AJ Whalen is Senior Research Analyst for HCM at SAPinsider. He has spent the last 27 years working in HR and Payroll technology, including the last 22 years as both consultant and marketer in the SAP HCM and SAP SuccessFactors space. SAPinsider publishes multiple research reports per year for HCM and Payroll, along with frequent interviews and articles for the SAP SuccessFactors community.
The iXerv team recently sat with AJ to discuss the findings from the latest SAPinsider HCM research report, State of the Market: How the cloud is Transforming HR
1. In your opinion, what were the 3 most surprising findings from this research?
I think the first thing – and maybe something that is more interesting than surprising is that 8 years after announcing the acquisition of SuccessFactors, 35% of customers in this survey identified as still being entirely on-premise. That means they don’t have any cloud solutions at all.
Also, when it comes to adoption, I found it interesting that the industry average group – those customers that feel they are about equal to their peers in the value they receive from their HR technology investments – have the highest satisfaction scores in terms of their cloud HR solutions, more so than the leader group. Interestingly, they are also the group that is most likely to identify as using “mostly cloud” solutions.
Finally, we hear a lot about how a lack of business case can prevent some customers from moving to the cloud. However, the laggard category – those who say they are achieving less value from HR technology than their peers – indicated that lack of business case was much less of an impediment than the other groups (only 15% of laggards said business case is a concern compared to more than 40% of industry average). The fact that the laggards don’t report as many issues with building a business case as the other groups kind of debunks the myth that lack of a business case is what holds the laggards back with their cloud HR investments.
2. We see that for 41% of leaders, core HR is a focus, although only 26% of them are implementing payroll. At iXerv, we have worked with 25+ customers on core HR and payroll transformation and the payback is pretty noticeable quite quickly. What do you think drives these numbers? Is there maybe not enough awareness about the power of core HR and – in particular – payroll in the market?
Regarding payroll, the biggest feedback that came from this survey was the sentiment that many are hesitant to touch their existing on-premise payroll solutions. This can be because of the risk – nobody wants to be the person who broke payroll. It can also be due to the cost, particularly for those larger on-premise customers who still remember the effort and cost to implement SAP Payroll a decade or two ago. I think there are also some market factors at work here. Employee Central Payroll is a great solution that is available for 46 countries. There isn’t a true global cloud Payroll solution, so many customers are choosing to sit back and wait rather than replacing what is working. So, it’s a complicated answer and the research didn’t point to just one reason.
As far as core HR goes, the numbers are trending upwards in all three respondent categories. As a point of reference, 31% of the laggard group said their goal was to invest in an end-to-end cloud platform in the next 24 months, higher than any other group. SAPinsider is doing a research report in Q1 2020 about Employee Central adoption trends, so stay tuned on this one.
3. You found that business strategies for HR center on Employee Engagement and visibility into HR processes and data, which aligns with what we’ve seen. What else do you recommend customers look at when building business strategies?
From the research and from interviews I have done since, it is clear that companies that focus on talent acquisition (recruiting) – both in terms of cost and time spent – are more likely to be satisfied with their investments. This addresses three key drivers that were identified as important by customers in the research that we did at SAPinsider: Pressure to lower costs of hiring, pressure to reduce time to hire, and pressure to compete by closing the skills gap. The talent acquisition technology available has really progressed with not only SAP SuccessFactors Recruiting but also some intelligent technology from partners that it has the potential to be a competitive differentiator for a customer that does it right. The evolution of recruiting technology is starting to allow HR organizations to see the limitations of past recruiting strategies and to more proactively measure the business results and demonstrate value. And at the end of the day, driving business value is what it should be all about.
4. As iXerv knows from experience, integration is definitely challenging when working with multiple systems. With more than half of leaders citing integration as their top challenge, have you found any correlation between the challenges of different customers?
One very interesting but predictable result from the research was the likelihood of customers outside of the leader category to cite customization of current technology as a challenge or concern. So, while leaders are looking at integration as a concern as they expand their cloud footprint, many of the slower moving customers are looking at the heavily customized on-premise systems as holding them back. In our research, customization of existing systems was the top challenge for both industry average at 45% and laggards at 35%, so those customers need to be open to looking at business process redesign in order to fit the cloud technology and not take the same approach – or repeat the same mistake – of their on-premise implementations by trying to make the technology fit their processes.
5. What are the top 3 recommendations that you would make to customers, based on the research you performed?
The first one is if you haven’t started to plan for transitioning your HR processes to the cloud, you’re behind your peers. More than 80% of our survey respondents have plans to move some or all HR applications to the cloud over the next 24 months. So, the customers that are sitting back and waiting are really at a competitive disadvantage.
The second one is to really understand the payback or return on investment (ROI) potential of the related business processes when making your adoption decisions. All HR applications are not created equally for the cloud. There are many options for moving key processes such as recruiting, performance management, and learning to the cloud that have ROIs that are much easier to calculate. Payroll processes, on the other hand, carry more risk and complexity and may not be as easy for some to justify. Finding the right partner or trusted adviser to help create that case for the adoption of the more complex solutions like payroll or even core HR could go a long way.
The third recommendation is don’t make your decision about the technology. Make it about strategic goals and business processes. The survey numbers show that many customers have dipped a toe into the cloud by first moving either less-critical functions or applications that have an immediate ROI to the cloud. Investigate the potential for cost, time, and process improvements and match them to your HR and payroll strategic goals. Let that guide your decision on what to do rather than letting marketing buzz push you. Customers that do that have a much easier time justifying the effort and costs of new implementations or migrations.