Why the changes at SAP may be timely for the industry

Since Thursday evening I have heard from many if I am surprised by the changes at the top at SAP

My answer is "only slightly"

From Sapphire in May, I wrote after some of the changes earlier in the year

"Nick Tzitzon, EVP of Marketing and Communications had told me "we have individuals in some cases who collectively have worked for SAP for 100 years, and who decided that it was time to try something else in their career. Does this not happen in every company?" Hasso Plattner was even more emphatic when he told a few of us that several customer executives have marveled at the smooth transition. He told us SAP is much "younger" now and he has never been more proud of the company. Watch this keynote and see the energy of execs like Christian Klein, Ryan Smith, Jen Morgan and others."

At the event, Bill McDermott had asked me what I thought of the new-gen of executives.  In background, I had heard from many customers as I was writing SAP Nation 3.0 that their legacy ECC (and PeopleSoft and Baan) systems were increasingly a recruiting liability as they tried to hire younger tech talent. So, SAP's changes were in line with what many customers were experiencing. 

However, there are more executive changes since at SAP. So people ask did McDermott need to leave along with Rob Enslin and others this year? Who exactly are Jennifer and Christian? What's wrong at SAP?

Let me try and address them. I have not talked to Bill since Thursday but his decision to leave after 10 years as CEO is really not that dramatic. According to Korn Ferry, the average Fortune 500 CEO tenure is less than 5 years.

People speculate he wilted under pressure of activist investors. Frankly, as I wrote in the book, the last 3 years have been quantum more demanding.

"That (McDermott HBR) interview was conducted before President Trump came to office. I imagine there are now additional challenges in being an American CEO of a European company."

About Jennifer, Fortune included her in its list of the 50 most powerful women in the world. They described her meteoric rise at SAP "going from head of regulated businesses (till January 2013) to overseeing all of the Americas, Japan, and Asia Pacific in just five years.”

In my book, I cataloged the Digital Transformation that Christian has led within SAP. This extract should give you some dimensions of the complexity

"We are tackling the whole value chain at SAP. We are looking end to end, looking at marketing, sales, finance, service and support, cloud operations and the cloud infra- structure. That’s the first aspect of our transformation. Next, we are infusing machine learning, IoT, predictive analytics and these new technologies to bring the intelligence into play. It’s about adapting business processes to the new digital age. It’s about fixing the data architecture. Last but not least, it’s about change management, and taking the people with you. In the end, everything that we do in the cloud impacts our 90,000 employees and our 400,000 customers.”

They are both impressive executives. The Co-CEO arrangement is unusual, but not at SAP. McDermott was co-CEO with Jim Hagemann Snabe for several years. They replaced Léo Apotheker, who himself was once an co-CEO.

Honestly, I think the industry needs a jolt. While the book overall is positive to SAP, it highlighted the under-achiever performance of the industry in the last two decades. I mean that to include SAP and Oracle and Salesforce and Workday and Infor and IBM and HP and many others.

Amazon shows authors "popular highlights" that a cluster of readers mark on their Kindles. Chapter 2 of the book looked at the disappointing performance of enterprise vendors. The majority of the highlights so far for my book are in this chapter - see some extracts below, courtesy of Amazon's algorithms

Page 32

In the meantime, SAP and its competitors, who mostly focused on each other while trying to one- up each other and impress Wall Street, have missed out on large opportunities emerging around them. (the chapter discussed cloud infrastructure, smart products, digital advertising, IoT and many other markets that new entrants like Amazon, Google, Foxconn, Siemens and others took advantage of)

Page 40

In October 2018, Oracle co- CEO Hurd predicted that 80% of business applications would be in the cloud by 2025. Today, even after two decades of cloud computing, industry and geographic coverage is spotty — by my estimate, less than 20%.

Page 45

More alarmingly, we are starting to see customers get tired of waiting for vendors and go back to building their own replacement systems. With microservices, open source and other options, we are seeing the pendulum swing away from buy back to build. That’s a stunning reversal from the 1990s.

Page 53

However, they don’t have enough process visionaries who can dream up next- gen shop floors, emergency rooms or warehouses. So you see the industry continue to invest in infrastructure, platforms and tools.

 

If Jennifer and Christian only focus on financial performance, they will do little to change the industry trajectory. We desperately need them to aim differently. Much as I respect what McDermott did, I am looking forward to the next era at SAP with that hope.