ERP vendors are showing strong interest in the HRM SaaS market. They are either attempting to build a solution (as Oracle is doing with Fusion) or looking to acquire HRM functionality (as SAP is about to do with SuccessFactors). Talent applications — including offerings like performance, succession, and learning — are not easy to build. The niche players have been laser-focused for years on building these solutions or integrating acquisitions, and generally they have done a good job. Now we see other vendors that want this functionality buying up these niche players to offer a complete end-to-end HRM solution. The HRM market is hot! My colleague Paul Hamerman and I have authored research that shows performance growing faster — at 16.5% — than any other HRM segment (HRM Solutions: Traditional Models Clash With Next Generation Processes And Technology). Executives know that having highly skilled employees who know the business and can execute well on strategy is critical to business growth.

SAP’s proposed acquisition of SuccessFactors gives SAP functionality and future promise that it really needs. In my recent Forrester Wave™ for talent management solutions, I rated SAP behind the niche players in both the performance and learning applications. The comment I often heard from SAP was: “We’re working on that functionality.” SuccessFactors does performance well and it now has a leading learning management system vendor as part of its offering as a result of its spring 2011 acquisition of Plateau. SuccessFactors also offers social learning via Jam (formerly Jambok, another SuccessFactors acquisition). Most importantly, SAP gets a strong SaaS offering, with indications of grand plans for future cloud services. SAP has a number of installed customers. If they want an installed learning solution that’s best in class, SAP could offer them Plateau, a company whose heritage is on-premises but which also has a SaaS solution. SAP’s existing learning offering is weak, inflexible, and not user-friendly — but now it can offer best-in-class learning, either installed or as a SaaS solution.

While SAP stands to gain a lot from this deal, a massive integration effort lies ahead. Customers want seamless solutions, especially in performance and learning. Integration via SSO enabling users to move from one app to another is not adequate. I see this as a very big undertaking, but SAP must do it quickly once the deal has been sealed.