAP S/4 HANA that will be built by 2023 and will be based on SAP HCM so they are counting on customers trusting SAP will deliver something five years from now, being willing to do an upgrade (always painful in SAP), signing up for a new license and all of this to get virtually the exact same functionality they have today and an extension of support until 2030.

This will be a messaging nightmare for SAP, will confuse customers worldwide as explained multiple different ways depending on agenda of sales teams and partners and will be another thing competitors will use against SAP/SuccessFactors to win business.

As the leader of a 37K strong LI group, Pazahanick wasn’t short of comment on such an important announcement.

Matthias Kim said:

Hi Jarret, I think it is a smart move, because it will give customers a huge range of options. There is no need to rip and replace anything, but there will several options to move at your own pace.

To which Pazahanick shot back:

Wait 5 years to see what SAP comes up with and do an upgrade (nothing is ever “seamless and easy) + will cost $ to get an extra few years of maintenance (2025 to 2030) is NOT very customer friendly.

For his part, Holger Mueller said:

No surprise. This had to happen given the large # of on premises S4/HANA customers in Europa… I had a bet on that. Need to dig that out. I think on prem customers will be relieved. The question is – what does (t)his do to SAP’s return of R&D. Speed of innovation.

Our own Brian Sommer was not so charitable:

The snarky part of me wants to say: “If we’re making nostalgia part of vendor product strategy, why don’t they announce future support for punchcards in 2035?”…

…The discussion should morph – ask “Who’s still going to be using an on-premises, old school HCM in 2030? Is that a target market any startup or venture capitalist would pursue? If not, why? In short, capital should flow to markets with growth potential. I suspect this is an expensive defensive move and not much else.

DSAG is supportive saying that this move provides the kind of choices that its members want but points up the need for a detailed roadmap in what is otherwise a sketchy announcement. ASUG has a detailed note penned by Sherryanne Meyer, which addresses the dilemma for those wishing to remain on-premises. A choice note from the ASUG view:

Commercial information is still being finalized. However, SAP has said they are not looking to make a ton of money on this new solution. They are looking to make sure S/4 HANA customers have a way forward with on-premise HR if they want to keep it there.

We shall see…

My take

I will be following through on this in calls later but for the moment, my immediate take is:

  • SAP still doesn’t ‘get’ cloud value – or if it does, then it remains largely clueless on selling the value of its core competencies to its most valuable customers. Despite all the talk and reported revenue line items, the fact it is extending on-premises support for a product that is now 35+ years old, with no stated functional improvements for another 5 years suggests to me that it has capitulated its ambitions to pull customers into the modern era. This doesn’t sound like the company that wants to own the innovation trophy by providing core functionality and then extending via modern cloud-based options.
  • If customers weren’t confused before they sure will be now. This should not surprise since SAP has a bad habit of taking one step forward and two sideways when it comes to product announcements. Wait for more details as the SUGs raise questions.
  • This is a gift to Workday, Oracle and 3PM providers like Rimini Street. Any organization looking for a serious refresh of their HCM systems for the modern age now have obvious alternatives, with SuccessFactors (possibly) in the mix. Those that choose to stay with SAP also have alternatives beyond the SAP maintenance tax.
  • Mueller might be right about relief for EU customers but those same customers must now be viewed as legacy businesses that are likely on legacy life support rather than looking to the future. Unless they see themselves as baked into core functions they can usefully extend outside of the SAP orbit.
  • What about SuccessFactors R&D? You don’t get to take from Peter without paying Paul and this move suggests that dev resources will be crimped for what should be SAP’s HCM flagship.
  • In the alternative, SAP customers who are happy with this change may well end up reducing their SAP footprint as a proportion of their business systems landscape as they retain ‘legs and regs’ core but extend their HCM needs for 21st-century working practices through third-party solutions.
  • SAP extends its maintenance revenue stream for core ERP customers. That will keep the investor pundits at bay.
  • What’s the betting that Finance on-prem is next for an extension?
  • As a side angle, those customers who choose to remain on-premises with this offering are less likely to experience risk from the Intel chip issues that have potential to ‘bug’ everyone than those who opt for multi-tenant cloud solutions like SuccessFactors, Workday and Oracle.

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Disclosure - SAP, Oracle and Workday are premier customers at the time of writing.

    1. Rajesh Kumar Burra says:

      we are confused on a higher level and about more important things on Succesfactors … “We’re all still confused.

    2. SAP Alumni says:

      I think this is a smart move and don’t forget that SAP HCM on Premise solution is the backbone for many of the SAP Industry Solutions like Education, Defence et al. So this will give a big boost to all those solutions and many of these customers may not need a real cloud HR solutions.

    3. Don Nordness says:

      What are the number of Oracle HCM On Premise customers that have moved to their SaaS offering? More or less % than SAP?

    4. Jarret Pazahanick says:

      Excellent article Dennis and to top it off, SAP has chosen to roll out this new offering in a way that is NOT customer centric as asking loyal maintenance paying customers to wait at least 5 years to upgrade to a new SAP HCM OnPremise offering (+ the cost and risk associated with that + new instance + HANA) sadly puts all the responsibility on the customers and all of this to have the “privilege” to stay with a SAP OnPrem HR solution for another 5 years.

    5. my take SAP: When you come to a fork in the road, Take it! http://bit.ly/2CUYmry time for a fork – clouds for N America, on-prem for EU

    6. Yann Staehli says:

      The actual SAP HCM runs perfectly on SAP S/4HANA but it is not “optimized” for in-memory-technology. The fact that it runs out of maintenance by 2025 pushes customers to either select SAP SuccessFactors or any other solution on the market that seem to be modern.

      I personally see SAP SuccessFactors as the future SAP HR system but a lot of companies hesitate to put their precious HR data into a cloud and I need also to admit that SAP SuccessFactors Employee Central still struggles in various areas such as time management, personnel file features which are needed by most of the companies.

      Those who already use SAP HCM are starting to run Hybrid models where core data remains in SAP PA and talent management features (such as Performance & Goals, Learning, Recruiting, Succession & Development etc.) on SAP SuccessFactors . This gives them the advantage to adopt SAP SuccessFactors step by step and to wait until the required features are available on SAP SuccessFactors Employee Central to then make the turnaround into the core- or full cloud model.

      Here are the advantages and disadvantages that I see with the announcement of the new SAP HCM for S/4HANA:
      + SAP HCM (on-Prem) Consultants must not adapt their habits and skills
      + Since SAP S/4HANA can run in a Cloud managed by SAP the new SAP HCM will certainly also be available as a cloud option
      – SAP SuccessFactors Employee Central looses credibility, looses R&D power and gets an additional competitor.
      – Most companies (at least in EU) will wait to perform a full cloud or core model turnover with SAP SuccessFactors Employee Central until they evaluated the new solution in 2023

      I think that most of the issues would have been solved if SAP only would expand the maintenance of SAP HCM until 2030.

    7. Stephen Burr says:

      I’m unclear on what the “new” S/4 HCM solution will encompass … will it be a “slimmer” HCM offereing after stripping out the parts of SAP HCM that SAP SuccessFactors now offers? Is this a step to end of life of all on-premise SAP HCM?

      What is the strategy for on-premise Payroll (which, IMHO, is the main “stickiness” with customers still having on premise)? Will there continue to be a Core Hybrid approach (PY on-premise, HR in cloud)?

      So many questions …

    8. SAP comes across as confused about who they are, swept up in cross winds between client server and digital. SAP maybe needs to rediscover who they are, how important their contribution to creating certainty of supply. Perhaps SAP needs to read Denis Pombriant’s analysis on Differentiation by platform – the Oracle and Salesforce approaches (here on Diginomica).

    9. Klaus Marte says:

      It’s a legal issue.
      On July 11th 2017 the simap.ch platform published a doctored WTO tender elaborated by think beyond AG for the Swiss Unemployment Insurance Department (SECO TC).
      Official content was the replacement of the 20 years old punchcard CSC unemployment insurance administration system called BB, while having the following choice of architectures:
      VSAP-A: SAP CRM, Social Protection, BRF, HCM und FI/CO (ERP)
      VSAP-B: SAP CRM, Social Protection, BRF, PSCD oder/und FI/CO
      VSAP-C: SAP CRM, BRF, HCM und FI/CO
      VSAP-D: SAP CRM, BRF und FI/CO
      VINDI-A: JAVA und Oracle, SAP HCM und FI/CO (ERP)
      VINDI-B: JAVA und Oracle und SAP FI/CO (ERP)
      VIBM-A: IBM Case Manager, JAVA & Oracle, SAP HCM und FI/CO (ERP)
      VIBM-B: IBM Case Manager, JAVA & Oracle und SAP FI/CO (ERP)

      SECO TC is the operational unit of the Swiss unemployment insurance with an approximated annual budget of 100 Mio CHF and only 50 employees.
      On November 24th 2017, simap published the winner of the 107 million Swissies contract for 12 years unter Projekt-ID 157918. BC Novo AG is a small SAP provider with 120 employees and has a high reputation as a generous sponsor of nice golf tournaments in nearby foreign mountains for federal and cantonal state employees.
      IBM was not published although trying hard to win: only 2 MUST-criteria were missing.
      Short Consulting AG – a so far completely unknown provider – but working since 2000 only in the field of insurance admin systems – was the last in the row of participants and did not even pass the formal step.
      A complaint by Short send on 13th December 2017 to the court slowed down the speed of implementing the planned prototype using HCM with a workforce of total 61 FTE significantly. Unluckily the complaint included a hint about the missing legal support of maintenance on the SAP HCM module for the full ten years period following the expected final production year from 2020 to 2030 signed on September 15th 2017 – the date the offer had to be handed in. SAP was shipped as subcontractor into the tender by BC Novo.

    10. Thanks for sharing info on SAP extends HCM on premise support to 2030 – smart move or major mistake?

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