Second Turn of the HCM Horse Race

Last year, this extended column handicapped the odds of the big three -- Oracle, SAP/SuccessFactors and Workday -- to become the top provider of next-generation cloud HCM systems to large organizations. The stakes are enormous, and a lot has changed in one year as they enter the second turn of the track.

By Bill Kutik/Technology Columnist

For the last few years, Workday, Oracle and SAP/SuccessFactors have been battling each other, hammer and tong, to become the top provider of next-generation cloud HCM systems for large organizations everywhere.The stakes are enormous. More than 25,000 large organizations worldwide currently run on-premise HCM systems and are potentially in play. Of SAP's 12,000-plus HCM customers, for instance, only around 700 currently use its cloud solutions from SuccessFactors.

The draft of the 17th-annual Sierra-Cedar (formerly CedarCrestone) definitive HR Systems Survey projects that, by next year, the number of organizations running cloud Core HR systems will overtake those running licensed, on-premise or hosted systems. The managers of the survey quickly concede it may take longer as organizations rarely change as rapidly as they plan.

Not to beat the horse -- or the race -- analogy to death, but after full-day briefings with each vendor and dozens of their executives in July/August in Silicon Valley, they are clearly entering the second turn on the track. While the finish line is still years away, a lot has changed in just one year.

Sometimes Size Does Matter

HR executives and CIOs care mostly about the functionality of competing products, services and technology. Some of that is discussed below. But handicappers also care about the business side of what vendors are doing, and that's where the pole positions may be starting to shift.

Both Oracle and SAP finally seem to be getting their arms around marketing and selling SaaS after their long heritage of selling on-premise software. And they are aligning their massive global resources behind their HCM applications, often putting them first in line ahead of their dozen other cloud products.

Certainly that's because Workday is taking away some of their on-premise customers, who would otherwise move to Oracle and SAP's own cloud applications. But it also may be because Workday has been evangelizing cloud benefits to everyone in HR, as well as to CIOs, for nine years!

Oracle and SAP's salespeople have been trained. SAP reports having 7,000 of them worldwide selling cloud products, plus 600 specialists for HCM alone. At Oracle, selling and marketing the cloud to HCM on-premise customers has been standardized, somewhat automated, and the process made repeatable. At Workday, dozens of people in sales operations are devoted solely to helping salespeople make the business case for buying Workday HCM or for renewing its SaaS subscriptions.

This day of the giants rising has been long expected, but it's still not great news for Workday, which has been enjoying the window of opportunity of their competitors' comparative business disarray plus its own head start on building cloud products. Workday has been growing like Topsy: headcount up to 3,150 against last year's 2,120. It has scooped up an existing office park in Pleasanton, Calif., and has plans (revealed in the San Francisco Business Times) to construct its own new building.

Workday is also expanding internationally with 14 offices outside the United States, including three in Canada, seven in European countries, plus Hong Kong, Singapore, Sydney and Australia. All representing, of course, a tiny fraction of the global networks of its two much older and tremendously larger competitors: SAP, with 66,500 employees; and Oracle, with 120,000.

But when Workday gets dug in overseas, it can win just as it has in the United States. It recently signed Nissan and Sony from its Tokyo office.

SAP is working to get more nimble by dismantling its board-dominated decision-making, where even the smallest new initiative had to get personal support from a member. That internal politicking often slowed down the company's innovation. Now, new solo CEO Bill McDermott will reportedly get to call the shots.

"This is a fundamental shift," says President Mike Ettling, a new SAP executive and the first to head a combined cloud and on-premise HR division, as SAP folds SuccessFactors into the organization. In fact, two senior vice presidents from SuccessFactors -- Dmitri Krakovsky for products and Adam Kovalevsky for engineering -- are now in charge of HCM on both cloud and on-premise platforms, with hundreds of employees rolling up to each of them from Germany, the sprawling SAP campus in the hills above Palo Alto, Calif., and what had been the new SuccessFactors tower in South San Francisco.

All three companies have won (or migrated) Fortune 500 customers, sometimes from each other. SAP and Oracle will talk endlessly under non-disclosure about their own customers adopting their own cloud products. Plus other new ones that were won competing against Workday (especially) or each other.

For its part, Workday focuses on its new marquee customers. Just announced in August: Bank of America with 300,000 employees globally. Hewlett-Packard, now live with 300,000 employees in 100 countries, is starting a Workday implementation practice (after ripping out the largest global instance of PeopleSoft). Workday's largest client in Europe, Philips in the Netherlands, is live with 100,000-plus employees in more than 70 countries.

The others have marquee cloud clients, of course. For SAP, Timken and PepsiCo are key. The beverage and food giant originally planned to roll out Employee Central, SAP's cloud HRMS for large companies, to 260,000 employees in 87 countries. PepsiCo's original plan was to stay with on-premise HCM in the United States. But after deploying EC in 15 non-U.S. countries (with 40,000 employees), PepsiCo will now use EC in the United States as well.

Oracle points to BT (British Telecom), going from its on-premise to all its cloud apps for 150,000 employees in 170 countries. Likewise, Carlson Wagonlit Travel, actually a French company with 20,000 employees, is now live. BlackRock, managing $4.3 trillion in investments, is off PeopleSoft and now live on the full Oracle HCM Cloud. And Macy's is using all its cloud talent applications.

In February, the HR Technology Conference group on LinkedIn lit up with the news that MiPro Enterprises, Workday's eighth customer, had replaced both its HCM and Financial Management products with Oracle HCM Cloud and NetSuite. To date, it's the only customer Workday is known to have lost.

SAP threw as many as 500 to 700 developers -- executives claim to have lost count -- at SuccessFactors' Employee Central to make it work at the largest customers. Now, it plans to double all cloud-product support (in seven languages) to 500 people by the end of 2014, with 100 added just for HCM adoption.

The systems integrators who make these large and (when they're hybrid) very complex systems work for customers are trained, have more practice and are getting better at it. "They have crossed the chasm," says Senior Vice President Chris Leone, who is general manager of Oracle HCM Cloud. His organization still offers customers a private cloud implementation -- that some would call "hosting," rather than SaaS -- which SAP and Workday do not.

Both SAP and Oracle have loosened the rigid rules on yearly maintenance as a customer financial incentive and a competitive tactic against Workday. With lots of qualifiers, they're both allowing on-premise customers to trade in pieces of their yearly maintenance (especially for applications not being used) toward payments for new SaaS subscriptions. This development was covered in my August HREOnline™ column at  

To use the analogy of a new car dealer, that's a trade-in offer Workday can't match. It can only sell you a brand-new car with no apparent maintenance, except for whatever's built into the monthly SaaS subscription.

The Latest Numbers

For all those reasons, Oracle and SAP are closing the gap with Workday in terms of customer figures of varying sizes.

Oracle was a little more vague about its numbers this year. Leone, a straight- and fast-talking veteran of PeopleSoft, focused on sales during the company's fourth quarter, ending May 31. (Oracle has the screwiest fiscal year.)

He calls it Fusion's "largest quarter ever" with 110 Core HR and 220 Talent Management sold. Apparently, it more than doubled total HCM Fusion sales from last year's reported 240 to this year's vaguer 500-plus. Senior Vice President Steve Miranda says live customers also more than doubled to 250-plus from last year's120.

Remember, Oracle is combining in these numbers sales to on-premise customers of one or more TM cloud applications and those buying Core HR, or even new or current customers buying the entire Oracle HCM Cloud suite.

But they do not include sales of stand-alone Taleo, which -- despite intense industry crepe-hanging for a year -- executives report now has more customers than it did two years ago when it was acquired. What a difference a few thousand more salespeople make! Leone says 45 percent of customers buying Fusion also buy Taleo. What the industry calls "attach rate."

SAP's numbers focus on the latest cloud products, not what SuccessFactors has been selling for nearly 10 years with a reported total now of 4,000 customers. As you know, Employee Central is sold either as a complete Core HR solution or in various hybrid models integrated with an on-premise system.

EC sales have almost doubled since last year with 390-plus customers sold, up from 200. And 132 are live, compared to 77 last year. Executives also broke out the numbers for Cloud Payroll, criticized by some for being the old on-premise software in a SaaS wrapper. Six clients are paying employees with it, and 26 have bought it.

Workday's CEO Aneel Bhusri was also vague about customer numbers, saying they were becoming less valuable indicators of the business because of their varying size.

On his Aug. 27 earnings call, with Workday again beating most revenue estimates, Aneel would only say the total "surpassed 700" and later "well over 700" and gave no live number. That morning before the call, Joel Fishbein, financial analyst with BMO Capital Markets, published a report projecting 745. This compares to 500 last year and 675 at the end of April.

As for customers of the newer Financial Management product, they are "closing in on 100," compared to 80 at the end of April.

Workday is justifiably proud that two-thirds of its signed customers are already live, citing average implementation times of four to 18 months.

The Latest Products

Group Vice President Gretchen Alarcon for Oracle's HCM Cloud Product Strategy did a very smart thing. She reviewed all the product promises she made last year and noted what had been delivered. Many had, with the most important being a single, federated talent profile across Taleo and Fusion talent modules. Taleo still has a different user experience and database, but consolidated reporting is facilitated by a new integration platform called HCM Connect.

Of course, there will be a new user interface for Fusion. All three companies seem to do one every year or so.

Oracle has also simplified the alphabet soup of its many business-intelligence tools and embedded them in applications, created a single mobile-user experience and introduced many on-premise integration toolkits and pre-packaged integrations.

Integration remains a work in progress for both Oracle and SAP. Both have made substantial progress over the past year, creating packaged integrations and standard integration templates. Hard to say which has the greater challenges still ahead.

This has always been one of Workday's major competitive advantages, since, except for recruiting partners providing commodity services and two partners -- Cornerstone OnDemand and Saba -- offering the LMS it doesn't yet have, Workday itself requires no integrations. Unless customers have other systems they want to keep.

Oracle's Chris Leone is very frank about when Oracle would reach the current software nirvana called "unification," a term first popularized by Workday, which has always lived there. He says over the next three years every one of Oracle's cloud applications will be on the same technical stack, including Taleo and the former, which is already being scaled up for the large organizations it was never designed to serve.

SAP has seen that not all of SuccessFactors' talent modules were as tightly integrated as desirable, particularly the LMS SF purchased with Plateau, still on a separate database. Plus, the new Meta Data Framework still needs to be threaded through the entire suite.

SAP has added an Employee Central help desk and continued building out its global benefits offering that now includes allowances, reimbursements and insurance. U.S. benefits are still being handled by cloud partner Benefitfocus, which has reportedly grown from 121 customers in 2009 to 418 today. EC payroll now covers 25 countries.

Recruiting continues marching forward with the gnarly problem of interview scheduling, about to be solved, and enhanced global capabilities. Time & Attendance remains a future for 2016, while SAP continues to rely on cloud partners Kronos and Workforce Software.

At the same time, SAP is making a major push in learning (maybe because Workday doesn't have an LMS?). Senior Vice President Dmitri Krakovsky fulsomely predicted it could "be bigger than HRMS."

Dmitri says 80 people have been added to the learning-product team, which is reimagining and extending it beyond the traditional LMS (though not replacing it) by adding employee-content-creation tools, links to MOOC providers such as Coursera, Udemy and -- even to TED and YouTube. And, naturally, new and smarter search with a machine-learning recommendation engine to wade through the huge volume of content.

Workday is putting a lot of weight behind its acquisition of Identified, which also offers better search and machine learning. Its first use was in Workday's new recruiting application (covered in my May HREOnline™ column at match candidates with jobs using metadata, rather than parsing and extracting every word from resumes. Later it will be used to consolidate candidate information to make recommendations.

But Workday Vice President of HCM Products Leighanne Levensaler says the end game for the technology is business optimization: planning and using business intelligence to drive decision-making within HR and even the entire company.

Near term, she mentioned three possible enterprise applications for Identified technology, one of which, as mentioned earlier, SAP is already planning (thereby officially making it a trend): student-coursework recommendation. The other two possibles are career path recommendations ("optimal job jumps," as she calls it) and "optimal curriculum design."

What to Expect

If you want short-term predictions, the Sierra-Cedar survey has them. As always, the full report will debut at HR Tech. Of this year's 1,063 survey respondents, almost half provided both their current Core HR vendor and the solution(s) they plan for next year. The bullets below are not market share. They are the percentages of the 22 percent reporting they will make a change to one of the three vendors covered here.

Oracle HCM Cloud (Fusion)        2% to 4%

SAP/SuccessFactors EC             3% to 6%

Workday                                       6% to 15%

Survey founder and co-manager Lexy Martin is quick to point out that the plans respondents reported last year would have gotten Workday up to 12 percent, but only reached the 6 percent you see for this year. And her co-manager and successor Stacey Harris adds that several other vendors, such as Ultimate Software, have cloud solutions with a higher percentage of respondents, but generally they're from smaller organizations.

The combined 11 percent for the three featured vendors is still a small number right now. But it looks to be getting a lot bigger really soon.

HR Technology Columnist Bill Kutik is founder and co-chairman emeritus of the 17th Annual HR Technology ® Conference & Exposition. He adds more background to this feature on a video by TotalPicture Radio and podcasts from CYA Report and HR Latte. You can comment on it at the Conference LinkedIn Group, which doesn't require prior or future conference attendance to join. He is also host of The Bill Kutik Radio Show ®.


Oct 13, 2014
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