SAP Shakes Up HR Tech Market With SuccessFactors Acquisition Plan

Software giant SAP has stepped firmly into the cloud-computing world with its $3.4 billion purchase of SuccessFactors, a prominent provider of cloud-based human resources software.

In a weekend announcement that triggered a spike in stock prices for Taleo, Kenexa and other HR software companies, Germany-based SAP said its $40 per-share purchase offer for SuccessFactors was 52 percent higher than SuccessFactors’ closing stock price Dec. 2 on the New York Stock Exchange. The deal is subject to closing conditions, including clearances by regulatory authories. San Mateo, California-based SuccessFactors, which employs more than 1,450 people, will remain independent and continue operating under the leadership of CEO Lars Dalgaard.

“The cloud is a core of SAP’s future growth, and the combination of SuccessFactors’ leadership team and technology with SAP will create a cloud powerhouse,” said Bill McDermott, co-CEO of SAP in a written statement. “The acquisition will help us address the top priority for CEOs globally—managing people and talent.”

Cloud computing refers to companies accessing business applications and data over the Internet as opposed to installing software programs on internal computers. Cloud computing—sometimes called software-as-a-service—has been growing in popularity thanks to advantages such as faster implementations and fewer technology hassles.

HR analyst Josh Bersin, of Bersin & Associates in Oakland, California, says the merger is significant given the growing interest in talent-management software among HR executives. However, he said that sees some obstacles for customers of these products.

“Companies have purchased many of these products, especially SuccessFactor products. The challenge is for HR executives who aren’t SAP customers,” Bersin said. “Will that software work for the core HR functions like payroll? There is so much competition in that market that the HR person needs to ask whether or not they want to be a part of SAP solutions. SAP is placing a big bet that they will.”

In a blog post about the deal, Bersin pointed out that “it was interesting that the launch materials and SAP executives hardly mentioned the need or interest to integrate SuccessFactors with SAP’s existing talent management systems, which are quite extensive. So this is not an acquisition initially designed to create a next-generation talent management solution—but rather one to help SAP build a winning cloud-based ERP solution.”

ERP software refers to enterprise resource management applications, which are business software products covering HR and other areas such as finance and accounting.

Staffing consultant Gerry Crispin, co-founder of CareerXRoads, said the deal ” is an inevitable convergence of an enterprise system, like SAP or Oracle, that have failed to make their modules best of breed and a best-of-breed, like SuccessFactors or Taleo, that has been trying to build into an enterprise system.”

It’s a trend that likely will continue, but will not have a big effect on the recruiting industry unless new and better talent management systems are created.

“The problem will be if these systems merely reflect outmoded ways of recruiting,” he said. “The question is whether these changes represent automation or re-engineering.”

Rita Pyrillis is Workforce Management’s senior writer. To comment, email editors@workforce.com.