YONG HUI YOW: Is this your first time in Singapore?
AARON AU: No, back in 2006, I started the Asia-Pacific operations for SuccessFactors, so I frequent this region quite a bit. Singapore is a very lovely city. I grew up in Hong Kong, so it’s quite similar. Highly efficient – it’s great.
YONG HUI: Back in 2001, the bubble had burst, and 9/11 just happened. It must have been terrible to start a company.
AARON: Yes, in fact, we almost ran out of money. We had US$80,000 in the bank, and we were spending US$800,000 a month. So we had about 2 days of payroll left. I told my wife I probably have to find another job the next week – if I’m lucky. The board wanted to shut it down, but my co-founder, Lars [Dalgaard] had the idea to turn it around. I did not know Lars before SuccessFactors, but the board connected us. I told Lars: I don’t know anything about HR, but I can build good products. That was the starting point in the journey.
YONG HUI: Why Human Resources?
AARON: Back then, Human Resources [HR] was seen only as a back office role. When executive teams met, HR usually wasn’t involved. However, HR is usually the first department that gets called after meetings. We set out to change this. HR needs to feel they belong to the table whenever there’s a strategic discussion. In all businesses, the major differentiator is always its people, so it is unusual that HR isn’t at the table.
YONG HUI: How was SuccessFactors different from existing HR software?
AARON: Most HR software were focused on basic transactions such as payroll, not on strategic areas such as how to grow your talent, how to attract, develop, and retain them. Moreover, we wanted to do this in the cloud, which was not a popular thing. There wasn’t even such a term. It was just called SaaS [Software-as-a-Service]. But the reason we picked the cloud model was because it allows for constant change, which we felt was suited to human resources, because humans are rapidly changing. Traditional ERP [Enterprise Resource Planning] systems typically don’t change for 3 to 7 years after you implement them. That might be okay for other things, but if you do that for HR, it doesn’t quite work. How people feel about their environment and career can change very quickly, depending on the economic outlook, workplace situations, and many other circumstances.
YONG HUI: How difficult was it to convince businesses to adopt the cloud?
AARON: It was difficult because it was an unproven model. However, ironically, the bad economy actually helped us to a certain degree. During that time, many companies needed to lay people off, but they could not randomly do it, because you’re going to get sued, and we did see many lawsuits. Without a consistent system, it's hard to do a big layoff. Many of our first customers bought our software for this reason. The other thing which helped us was that we had quite a few customers who were in Chapter 11, which means they have filed for bankruptcy protection. Despite having no money, the first thing they bought was SuccessFactors, because they believed the best way to get out of bankruptcy, was to have the best people stick with the company, and our software could help with that. When a company is going bust, your best people are usually the first to leave, because they can. However, these are the people you need to keep! Ironically, the people who stick around are usually not the people you want. So we launched on 12 September 2011, right after the attacks, which was probably the worst time to do anything. In the first three months, we generated more than US$1.5 million in sales, and we were profitable.
YONG HUI: It's quite unusual that SuccessFactors continued to do well despite the downturn.
AARON: Yes, typically. When the economy is good, companies tend to invest more in their systems and technology. We may be one of the few exceptions. The way we explained it was: exercising is good for your health, but you don’t want to exercise when you’re having a heart attack. You want to exercise consistently. In other words, you want to have a consistent system to manage your talent all the time, not only when you are in dire straits.
YONG HUI: What were you doing before you met Lars?
AARON: I was actually at another company, where I had built a cloud platform. My background is in computer science, with a focus on distributed parallel computing. That company was not a success but I learned a lot about operating a cloud company. I could not understand why we were not able to sell. So I asked the CEO if I could speak to the sales team, and I realised they were using collaterals which were 9 months old. 9 months does not seem very long because typically, enterprise software has a release cycle of 12 months to 18 months. But that's enterprise software; I was doing a release every 2 weeks. This means they were 18 releases behind me. How can you win anything when you're behind the product by so much?
Humans are constantly changing, so why not your systems and processes?
YONG HUI: You were doing agile before people were talking about it.
AARON: Yes, but we did not do it for the sake of it. It was our business requirement to have that level of agility. We had to educate the market about how to think differently when adopting the cloud, and I'm still doing that today. In the ERP world, every HR department wants a perfect system, and then not change it for 3 to 5 years. In the cloud, you shouldn’t try to have a perfect system, because you will never have it. The reason is because you don’t have a crystal ball, and you cannot predict what your future HR requirements will be. Instead, you need incremental improvements, on a continuous basis. Humans are constantly changing, so why not your systems and processes?
YONG HUI: What was the most difficult in terms of prevailing mindsets back then?
AARON: In the early days, I used to get asked a lot: What kind of database are you running? And I said: it doesn’t matter because you’re not running it – I'm running it! They asked: what kind of network switch are you using? What operating system are you using? None of these questions are relevant because in the SaaS world, we work based on Service Level Agreements (SLAs). I could be running something you've never heard of, and it doesn’t matter! I'm the one creating and running the software. As long as I give you 99.9 per cent uptime, that’s all that matters. This sounds pretty obvious now, but most CIOs back then did not understand the cloud, and you'd be surprised how they were trying to wrap their heads around it. We spent more time educating the market than actually selling software. I had to first explain how our model is different before I could even explain the value we bring to the table. Also, you’d be surprised that within the HR sphere, there are many different leaders in their own areas. There could be Head of Learning and Development, Head of Compensation... it is a very broad space. It's not just one position. We had to educate and convince many different stakeholders.
YONG HUI: And strategic HR did not even exist back then.
AARON: Yes, strategic HR and talent management did not exist back then, so we had to make it exist. We had to start the space, together with a few other companies, using the cloud. Creating a new space is very different from entering an existing market to cannibalise it using a new model. CRM for example, was a known concept back then. If I had said: let me give you a CRM in the cloud, and cheaper, what do you not like about that? But to create a space – that’s different, and a lot more difficult.
YONG HUI: When people talk about talent management, what does it really mean?
AARON: It refers to an employee’s lifecycle from hiring, to on-boarding, to developing, and retirement, which has to be aligned with your company’s strategy. It is also to train and improve the skills of your workforce, scaling the talent pool you have. It also means identifying skill gaps in the business. Companies should ask themselves if their skill requirements are aligned with their business strategy, because all these tie back to how you recruit, train, plan for succession, and compensation. Talent management is also closely related to performance management. You’d of course want a pay-for-performance culture. Your best people will only stick with the company if they know better performance means better rewards and career progression, if not, to them, there’s no point. An expert system such as SuccessFactors helps drive these processes.
The typical Chinese mentality is: as long as I pay, someone will be willing to work. That's probably not true anymore.
YONG HUI: Why do you think we are seeing so many HR services coming up now?
AARON: The shortage of skilled labour is acute now, so talent sourcing and management are areas which have become core and strategic to any business. We may have more people around now, but the people who really know what to do isn’t increasing! Mindsets are also slow to change, especially in Asia. I’m Chinese myself, and I hate to say this but, the typical Chinese mentality is: as long as I pay, someone will be willing to work. That's probably not true anymore. A business may have a great strategy, but if you don’t have the right people to execute it, the strategy will fail. Baby boomers will also retire soon, and when they do, you will suddenly have a gap of about 30 to 40 per cent of the senior management positions all retiring at around the same time. Who's going to take over? Finding people who know what to do, and how to do it, is a very tough thing. Many businesses are scrambling to develop and cultivate talented people. This problem will directly impact their growth.
YONG HUI: Many companies such as Microsoft and General Electric have moved away from ranking employees. What is a better way?
AARON: It's hard to say. It could be that the way it is conducted is bad. Many times, employees have no idea how the assessment is connected to anything else. Feedback can also seem very ad hoc and dependent on how good your manager is; do they really remember what you have done the past year? Do they know how to access you? Are the assessment criteria relevant? Typically, a manager may remember 2 to 4 months’ worth of what you have done, so it's mostly based on feelings. That's why at the end of the year, you see people working very hard. Maybe it’s got more to do with who goes out for dinner with the manager every week. If it's not based on meritocracy, there's no point; if performance isn’t linked to better career progression and rewards, there’s no point. Then it's a system failure and a waste of time.
YONG HUI: Did not having a HR background give you a fresher perspective?
AARON: Possibly, yes. A fresher perspective helps. I'm the kind of person who tries to understand things, and challenge basic assumptions. If I had a HR background, I may have simply accepted old assumptions. For example, when people do performance management, they like to talk about things they have done. Talking about things in the past has absolutely no value to me. It does not matter. What matters is what you are going to do.
Any kind of investment, unless you put in enough time, is a gamble, and I don’t like gambles.
YONG HUI: Do you angel invest?
AARON: Not so much. I enjoy helping other companies, but not as an investor. To me, any kind of investment, unless you put in enough time, is a gamble, and I don’t like gambles.
YONG HUI: Was it a gamble with SuccessFactors?
AARON: No, not at all. To me, the reason I wanted to do it was because I felt there was unfinished business – the technology we had built had unfulfilled potential. I wanted to see it grow. This was the same reason we sold to SAP. It was great from a financial perspective, but that wasn’t the goal, and not the best decision frankly, because in 2010, the cloud market was gaining massive momentum.
YONG HUI: Some people thought it was a high price.
AARON: At that time, maybe. But the space was still in the early stages, and there was massive momentum building up. Selling to SAP is not so that I can make more money. The goal is to allow SuccessFactors to leverage SAP's platform to create more value for more people – customers and employees.
YONG HUI: What motivates you?
AARON: I want to learn something new every day. You know people ask me: why are you still at SAP; they assume I must have a pretty good package. No, I don’t have a very good package. I just feel I still can help maximise the value of what SuccessFactors can provide, and I enjoy working with the team. It's as basic as that.
YONG HUI: What did you want to be when you were younger?
AARON: I have always loved computers. It's my passion. Like most kids, I liked playing computer games, but I did not think it was a viable career for me. I was also interested in business, so I took business courses while studying computer science in college. To me, technology is to solve problems. To maximise the value of technology, it needs to be applied correctly to solve real world problems.
YONG HUI: Do you have kids?
AARON: Yeah, I have a son. He is nine.
YONG HUI: What do you wish for him?
AARON: As long as he can feed himself and not do silly things, I don’t really care frankly. I cannot control him. It's his life. He may listen to me right now, but give it a couple more years... he will not, and that’s okay. What’s more important is his attitude. I don’t mind if he gets zero marks in an exam, as long as he learns from it.
YONG HUI: What is the future of HR?
AARON: HR is still very much a transaction-based activity. For it to step up to be strategic, we need some kind of total transformation. And the people who fill strategic HR roles may or may not be from the HR ranks because you will need to have people who understand and can think beyond how traditional HR works. You need to understand financials, operations, business strategy, because these functions add strategic business value, in addition to just running the usual HR transactions. HR professionals may not enjoy this. Our role is to guide our clients through this evolution. Decisions in HR are also not very data-centric, and most people still feel HR is more art than science. Usually, the HR role is somewhat like a motherly figure. I hope I don’t offend any mums – that's not the point! The point is you need to be nice and good to people, and relate well to employees – that sort of thing. That's the general perception. Real strategic HR requires a more scientific approach. We are not quite there yet.