HCM and SAP S4HANA

BENCHMARK REPORT by Ogo Nwanyanwu June 2023 HCM AND SAP S/4HANA SPONSORED BY

THE BUSINESS landscape has significantly transformed in the last few years, underscoring the need for a more human-centric approach to workforce management. Human Experience Management (HXM) systems, such as the SAP Insider SuccessFactors HXM Suite, empower Perspective organizations to put the workforce at the center and are focused on enhancing the overall employee experience, boosting engagement, “We would bene昀椀t very and driving productivity. For SAP organizations, much from a holistic HXM system adoption is often evaluated within enterprise approach when it the long-term scope of an enterprise comes to HR (and all other transformation powered by SAP S/4HANA, which SAP modules). SAP simply can improve operational efficiency, reduce costs, does not perform well and enhance overall business performance. across our user experience. However, many organizations running SAP We developed on-premises struggle to adopt these modern systems, despite solutions for our U.S. organizations that are not the clear benefits of SAP S/4HANA, SAP allowed to connect and SuccessFactors HXM Suite and Solution integrate to the cloud, so Extension partners. we may be forced to stay on-premises in the existing The research investigates strategies progressive organiza- tions use to navigate HXM adoption challenges. The data revealed HR technology if cloud is all that leaders with superior HXM business outcomes prioritized in- that SAP is offering.” vestments in robust time and attendance solutions. This valuable insight elevates SAP Time and Attendance Management by — IT MANAGER, EMEA AEROSPACE AND WorkForce Software, as a critical component of a successful HXM DEFENSE adoption strategy. SAPinsider surveyed 114 community members from March to May 2023 to understand how the current HCM and SAP S/4HANA priorities may affect potential HXM adoption strate- gies. The top drivers pushing organizations toward adopting HXM strategies are the demands for visibility into HR pro- cesses and employee engagement (31% of survey respon- dents), and higher employee expectations for more tailored and user-friendly HR experiences (27%) (Figure 1). These fac- tors correspond with the primary benefits SAPinsiders antici- SAPinsider Benchmark Report | HCM and SAP S/4HANA 2

Figure 1: Key Drivers Shaping HCM and SAP S/4HANA Strategic Priorities in 2023 31% 27% DEMAND FOR VISIBILITY INTO HIGHER EMPLOYEE EXPECTATIONS HR PROCESSES AND FOR MORE TAILORED AND USER-FRIENDLY EMPLOYEE ENGAGEMENT HR EXPERIENCES pate by moving to HXM systems — a better user experience for employees (63%) and increased employee satisfaction (45%). The transition to HXM allows organizations to reorient their HR strat- egies around enhancing the employee experience. While HCM systems have successfully and efficiently managed HR operations, they often struggle to meet the needs of the modern, digitally empowered workforce. This struggle is particu- larly noticeable across workforce management of deskless workers (i.e., frontline or shift workers), who constitute approximately 80% of the global workforce today. However, transitioning from tra- ditional Human Capital Management (HCM) systems to more modern, experience-centric HXM platforms is not without challenges. These challenges reflect in the survey findings as gaps be- tween the respondent organizations’ aspiration to enhance user experiences and the planned adoption of HXM systems. Only 12% of organizations intend to implement an HXM system by 2024. An additional 14% will target 2025, while other organizations have extended timeframes, with 11% planning to implement them by 2027 (Figure 2). The survey indicated 37% of respondents have no HXM adoption plans, highlighting some key roadblocks in the path of HXM adoption. The cost was the biggest barrier highlighted by 38% of respondents, while 35% identified competing priorities as a barrier, and 25% held the complexity of transitioning from an existing HCM to an HXM system as a core concern (Figure 3). This insight underscores the importance of a robust business case that addresses such appre- hensions and simplifies the transition toward HXM adoption. However, organizations are reluctant due to the perceived need for ROI from their existing HCM investments, with some stating, “We have invested a lot into our SuccessFactors instance; we do not think we will be looking to change systems anytime soon.” As the technology divide between the desked and deskless workers becomes more apparent, the challenge of promptly sourcing trained personnel during operational disruptions and supply chain issues has also emerged. This operational challenge, coupled with the persistent concerns regarding low engagement and retention, has steered progressive organizations to regard robust time and attendance functionalities as a fundamental aspect of their HXM strategy. This approach SAPinsider Benchmark Report | HCM and SAP S/4HANA 3

Figure 2: HXM System Adoption Plans YES, WE HAVE PLANS TO IMPLEMENT BY 2024 12% YES, WE HAVE PLANS TO IMPLEMENT BY 2025 14% YES, WE HAVE PLANS TO IMPLEMENT BY 2027 11% NO PLANS TO IMPLEMENT BUT CURRENTLY EVALUATING 26% NO PLANS TO IMPLEMENT AND NOT EVALUATING 37% Figure 3: Barriers to HXM System Adoption TOO EXPENSIVE 38% OTHER PRIORITIES 35% COMPLEXITY OF EXISTING IMPLEMENTATION 25% LACK OF RESOURCES/SKILLS 21% WAITING TO COORDINATE WITH 17% INFRASTRUCTURE CHANGES NO BUSINESS CASE 15% DON’T WANT TO START LONG PROJECT IN CURRENT ECONOMIC CLIMATE 12% NOT ENOUGH KNOWLEDGE 12% DIFFICULTY IMPLEMENTING OR GOING LIVE 8% CONCERN ABOUT FUTURE OF HR SYSTEM 8% ON-PREMISE LICENSES SAPinsider Benchmark Report | HCM and SAP S/4HANA 4

enables organizations to overcome multiple HXM adoption barriers identified by SAPinsiders. When building a business case for adopting HXM strate- gies, organizations using SAP solutions should focus on the potential return on investment (ROI) benefits that can be de- rived. SAPinsider’s research indicates that implementing a cloud-based HXM system with a foundational HR solution like time and attendance management, leads to a positive ROI, as highlighted by 27% of the respondent organizations who re- Insider ported their HXM and SAP S/4HANA strategies outperformed Perspective their peers, suggesting the potential of such an approach. These organizations demonstrate a much higher adoption rate of foundational HR technologies, most notably in time and “No plans to adopt or attendance management (83%) (Figure 4). Time and attendance management is the only HR technol- evaluate HXM as we are ogy to attain over 80% adoption rate, demonstrating the criti- uncertain about cal role it plays in meeting the requirements of deskless SuccessFactors HXM Suite workers, and offering streamlined experiences in line with to- available only in the cloud. day’s workforce expectations. SAP Time and Attendance In Aerospace, we use it Management by WorkForce Software, an SAP Solution Exten- tightly connected to our sion, stands out in this regard. It offers modern workforce management solutions and a proven track record of delivering supply chain and other ROI. The Solution Extension can enhance native SAP applica- areas of our SAP tions, facilitating workforce visibility and promoting better em- implementation. We are not ployee experience and engagement, which respondents allowed (in these times of war, etc.) to connect a identified as the principal drivers of HXM system adoption among respondent organizations. cloud-based solution to our However, despite the availability of such solutions, 36% of ERP solution. Therefore, the respondent organizations identify themselves as ‘laggards’ who are assailed by budget constraints or competing priori- integration won’t be ties. When comparing technology adoption, leaders signifi- streamlined if we move to SuccessFactors locally (our cantly outpaced laggards, especially in key foundational HR global HR SuccessFactors is areas such as time and attendance management (83% vs. stand alone and therefore 43%), learning and development applications (78% vs. 38%), recruitment tools (72% vs. 38%), payroll solutions (72% vs. requires duplicate data 58%), and core HR solutions (72% vs. 38%). entry currently).” And while leading organizations aim to integrate more ad- vanced HR technologies such as HR analytics, intelligent au- – IT MANAGER, EMEA AEROSPACE AND DEFENSE tomation (including AI and RPA), and cloud-based development and extension platforms like SAP BTP, laggards are looking to catch up with an approach focused on implementing founda- tional HR technologies. Regardless of current HR technology adoption maturity, organizations need a strategic roadmap aligned with core business objectives and employees’ evolving needs. A move toward an interconnected and employee-centric model ap- SAPinsider Benchmark Report | HCM and SAP S/4HANA 5

Figure 4: Technology Adoption — Leaders vs. Laggards n Leaders n Laggards TIME AND ATTENDANCE 83% 42% MANAGEMENT APPLICATION LEARNING AND DEVELOPMENT APPLICATION 78% 38% RECRUITING 72% 38% PAYROLL 72% 58% CORE HR 72% 38% PERFORMANCE MANAGEMENT APPLICATION 67% 50% ONBOARDING APPLICATION 61% 46% COMPENSATION MANAGEMENT 61% 38% MIDDLEWARE FOR HR AND ERP INTEGRATION 56% 33% CLOUD SECURITY AND DATA PRIVACY 56% 25% (E.G. GDPR) MONITORING SOLUTIONS WORKFORCE PLANNING APPLICATION 56% 21% HR ANALYTICS APPLICATION 50% 25% END-TO-END CLOUD-BASED HR PLATFORM 44% 13% CLOUD-BASED DEVELOPMENT AND 39% 13% EXTENSION TOOLKIT/PLATFORM ARTIFICIAL INTELLIGENCE AND 33% 8% ROBOTIC PROCESS AUTOMATION TECHNOLOGIES TO SUPPORT HR proach that pivots on a Human Experience Management (HXM) system defines the future of HR management. The survey’s findings also highlighted other significant observations. 84% of respondents em- phasized the importance of keeping pace with compliance requirements for flexible scheduling, which emphasizes the significance of a robust time and attendance system, which is a crucial part of a successful HXM strategy. Furthermore, leading organizations are 50% more likely to run SAP HXM SuccessFactors in the cloud. In contrast, lagging organizations are nearly 2.5 times more likely to run HR systems on-premises. SAPinsider’s findings reveal a clear divide in HXM strategy performance between those embracing SAPinsider Benchmark Report | HCM and SAP S/4HANA 6

the transformative potential of cloud-based HXM systems and those organizations clinging to on-premises HR solutions. Additionally, the leading organizations are 33% more likely to implement SAP HXM SuccessFactors in the cloud, indicat- ing a proactive approach toward HXM adoption. These organi- zations are also more likely to reap the benefits of HXM adoption, such as greater efficiency, improved employee sat- isfaction, and enhanced employee communication, represent- ing the top business outcomes identified by leading organizations. Whether leader or laggard, all organizations share a com- mon goal — improved HR strategies, engaging work environ- Insider ment, and enhanced business performance. To achieve this, Perspective the transition from purely administrative HR processes to a more integrated, employee-centric approach as a founda- tional business strategy, is required. This is where HXM sys- “Over the next one to two tems and modern ERP platform adoption become essential. years our road map for HXM For SAP organizations navigating this journey, the survey includes evaluating the SAP findings are indicative of an important end goal — a cloud HR landscape that prioritizes human experiences supported by S/4 HANA system as well as advanced technologies like SAP S/4HANA, SAP SuccessFac- exploring other options that tors HXM Suite, and SAP Time and Attendance Management may be available. by WorkForce Software. We have several competing Overall, the survey findings make a compelling case for project priorities from organizations using on-premises HR solutions to reassess their stance. Leading organizations demonstrate that adopt- various business partners ing HXM systems that offer modern and robust time and at- across the organization, but tendance functionality is essential for staying relevant and we have dif昀椀culty 昀椀lling competitive. Meeting compliance requirements for flexible needed open positions to scheduling, coupled with the advantages of improved effi- ciency, heightened employee satisfaction, and better commu- secure the right resources and skills.” nication, form a compelling case for HXM systems adoption. By taking a strategic, future-focused approach to HR manage- ment, organizations can achieve success in a rapidly chang- – PRODUCT DEVELOPMENT MANAGER, NORTH ing, predominantly deskless employee operating environment. AMERICAN SOFTWARE This year’s survey also revealed several key findings re- COMPANY garding how SAPinsider organizations approach HXM and SAP S/4HANA strategic priorities. These are: • SAP HCM systems hold a significant market share as 68% of respondents utilize SAP HCM systems, including SAP Suc- cessFactors. Workday HCM and Oracle Cloud HCM trail be- hind, adopted by 15% and 4% of participants, respectively. • Change management is the most significant obstacle in managing the existing HCM environment, as identified by 36% of respondents. This reflects the difficulties in adapting SAPinsider Benchmark Report | HCM and SAP S/4HANA 7

to new procedures, technologies, and strategies in the HCM domain. Customization also stands as a major hurdle, with 33% marking it as a top challenge, indicating the struggle of organizations in tailoring their HCM systems to fit unique business needs and requirements. Other issues in- clude data management (22%), integration (21%), and both reporting and availability (each at 15%). • The standout metric for gauging HXM strategy success is employee retention, used by nearly half (49%) of organizations, underscoring the importance placed on talent retention. Additionally, metrics around employee satisfaction (41%) and time to hire (44%), show that employee well-be- ing and efficient recruitment are key HXM pillars. Metrics like cost per hire (33%) and expenses per employee (28%) indicate a cost-aware approach. Interestingly, metrics like labor turnover (20%), and turnover cost (23%) are less prioritized in the HXM performance evaluation. • Regarding the mix of HR solutions employed across our HR community, most participants (32%) are running SAP HR on-premise solutions, suggesting a high reliance on traditional SAP infra- structures. However, cloud solutions are gaining ground, with 20% utilizing SAP SuccessFactors on the cloud. Hybrid environments are also evident, with 17% operating SAP on-premise and SAP SuccessFactors solutions. Fewer organizations rely solely on non-SAP solutions (8% for on-prem- ise and 8% for cloud), with a small portion (6%) running a hybrid of all non-SAP solutions. This reflects the gradual transition towards cloud and hybrid environments in the HR technology space. REQUIRED ACTIONS Based on the survey responses, organizations should make the following plans around their HCM and SAP S/4HANA strategies: • Prioritize HR process modernization with a focus on employee experience. Organizations can enhance the user experience by providing employees with self-service portals to manage every- thing from personal information to performance objectives from a single point of control. Simulta- neously, this allows the HR team to utilize a central record system for employee data, minimizing effort duplication and reducing administrative work. • Create a unified overview of HR activities. Consolidating disparate HR systems is pivotal for unified oversight and streamlined operations. Many organizations struggle with limited visibility and increased complexity with multiple vendor solutions. Transitioning to an integrated system like SAP SuccessFactors HXM Suite, alongside Solution Extension partners, can mitigate these challenges. Such consolidation offers managers clear insight into employee working hours, rest periods, and overtime, fostering compliance with labor requirements. Thus, it provides an oppor- tunity for comprehensive and efficient HR management. • Enable a performance-driven culture with a cloud-based HXM system. Consistent employee performance tracking, the use of systems like SAP SuccessFactors HXM Suite for calculating compensation based on performance ratings, and variable pay bonuses can build a perfor- mance-driven culture. This strategic prioritization can substantially uplift the employee experi- ence, leading to higher engagement, productivity, and business performance,a chief concern among survey respondents across the board. SAPinsider Benchmark Report | HCM and SAP S/4HANA 8

DART HCM and MODEL FRAMEWORK SAP S/4HANA • Demand for visibility into HR processes and employee engagement (31%) • Higher employee expectations for more tailored and user-friendly HR experiences (27%) DRIVERS • Increase automation in HR processes to relieve pressure on HR employees (39%) • Increase employee engagement, satisfaction, and retention through consistent and engaging experiences (37%) ACTIONS • Invest in technology to improve worker productivity (36%) • EnsureHRprocesses and technology support latest HR compliance regulations (34%) • Consistent and integrated employee recruiting, onboarding, performance management, training and development strategies and processes (86%) • Comprehensive HR reporting and analytics strategy (84%) • Ability to keep pace with compliance requirements flexible scheduling REQUIREMENTS (84%) • Single point of truth of HR process-oriented and talent data (83%) • Payroll (64%) • Core HR (59%) • Time and attendance management application (56%) • Learning and development application (54%) • Performance management application (53%) • Recruiting (52%) • Onboarding application (50%) TECHNOLOGIES • Middleware for HR and ERP integration (46%) • Compensation management (46%) • HR analytics application (38%) • Cloud security and data privacy (e.g. GDPR) monitoring solutions (35%) • End-to-end cloud-based HR platform (35%) SAPinsider Benchmark Report | HCM and SAP S/4HANA 9

KEY TAKEAWAYS SAPinsider’s research reveals that SAP customers should apply the following key steps to ensure that their strategies for HCM and SAP S/4HANA have the foundation for success: EVALUATE THE BENEFITS OF RISE WITH SAP FOR HXM WITHIN THE BROADER ENTERPRISE TRANSFORMATION STRATEGIES. With the end of mainstream maintenance for SAP ERP HCM in 2027 and the optional extension to 2030, organizations can no longer wait to finalize a plan. RISE with SAP for HXM presents an attractive solution, especially for those looking to move core HR to the cloud with Employee Central before the maintenance for their on-premise system ends. Align decision to move core HR to the cloud should with the organization’s overall objectives, resource capabilities, and the evolving needs of its workforce. EXPLORE SAP SUCCESSFACTORS HXM SUITE AND SOLUTION EXTENSION PARTNERS FOR EMPLOYEE EXPERIENCE ENHANCEMENT AND STRATEGIC HR EVOLUTION. The SAP Success- Factors HXM Suite and Solution Extension partners can equip HR with the right tools and insights to play a more strategic role in the organization. With powerful analytics and reporting capabilities, HR teams can uncover critical workforce trends, make data-driven decisions, and align HR strate- gies with overall business objectives. Adopting the SAP SuccessFactors HXM Suite can therefore prove instrumental in accelerating digital transformation in HR, elevating employee experiences, and positioning HR as a crucial player in the organization’s strategic agenda. AIM FOR A UNIFIED EMPLOYEE DATA VIEW THAT FULLY INTEGRATES DESKED AND DESKLESS WORKERS. Organizations should strive for a more comprehensive view of employee data that spans various functions, locations, and both desked and deskless workers. This unified approach can offer a holistic understanding of the workforce, drive informed decision-making, foster a more inclusive culture, and improve engagement and productivity. CONSIDER A MORE ROBUST TIME AND ATTENDANCE APPLICATION TO DRIVE ROI. Traditional systems are not designed with a focus on the employee experience. These systems may not offer personalized experiences, self-service capabilities, or mobile access, leading to frustration and reduced employee productivity. Organizations can improve accuracy and scalability by addressing these concerns with a more robust time and attendance application like SAP Time and Attendance Management, and generate significant ROI. SAPinsider Benchmark Report | HCM and SAP S/4HANA 10

Appendix: ™ The Dart Methodology SAPinsider has rewritten the rules of research to provide actionable deliverables from its fact-based approach. The DART methodology serves as the very foundation on which SAPinsider educates end users to act, creates market awareness, drives demand, empowers sales forces, and validates return on investments. It is no wonder that organizations worldwide turn to SAPinsider for research with results. THE DART METHODOLOGY PROVIDES PRACTICAL INSIGHTS, INCLUDING: DRIVERS These ar e macro-level events that are affecting an organization. They can be both external and internal, and they require the implementation of strategic plans, people, processes, and systems. ACTIONS These ar e strategies that companies can implement to address the effects of drivers on the business. These are the integration of people, processes, and technology. These should be business-based actions first, but they should fully leverage technology-enabled solutions to be relevant for our focus. REQUIREMENTS These ar e business and process-level requirements that support the strate- gies. These tend to be end-to-end for a business process. TECHNOLOGY These are technology and systems-related requirements that enable the business requirements and support the company’s overall strategies. The requirements must consider the current technology architecture and provide for the adoption of new and innovative technology-enabled capabilities. SAPinsider Benchmark Report | HCM and SAP S/4HANA 11

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