SuccessFactors vs On-Premise SAP HCM
SuccessFactors vs On-Premise SAP HCM Licensing Overview
Moving your HR system from on-premise SAP HCM to SAP SuccessFactors in the cloud raises a host of licensing questions.
Many SAP HR customers have run their on-premise HCM for years under perpetual licenses with annual maintenance, and now face a completely different model with SuccessFactors’ subscription-based licensing.
This article breaks down the key differences, enabling you to plan a transition that controls costs and avoids surprises.
Read our SAP SuccessFactors Licensing & Optimization Hub.
Current State of On-Premise SAP HCM
On-premise SAP HCM (often referred to simply as SAP HR) is typically licensed on a perpetual basis by named user, with different types of user licenses available for various roles.
Certain HR functions also use engine metrics for example, SAP Payroll is often licensed by the number of employees paid (tying cost to workforce size rather than user count).
Many companies received SAP HCM as part of a broader ERP package rather than a separate purchase. In all cases, customers pay an annual maintenance fee (approximately 20% of the software’s price) to SAP for support and legal updates.
The on-premise model thus involved a big upfront license investment followed by ongoing maintenance costs. SAP will support the legacy SAP HCM platform through 2027 (with extended support available to 2030), but future enhancements are targeted for the cloud.
On-premise SAP HCM remains mission-critical, but it’s an aging solution with a steady cost burden. This reality has led many organizations to look to SuccessFactors as the next chapter for their HR systems.
Moving to SuccessFactors – Separate Cloud Subscription
Migrating from on-premise SAP HCM to SuccessFactors is not a direct “technical” upgrade – it’s effectively a new software contract.
SuccessFactors uses a subscription model, meaning you pay per employee (usually per year) for the modules you use.
Your existing SAP HCM licenses do not automatically transfer over. In other words, moving to SuccessFactors requires signing up for a new SaaS subscription and budgeting for that ongoing cost.
The silver lining is that SAP often offers incentives to ease this transition – but you’ll need to negotiate.
For example, SAP might provide credits or discounts on your SuccessFactors fees if you agree to reduce your on-premise HCM footprint or give up unused licenses. Essentially, they can let some of your existing maintenance spend be reallocated to the cloud subscription.
These arrangements aren’t automatic, so be sure to ask about them. The key point is that SuccessFactors comes with its own cost structure and contract.
You should plan for it separately from your old SAP HCM, and work with SAP on minimizing any period where you’re paying for both systems.
For more insights, SAP SuccessFactors Licensing Guide for CIOs and CTOs.
Dual Usage During Transition
It’s common to run SAP HCM and SuccessFactors in parallel during a migration, but doing so can lead to double costs if not managed.
For example, you might still be paying SAP maintenance for your on-prem HCM while also starting subscription payments for SuccessFactors.
To avoid double-paying, negotiate measures to minimize overlap expenses. For instance, you could seek a reduced SuccessFactors rate for the initial rollout period or a temporary waiver of HCM maintenance fees during the overlap. The goal is to ensure you aren’t paying full price for two systems at once.
Try to time your switch so that you can drop or reduce your on-premise maintenance as soon as the cloud system is live. Whatever you negotiate, get the terms documented in your contract or order form.
With careful planning, you can significantly reduce the cost of running old and new systems simultaneously.
Read how the modules work, SuccessFactors Modules Breakdown: Which HR Modules Do You Need?.
Disposition of Old SAP HCM Licenses
Once SuccessFactors is up and running, you’ll need to decide what to do with your legacy SAP HCM licenses. The good news: you still own those licenses – they’re perpetual, so the rights don’t disappear.
However, most customers choose to terminate maintenance on the old system shortly after moving to the cloud. Dropping SAP support stops those maintenance fees.
You can continue to use your on-premise SAP HCM software without maintenance if needed – for example, to access historical data or run occasional reports – since your license itself remains valid. You just won’t receive updates or official support.
Suppose you do need to keep the legacy system operational for a while (say, for payroll processing or data archiving). In that case, you might consider third-party support providers who can offer basic help and tax updates at a lower cost than SAP.
Eventually, when you fully decommission SAP HCM, you still retain the licenses, though they’ll just sit on the shelf. The main thing is you’re no longer paying SAP for a system you’ve moved away from.
Cost Comparison – SAP HCM vs. SuccessFactors
The cost model of on-premise SAP HCM versus SuccessFactors (Employee Central) differs in several key ways:
- License Purchase vs. Subscription: With SAP HCM, you pay upfront for perpetual licenses and then yearly maintenance. SuccessFactors is a pay-as-you-go subscription with no big upfront license cost. Instead, you have regular per-user fees. Over time, these subscription fees can add up – potentially exceeding what on-prem maintenance might have cost over the same period. It’s a shift from a capital expense (buying software) to an ongoing operating expense (renting software).
- Ownership and Control: An on-prem license meant you owned the software indefinitely. If necessary, you could even run it without maintenance (though unsupported). In the cloud model, if you stop paying, the service ends – you’re essentially renting the software. This means you need to plan for continuous payments and manage renewals carefully. The trade-off is that cloud licenses can be more easily adjusted over time (for example, scaling the number of users up or down at renewal). In contrast, with on-prem you owned a fixed number of licenses regardless of actual usage.
- Supporting Infrastructure: On-premise HCM carries additional costs for hardware, databases, storage, and IT personnel to support the system. While not paid as SAP fees, they affect your total cost of ownership. SuccessFactors shifts those responsibilities (and costs) to SAP’s data centers. Your subscription fee includes hosting, system maintenance, and backups. So while the subscription is an added software cost, you may save money by retiring servers or reducing IT support efforts for the old system.
- Upgrades and New Features: In the on-prem model, getting new functionality meant planning and executing upgrades or enhancement packs – a periodic expense (in time and money) that some companies deferred as long as possible. In SuccessFactors, updates are automatic and frequent (quarterly releases). You’re always on the latest version and gain new features as part of the service. This means you won’t have large upgrade projects to budget for, though you will need to invest time in testing and adopting new features on an ongoing basis. Essentially, some costs shift from infrequent big upgrades to a continuous improvement process.
- Long-Term Cost Outlook: To make an apples-to-apples comparison, you should project your costs over a multi-year period. Consider a five-year total cost of ownership for staying on SAP HCM versus moving to SuccessFactors. On the SAP HCM side, include your license (amortized over its life), annual maintenance, hardware/hosting costs, and any upcoming upgrade expenditures. On the SuccessFactors side, include the subscription fees for the same period (keeping in mind any contracted price increases after the initial term) and implementation costs. This analysis will tell you if the cloud will cost more, less, or about the same as your current scenario. Be aware of these trade-offs so you can negotiate with SAP armed with facts.
Hybrid HR Licensing Scenarios
During a transition, many organizations run in a hybrid mode – for example, continuing to use SAP on-premise Payroll while employee data and talent management move to SuccessFactors.
In such cases, it’s crucial to align your licensing to cover both environments without paying for unnecessary overlap.
If you keep SAP Payroll on-premise, you’ll need to maintain the payroll engine license (usually based on the number of employees) and a handful of SAP user licenses for your payroll admins and system integrators.
Meanwhile, all your employees and managers using SuccessFactors for self-service and other HR tasks will need SuccessFactors subscriptions. Still, they likely no longer require SAP user licenses for those activities. You should work with SAP to reduce your on-premise user license count accordingly. For example, you might drop thousands of employee self-service SAP licenses and retain only a core set of professional user licenses on the SAP side.
Be sure that your contract with SAP explicitly permits this hybrid usage. You want clarity that using SuccessFactors in tandem with your SAP payroll system is allowed and won’t trigger any indirect usage penalties.
In practice, as long as you’re licensing each employee in SuccessFactors and have your SAP payroll engine licensed for the employees being paid, you’re covered. Just confirm that understanding with SAP and document it if possible.
Keep in mind that a hybrid approach means you are paying for both systems (cloud and on-prem) for certain functions. To control costs, try to limit how long you stay in hybrid mode. You might negotiate a time-bound arrangement with SAP and have a plan to eventually move payroll off the old system as well.
In the interim, trim any fat – only pay maintenance on the minimal SAP components you need and ensure you’re not double-licensing users. A well-managed hybrid phase can provide a safe transition with manageable costs, but it requires vigilance on the licensing side.
Negotiation Tips for SuccessFactors Transition
Finally, when it comes time to negotiate your SuccessFactors contract, approach it strategically.
Here are some tips to get a better deal and a smoother transition:
- Bundle and Save: Leverage your existing relationship with SAP. When buying SuccessFactors, ask to bundle the deal with adjustments to your SAP HCM licenses. For example, negotiate to reduce your on-premise maintenance fees or get credit for unused SAP HR licenses. SAP wants to move you to the cloud, so use that as leverage to offset costs.
- Insist on Overlap Grace Periods: Don’t pay double for migration. Build a transition period clause into your contract that gives you a grace period of parallel use. For instance, you could agree that for 6 months of parallel use, your SuccessFactors subscription is discounted or your SAP maintenance fees are lowered. This ensures you aren’t financially penalized for running old and new systems at the same time.
- Remind SAP of Your Investment: You’ve likely spent years (and a lot of money) on SAP HCM. Bring up that sunk investment during negotiations. It’s reasonable to expect a favorable rate for SuccessFactors, considering how much you’ve already invested in SAP. In practical terms, push for loyalty discounts or extra modules at no charge. Make SAP work to earn your cloud business, rather than treating you like a brand-new customer.
- Get Flexible Terms: The contract needs to accommodate your journey, not just a static end state. Negotiate for flexibility, such as the ability to adjust user counts or swap modules without penalty, as your needs evolve. Also aim for protections like capped price increases over the term and transparent renewal terms. If you’re committing to a multi-year cloud deal, you want to avoid surprises later. Use the fact that you have options (including staying on-prem or even looking at competitors) to get terms that give you some wiggle room.
Approaching the SuccessFactors transition with a savvy licensing strategy will pay off. SAP will push the cloud as the future, but you have every right to demand a fair deal.
By understanding how the licensing works, planning for hybrid scenarios, and negotiating firmly, you can move to SuccessFactors on your terms – capturing the benefits of the cloud without overspending.
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