The SAP-SuccessFactors Deal: Could the Tail Wag the Dog?

My main question is whether SuccessFactors CEO Lars Dalgaard can be happy as a lieutenant as opposed to the commander-in-chief.

The early verdict is in: The SAP-SuccessFactors Inc. deal changes the HR software game.

I’m not so sure. But if it does signal a new era, that era may be more SuccessFactors’ than SAP’s. Don’t be surprised if much-smaller SuccessFactors ends up wagging the tail of big dog SAP

No doubt, the contours of SAP’s plan to buy talent management software specialist SuccessFactors for $3.4 billion are impressive. Walldorf, Germany-based SAP long has been one of the top sellers of HR software. Its human capital management software has been implemented at a whopping 15,000 organizations, many of which use its core HR system to track basic employee information. But it has lagged the market when it comes to the growing trend of cloud computing.

Cloud computing—sometimes called software as a service—means giving clients access to applications over a network as opposed to installing the programs on company computers. Software as a service is seen as cheaper and easier to manage than the traditional on-premise approach.

SuccessFactors, meanwhile, has taken the HR software world by storm the past few years. Driven by its charismatic CEO Lars Dalgaard, SuccessFactors spent lavishly on marketing to become a top provider of talent management tools—that is, software for key HR tasks such as performance management and recruiting. SuccessFactors also bet big on the cloud, developing a very interactive model of getting customer feedback and suggestions.

And the company has always had grand ambitions. While other firms talk about improving client results, Dalgaard said he wanted to improve worldwide productivity by 50 percent.

SuccessFactors itself has been a busy acquirer in recent years, buying firms such as learning management software-maker Plateau Systems and analytics specialist Infohrm. On Dec. 6, it announced a plan to buy recruiting software firm Jobs2Web for $110 million.

HR technology pundits see the SAP-SuccessFactors deal as a milestone.

“We’re definitely entering a new and different phase of consolidation within the talent management part of the market,” Jim Holincheck, analyst at research firm Gartner, told my colleague Michelle Rafter. “This is the first time one of the mega-vendors has gotten into the mix.”

He can imagine the deal triggering other acquisitions akin to the way SAP, Oracle and IBM Corp. all bought business intelligence software players within a matter of months a few years back.

“This is the most important transaction in the history of the HCM space,” says Jason Averbook, CEO of advisory firm Knowledge Infusion. “This completely alters the future of the SAP platform that so many customers around the world count on to manage their HR information.”

Averbook argues that the pressure is on other talent management vendors that can’t connect to core “people data” in ways that lead to business insights.

Indeed, the SAP acquisition led to a flurry of statements by other talent management vendors. One way they spun the deal is that Dalgaard and SuccessFactors will now be distracted. SAP said SuccessFactors will remain an independent unit with Dalgaard at the helm, and that Dalgaard “will lead the cloud business of SAP.”

“While our competitors are trying to figure out a complex integration, we’ll be 100 percent focused on the success of our customers and growing our business,” said Mike Gregoire, CEO of talent management software firm Taleo Corp.

He may have a point. Even if SuccessFactors’ applications are largely left alone, SAP will likely try to weave them together with other SAP products to create insights such as what training programs have the best sales payoff, which managers oversee highly productive employees and which recruiting sources lead to workers that generate the most revenue.

Integration isn’t easy. That much is clear from the long gestation of Oracle’s Fusion applications.

Then there’s the question of cultural fit. Dalgaard is a fascinating guy. In writing about him over the years, I’ve found he can be refreshingly candid, but also callous and contentious.

Clashes in company culture are a major way mergers and acquisitions go awry. My main question is whether Dalgaard can be happy as a lieutenant as opposed to the commander-in-chief.

SAP isn’t the command-and-control culture some people believe it is. Maybe there will be room there for Dalgaard, akin to the way Amazon.com Inc. seems to have successfully accommodated the zany culture of Zappos.com and its idiosyncratic leader Tony Hsieh.

If so, I wouldn’t be surprised if Dalgaard and SuccessFactors ultimately shake up SAP in dramatic fashion. After all, managing people effectively through technology is one of the fastest-growing frontiers of business software. SuccessFactors by all appearances understands the cloud better than SAP. And Dalgaard himself is tireless.

“I can execute harder than anybody—trust me, you cannot keep up with me,” Dalgaard once told me. Judging by his track record at SuccessFactors, this is more a statement of fact than a boast.

I can imagine the SAP-SuccessFactors deal faltering badly, a flash in the pan remembered mostly as a case study in incompatible cultures and ego trips. I also can see nearly the opposite—SAP’s name changing one day to SuccessFactors, with Dalgaard in the CEO chair.

So is it game-changing? Possibly—in ways even SAP probably hasn’t envisioned.