Want to Keep SAP HCM On-Premise for a little while longer? Here are your options.

Author’s note: The following is an update to my January 2018 review of SAP options for HCM. Not much has changed. The solution previously identified as “Sidecar” is now known as SAP S/4 HANA HCM edition. The solution now creates a bridge from ECC6.0 on-premise to S/4 HANA for all SAP HCM functionality except e-Recruiting. The target date for availability remains at 2023. That’s the news as of today. Stay tuned and expect change – perhaps even that long-awaited new payroll cloud solution.

For the hundreds of you I’ve spoken to over the past several years who do not want to rebuild what already works in your SAP on-premise ERP system for HR and payroll, SAP provides a bridge solution. Take a look at SAP S/4HANA HCM Edition. It may be an option for maintaining your on-premise SAP HCM solution through 2030.  

In case you’ve been living under a rock for the past five years, let me further explain the dilemma in which many of us SAP ERP loyalists—that is, those of us running SAP ERP version ECC 6.0 or lower—find themselves. 

The New SAP Business Suite Is Here to Replace SAP ECC 6.0 and It’s Not Your Typical Upgrade

The SAP Business Suite that will replace SAP ECC 6.0 is SAP S/4HANA. Mainstream maintenance for the current SAP Business Suite (SAP ECC 6.0) will end on Dec. 31, 2025. With that date now looming less than six years from now, customers are sitting up and taking notice that an upgrade is ahead of them.

But this is no ordinary upgrade. The migration to SAP S/4HANA is not a one-off project. It involves the entire IT system landscape. It’s an investment for customers—of time, people, and potential liability if you get it wrong. Most importantly to those of us in the HR tech space, SAP S/4HANA does not include a native HCM solution. Rather, the next generation solution for HR and payroll would be to rebuild this functionality in SAP SuccessFactors.

Who Wants to Rebuild SAP Payroll and Core HR?

There really are some customers who want a redo of their SAP ERP HCM implementation. Generally, these fall into two categories: those who “didn’t get it right the first time” and those that got it so right that their solution is now overly complex and a bear in which to manage changes.

Still, the legacy on-premise SAP HCM solution works. And if I’m the CFO or CIO prioritizing my scarce resources, I might just decide that I don’t really want to touch what’s working right now.

Enter the “Sidecar”:  SAP S/4 HANA HCM Edition

Last year around this time, SAP’s David Ludlow acknowledged, “We’ve been getting an increasing number of questions with regard to what happens to the on-premise segment for HCM past 2025—there’s no native HCM capabilities in SAP S/4HANA. The assumption has been that customers will leverage SAP SuccessFactors as they move the enterprise parts to SAP S/4HANA. What we also know at the same time is that there are customers moving to SAP S/4HANA that want to remain on premise for HR for the foreseeable future.”

Here’s where SAP S/4HANA HCM Edition comes into play: so we can now add this option to the four standard SAP options available to SAP’s HR customers:

  1. Remain on-premise (until 2025).
  2. Move to SAP SuccessFactors Employee Central and Employee Central Payroll.
  3. Continue with SAP HCM on-premise through 2030 with the SAP S/4HANA HCM Edition
  4. Lift and shift your on-premise HCM to SAP Managed Payroll using one of three partners (until 2025).  
  5. Outsource the business process and the technology to a Business Process Outsource provider.

Here’s What You Need to Know About SAP S/4HANA HCM Edition

This extension of mainstream maintenance for SAP HCM on-premise is available only to customers who migrate to SAP S/4HANA on-premise.

What’s Inside the SAP S/4HANA HCM Edition

SAP S/4HANA HCM Edition is based on the current SAP ERP HCM solution and the functional code that is available in the SAP Compatibility Packs. Compatibility packs were designed by SAP to allow business continuity for customers while migrating functions to SAP S/4HANA. Essentially, the compatibility packs provide capabilities for on-premise functions to run with SAP S/4HANA. 

SAP recently added on-premise Learning to SAP S/4HANA HCM Edition which will also include Personnel Administration, Organizational Management, Time Management, Payroll—the core capabilities. e-Recruiting is not included in the compatibility packs.

How the SAP S/4HANA HCM EditionWorks

SAP S/4HANA HCM Edition will run on the SAP HANA database only. It must be deployed side-by-side with SAP S/4HANA. It must be on a separate instance.

When Will SAP S/4HANA HCM Edition for On-Premise Be Available?

The SAP S/4HANA HCM Edition is expected to be available by 2023 and through the end of 2030. 

How to Transition to SAP S/4HANA HCM Edition

SAP’s goal is to provide a non-disruptive transition for their customers who wish to continue to run SAP HCM on-premise. They plan to provide migration tools to enable customers to easily move from SAP ECC 6.0 to the sidecar solution for SAP HCM. 

Ask your Account Executive. This is clearly an option that needs to be deep drilled relative to your current ERP platform, your business strategy and your future technology goals.

The SAP S/4HANA HCM Edition and Innovation

SAP would like to include some SAP HANA capabilities in the solution. There will also be some selective innovations in the current functionality, as may be brought forward by customers through SAP Influence programs

Important to note, however, is that enhancement capabilities are very limited in this 30-year-old, on-premise design. “There’s not much more we can do with it without a whole-scale re-architecture,” notes David Ludlow. In other words, don’t expect large functional changes in the on-premise sidecar for SAP HCM. 

If you want innovation, be sure that SAP SuccessFactors is part of your long-term roadmap.

What Will the SAP S/4HANA HCM Edition for SAP S/4HANA Cost

I don’t have an update on commercial information. However, SAP had initially said they are not looking to make a ton of money on this new solution. Rather, their goal was to make sure SAP S/4HANA customers have a way forward with on-premise HR if they want to keep it there.

The Upshot of the SAP S/4HANA HCM Editionf

The SAP S/4HANA HCM Edition essentially extends mainstream maintenance for SAP HCM ECC 6.0 for five additional years as customers move to SAP S/4HANA. That’s good news for customers.

This solution, however, may not make sense to you and your overall business model. There are good reasons for updating your HCM technology model. 

Why Move Your HCM to Cloud? 

In the Human Resources space, a move to cloud (or “SaaS” – Software as a Service) solutions began with spot solutions for talent management – processes such as performance management, compensation planning, recruiting and learning were more readily adopted as cloud solutions.

For most of us, I would guess the core HR and Payroll software we’re using today was deployed before the dawn of the Apple iPhone put a computer in every pocket. Technology has rapidly and drastically changed since then. Moreover, customer (employee) expectations of how technology should work for them are high. 

What makes core HR and payroll lag behind other technology? I might say (1) resources (2) business case and (3) lack of visibility. 

We continue to live in a world where we say people are our most valuable resources . . . but they are also the first resources we cut in a bid to reduce expenses. For too many years, we have streamlined staff but haven’t streamlined processes. Hence one of the resource challenges we face. We also know we can create a solid business case for growing sales and thus building revenue with some technology solutions; but the case for HR technology is more difficult to align to sales and profits. And, finally, the HR and Payroll experts I know would move mountains to prevent an error in pay and benefits. That means, there are inefficiencies and potential gaps that management doesn’t see in your current HR and Payroll solutions.

The theory has always been: as long as people are getting their paychecks on time every time, that’s all that matters. But what if there are unforeseen challenges lurking in your back office systems? The “Evolution of Payroll Technology Trendline Survey” conducted in 2018 by the American Payroll Association and Kronos showed that 66% of payroll professionals and 51% of HR practioners cut corners that may jeopardize compliance. Add to that the growing impatience with data errors in a workforce comprised of digital natives. 49% of American workers say they will leave their employer after just two payroll errors.

My Point of View 

For SAP, giving the sidecar away for free would be a financial gain because moving customers to SAP S/4HANA is where the bigger advantages lie for SAP. Getting customers to experience the potential for business growth with in-memory computing, simplified processes, and user-centric experiences is the win that will keep SAP in the leadership position among enterprise resource planning software.

For customers looking to innovate and grow, there are ways to get to cloud one step at a time. But cloud is probably the future you want to embrace.

SAP Landscape Options for HR Today

You have options to navigate digital transformation your way. It is a journey you should be planning now. The chart below represents where you can take your on-premise HCM solution and the lifespan of each potential scenario. Hopefully, this helps you and your team with your own road map.

Original diagram created by Sherryanne H Meyer, Recharge HR (2018)

The future is different for everyone – depending on your industry, your company objectives, your overall ERP landscape. If you have questions and would like to talk about this with me directly, please email me: SherryanneMeyer@gmail.com.  

Author’s note: A year ago, I published this article on ASUG.COM/blogs. I continue to speak with customers who are uncertain about their path forward, who want to understand HCM as a part of the entire SAP ERP solution and who are moving to S/4 HANA but aren’t quite ready to migrate finance and HCM simultaneously. My friend and colleague, Steve Bogner, Insight Consulting Partners, recently published “What are my payroll system options” and I encourage you to read that article in addition to this blog. Together this content will help you to form a more complete picture of what your on-premise HCM landscape might look like. For more ideas on the digital transformation of payroll read the Recharge HR thought leadership piece: “WWPD? What would payroll do (If it actually modernized)?

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