SAP as No. 1 in Cloud HCM Market

Following is excerpted from Cloud Top 500 survey findings, which profile the world’s 500 largest Cloud Applications Vendors based on their 2014 Cloud subscription revenues. For profiles of all 500 vendors, click here.

SAP as No. 1 in Cloud HCM Market

Mike Ettling leads SAP HCM Cloud and on-premise lines of business.

Dietmar-Hopp-Allee 16
Walldorf, 69190, Germany
+49 62 2774 7474
http://www.sap.com

Overview:

Ownership: Public (SAP:NYSE)
Employees: 74551
Market: ERP, CRM, HCM
Key Verticals: Aerospace & Defense, Automotive, Banking, Chemicals, Consumer Products, Construction, Healthcare, Education, Technology, Insurance, Media, Mining, Oil & Gas, Professional Services, Life Sciences, Government, Retail, Communications, Transportation, Distribution, Utilities

Cloud Applications Revenues, $M:

Type \ Year	2011	2012	2013	2014	YoY Growth, %
Total Revenues, $M	17233	19631	20347	21250	4.44%
Enterprise Applications Revenues, $M	13583	15473	16038	16659	3.87%
Cloud Applications Revenues, $M	24	463	1023	1300	27.08%
Cloud HCM Applications Revenues, $M	243	329	535	661	23.55%

2014 Cloud Applications Revenues by Region:

Region	% of Total Revenues	2014 Total Revenues, $M	2014 Cloud Applications Revenues, $M
Americas	37.85%	8043	492
EMEA	46.89%	9964	610
APAC	15.26%	3243	198
Total	100.00%	21250	1300

2014 Revenue Breakdown by Type:

Type	License	Services	Hardware	Support & Maintenance	SaaS
% of Total Revenues	29.88%	12.00%	0.00%	52.00%	6.12%
Revenues, $M	6351	2550	0	11050	1300

Key Cloud Applications: Ariba, SAP Business One Cloud, SuccessFactors HCM Suite, SAP HANA Cloud, SAP Cloud for Human Resources, SAP Cloud for Finance, SAP Cloud for Sales, SAP Cloud for Service, SAP Cloud for Marketing, SAP Cloud for Procurement, SAP Business Suite powered by SAP HANA in the cloud

SCORES Analysis

Strengths

With a steady increase in subscription revenues and the 2014 purchase of Fieldglass for contingent workforce management, SAP has extended its lead in the HCM applications market. The SAP HCM applications product portfolio is led by its SuccessFactors HCM Suite, which includes Core HR(Employee Central), Talent and Human Capital Analytics solutions, SAP JAM for social collaboration as well as Fieldglass for hiring of part-time and contract employees. SAP Employee Central for Core HR doubled the number of customers in 2014 to about 600 with many of them going live and taking their global system of human resource and payroll records to the Cloud.

SuccessFactors Learning also became a big hit last year as more companies invested heavily in new systems to improve employee skills through continuous career development and workforce compliance programs. SAP JAM, which weaves social collaboration into different aspects of employee engagement, mentoring and coaching as well as work patterns, has made significant inroads into big customers like Amway, Jo-Ann Stores and Marriott International becoming the standard applications for tens of thousands of their employees running the tool for enhanced learning, training and knowledge transfer.

In addition to providing software for full-time employees, SAP has exploited the flexible workforce trend with the 2014 acquisition of Fieldglass, which is now part of its Business Networks. Over the past year, Fieldglass has added 2.7 million users on top of the two million contractors who have registered with the site for creating Statements of Work, turning in timesheets and billing some 400 million hours worked for their job assignments. Currently, Fieldglass has more than 300 customers including 50 added in 2014.

Then there is the HR analytics component that is being reinforced by SAP HANA, the popular in-memory database engine used by more than 6,000 SAP customers. Employee Central reporting, for example, is now available on SAP HANA allowing for relevant insight into workforce population and talent profiles. By 2017 all SuccessFactors customers can expect to run their applications on SAP HANA for added performance and interactive analytics boosting speed and decision support along the way. Another measure of SAP’s success is ubiquity with about 30 million users accessing its full array of SuccessFactors Cloud HCM applications. And the vendor is counting on growing their utilization further through its quarterly release updates as well as the big push under way migrating its on-premise HCM applications customers to the Cloud.

Mike Ettling, president of SAP HCM Line of Business, said its increasing momentum will help the vendor achieve €1.5 billion in revenues for its Cloud HR operations by end of year 2017.

Customers

No. of Customers: 253,000
No. of Enterprise Applications Customers: 253,000
No. of Cloud HCM Customers: 4,350
No. of Cloud HCM Subscribers: 30 million

SAP has more than 4,350 customers running different Cloud HCM applications. Employee Central has 732 customers, while Fieldglass has over 300 customers using its Cloud products for contingent labor management.

Long-standing Cloud HCM customers include Academy Cube, Al-Futtaim, Allstate Insurance Company, Amway, Aspen Insurance Holdings Limited, B/E Aerospace, Brookshire Grocery Company, Coca-Cola Enterprises Inc., ConAgra Foods, Continental AG, DENTSPLY International, Hilton Worldwide, Keolis, Live Nation, PepsiCo, Plan International, Serco Group plc, SHORE Solutions, Sonova AG, and Unify.

Opportunities

SAP is firing on all cylinders to ensure continued success with its Cloud HCM applications. Banking on the simplicity messaging that has become a dominant theme for all SAP products, Cloud HCM is no different. SAP’s product road map zeroes in on a user experience that combines role-based design, simple layout that easily extends across different devices as well as useful tools for org chart visualization and natural language search.

Another focus is on Intelligent Services that aim to enhance the employee and manager self-service capabilities by providing relevant content as well as business networks capable of addressing HR processes derived from standard occurrences and key career events such as leave of absence and job relocation. The goal is to deliver seamless Cloud experiences with help from advanced analytics and machine learning technologies that mimic concierge services that anticipate, customize and fulfill job-related requests.

Learning is also expected to be upgraded to offer recommendation engines that automatically generate how-to guides on any job-related topic, while handling industry-specific training and compliance requirements. In addition, SAP is tapping into the Open Content Network for better access to third-party course providers as well as external LMS content sites such as Coursera, Lynda.com, OpenSesame and Udacity.

When it comes to SuccessFactors core offerings for performance management, SAP is adapting to the growing need of maintaining a running conversation between managers and their direct reports for continuous job and performance review, in lieu of a formal annual process that has been proven to be ineffectual and devoid of consistent feedback. By leveraging the latest chat and weekly-update features on mobile devices, SAP plans to deliver next-generation performance management applications that reflect and track the assessment and progress for any manager and employee in order to complete the feedback loop.

Lastly, SuccessFactors HCM applications are expected to play a key role behind the large-scale deployment of the new SAP S/4 HANA business, which has already reached more than 900 customers in July 2015, a year after its official launch.

Risks

SAP’s leadership role in the Cloud HCM applications market is not without its share of growing pain. The steep ramp in the number of Employee Central customers to over 732 in July 2015 from 70 in 2012 has resulted in an overtaxed support infrastructure that prompted the vendor to overhaul its customer care offerings. Over the past 12 to 24 months, documentation might not have been updated by SAP and its partners, support tickets might not have been properly processed, and most importantly implementations might have been slipped repeatedly.

In April 2015, SAP moved to address these support issues by announcing Preferred Care with some features designed specifically for SuccessFactors customers that have voiced concern over the lack of value from their Platinum support program. With such features as personalized release update information, designated customer success managers, chat support, Preferred Care could be the impetus for SAP to improve the overall customer experience in the Cloud.

A more daunting challenge may come as SAP starts gaining traction with hundreds of S/4 HANA customers that plan to adopt the entire suite. Currently these customers have a choice of on-premise or hybrid deployment with their S/4 HANA applications, along with the Cloud implementation of SuccessFactors as their core HCM solution. In November 2015, SAP is expected to offer another option by including its on-premise HCM applications on the same box as their S/4 HANA deployment. What it boils down is the introduction of a parallel track for S/4 HANA customers considering running SuccessFactors or SAP’s on-premise HCM applications that fit their overall ERP vision. The downside to that is a mixed environment for S/4 HANA to scale effectively, while potentially undermining SuccessFactors’ ability to become the de facto HCM system for tens of thousands of SAP’s existing customers.

Ecosystem

2014 Direct vs Indirect sales:

Region	Direct Sales	Indirect Sales	Total
Type %	67.00%	33.00%	100.00%
$M	14238	7013	21250

In August 2015, SAP signed a deal with Workforce Software to resell its workforce management applications for time and attendance to its Cloud HCM customers. That comes on top of a similar agreement with Benefitfocus to bundle its benefits administration software with its Cloud offerings. Earlier this year, SAP also signed a deal with IBM to make available integration into IBM Kenexa’s recruiting applications.

What these agreements amount to is the fact that SAP is surrounding itself with a host of ISVs for best-of-breed add-ons as well as more than 800 reseller, systems integration and BPO partners that collectively can provide significant value to their target HCM customers. These channel partners include Accenture, Deloitte, EY, Infosys, NGAhr, NTT Data, and PWC.

For example, NGAhr provides packaged integration that ties SAP Employee Central to its Payroll Exchange, while giving SAP customers full access to its certified payroll network in over 145 countries, filling in gaps such as localized pre-configuration templates, business process outsourcing as well as other extensions that serve to enrich and sustain the SAP ecosystem.

Cloud platform and Data Center Insights

IBM Cloud, Amazon AWS, Dimension Data

Research Methodology

Data used in research reports are derived from publicly available documents, continuous surveys of applications vendors, customers, resellers, Independent Software Vendors, systems integrators and other verifiable sources.

Vendor shares and market forecast results are based on a combination of existing databases as well as demand side and supply side research conducted throughout the year with validation from vendors, customers, channel partners and documentations such as earnings releases and 10Q and 10K filings, vertical industry studies, regional and country-level statistics from public and private institutions(i.e. colleges, universities, government agencies and trade associations).

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