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

Profile picture for user gonzodaddy By Dennis Howlett January 9, 2018
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.

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Late 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.