Winning the War of Attraction and Retention: SAP’s SuccessFactors Buy
By Sam Sliman, President, Optimal Solutions Integration

 

Things are getting interesting.  After several attempts to make a dent in the on-demand market, SAP upped the ante in its ongoing battle with Oracle by plopping down $3.4 billion to acquire SuccessFactors, a leader in the Software as a Service (SaaS) market for HR solutions.  By any measure this is a pricey deal, begging the question of why SAP saw it necessary to write such a check for a technology they could have readily built with their legion of developers around the globe.

 

Enhancing its cloud offerings certainly played a big role in SAP’s decision to make such a bold (and somewhat unexpected) move. SAP gains SuccessFactors’ market-leading, cloud-based human capital management (HCM) solutions and also benefits from SuccessFactors’ cloud-seasoned leadership team and proven cloud technology.

 

But there is a more interesting angle to this acquisition that has been “clouded” by the focus on SuccessFactors’ technology and delivery model – and SAP’s historical challenges in becoming competitive in the on-demand / SaaS / cloud world.

 

Perhaps  not enough attention is focused on the specific market segment that SAP has so
aggressively targeted with SuccessFactors – HCM solutions that address the present-day need for businesses to attract and retain the talent they need to grow market share and effectively compete in today’s global economy.

 

Emerging as we are from a global recession, one might think that businesses have the upper hand at the hiring table, and that today’s high unemployment translates into a deep pool of cheap, readily available talent. But the facts on the ground don’t support this view. The reality is that it has never been harder or more expensive to attract and retain the skilled workers businesses need.

 

Talent & skills shortage

 

According to numbers recently released by the U.S. Labor Department, over the three months ending October 2011, the average number of positions waiting to be filled climbed to 3.26 million, the highest since 2008. But in 2008 the jobless rate was 5.8% whereas in October of 2011 the jobless rate was 9%. 

 

The disparity in these numbers brings into clear relief the present and growing mismatch between the skills of the unemployed and the skills employers are looking for.

 

According to Talent Acquisition Fact Book 2011, released in November by Bersin & Associates, there is a marked imbalance between people without jobs and people with the appropriate skills that businesses are looking to hire -- making corporations work harder than ever to find the right people.  Also consider:

• In its Talent Shortage 2011 Survey, The ManpowerGroup reports that 52% of U.S. employers surveyed say they have difficulty filling positions because of talent shortages. (Global average is 34%.) In addition, 57% of respondents say that this talent shortage negatively impacts key stakeholders.

• Through a survey of 334 senior executives in December 2010, Forbes Insight delivers a similar finding, reporting that many executives predicted talent shortages across key business units.

• Of the top 50 business risks catalogued in Lloyd’s Risk Index 2011, which is based on an exhaustive survey of global business leaders, the risk of talent and skill shortages rose from a lowly 22nd priority in 2009 to a strikingly high 2nd priority in 2011. In North America alone, 45% of survey respondents rated talent as a high or very high risk priority over the next year. Moreover, according to the report, companies feel less able to manage this risk than they did in 2009.

Exacerbating the talent shortage, Piper Jaffray reports that a quarter of the U.S. working population is set to retire in the next two decades. Many of these Baby Boomers will take with them specialized skills learned through years of experience that will be very difficult to replace.

 

Changing workforce

 

From Baby Boomers to Generation Xers to Millennials, different generations have very different goals and expectations when it comes to which companies they’ll work for and which they’ll remain loyal to.  More facts:

• According to Piper Jaffray analyst Mark Murphy, Millennials (15-25 age group) are likely to engage in 4-7 different careers -- not jobs -- in their lifetime.

• Delloitte’s Talent Edge 2020, released in April, reports that among employees surveyed in March 2011, only 35% expect to remain with their current employers, compared to 45% who were committed to their employers during the recession in 2009.

• According to a recent Mercer study, 32% of employees are currently “planning on leaving” their employers, versus only 19% two years ago.

Labor costs

 

Labor represents the highest costs for businesses. Labor share is the portion of output that employers spend on labor costs (wages, salaries, benefits, etc.). According to the U.S. Department of Labor: Bureau of Labor Statistics, non-farm business sector labor share for Q3 2011 was approximately 94%.

 

Bersin & Associates’ Talent Acquisition Fact Book 2011 breaks out the high costs of hiring, training and keeping the right people -- reporting that spending per employee on recruiting went up 6% in 2011, bringing the US recruiting market to a size of $124 billion. According to Bersin & Associates, companies spend, on average, around $3,500 per candidate on recruiting.

 

Suffice it to say, the more specialized the skill, the more a company must pay for recruitment and/or training and retaining this worker.

 

HCM on the rise

 

Finding the skills is hard, retaining them is expensive, and it is the asset where most industries spend the overwhelming majority of their cash.  In light of these facts, companies are paying very close attention to what their workforce will look like in 3 or 5 or 10 years (or at least they should be).  And they should be taking action now to ensure their success in the increasingly heated and vital battle for talent.

 

So, rather than letting the cloud (and technology) distract our attention, the SAP acquisition of SuccessFactors may actually have more to do with helping SAP customers enhance their competitive position in the global wars of attraction and retention.

 

In doing so, SAP pivots even further from their entrenched (and extremely successful) strategy of helping their customers find efficiencies and “run better”.  Today, with BusinessObjects, Sybase, and now, SuccessFactors, the focus is equally on enhancing competitiveness in a qualitative sense, again drawing a stark contrast vis-à-vis the rest of the enterprise technology market.  Perhaps that is worth $3.4 billion after all.

 

Visit the Optimal SAP Blog for a roundup of media/analyst coverage of SAP’s SuccessFactors acquisition.