Commentary
4/30/2010
12:32 AM
Bob Evans
Bob Evans
Commentary

Global CIO: Inside SAP: 10 Factors Behind Its Dramatic Turnaround

Here are 10 ways SAP's new leaders have reinvigorated the company, redefined its strategy, and reestablished the primacy of its customer.



Almost three months ago, when SAP founder and chairman Hasso Plattner ousted CEO Leo Apotheker and replaced him with co-CEOs, Plattner presented a daunting list of companywide shortcomings and problems that required urgent attention from the company's new leaders. And to understand just how much progress new co-CEOs Bill McDermott and Jim Snabe have made during that brief time, it's striking to take a quick look back at the ugly diagnosis offered by Plattner in early February.

Here's how we interpreted that diagnosis in a Feb. 9 column called Global CIO: SAP's Last Chance: It's The Customers, Stupid!:

So it was that over the past couple of months, co-founder and chairman Plattner reinserted himself into the company's top-level operations and came to several conclusions:
  • SAP has failed to focus with sufficient intensity on fresh technologies such as cloud computing.
  • SAP has failed to look into or understand the mindset of any but its top 100 customers.
  • SAP has failed to develop and execute rapidly on a strategy for the next decade.
  • SAP has failed to organize and inspire its employee base toward common objectives, goals, and purposes.

SAP had also lost the trust of its customers, Plattner said, rounding out a description of a deeply troubled company whose key customers look to it for not only great technology but also market insights, business strategy, and market-focused innovation.

Now, about 11 weeks later, propelled by strong first-quarter financial results and some key wins against arch-rival Oracle, SAP appears to have made significant progress in turning around its vision, strategy, and execution under McDermott and Snabe. And to illustrate how and why that's been happening, I've put together a list of 10 reasons why those co-CEOs have SAP feeling organized and bullish once again.

Reflecting the split-responsibility structure of the co-CEOs, I've allocated five reasons for Snabe and five for McDermott, based on their comments during Wednesday's earnings call with analysts and on a phone conversation with McDermott later that day.

Five Reasons From Co-CEO Snabe

1) A clear and unified product strategy. Snabe elegantly tied together SAP's strategy by presenting an overarching approach with three interrelated components: on-premises, on-demand, and on-device. We know all about the first two but the third refers to the company's belief in the coming preeminence of mobile platforms and its commitment to having all of its software run seamlessly regardless of device. "With the investments and innovations in all these three categories—on-premise, on-demand, and on-device—SAP represents the most complete and consistent application and technology portfolio in the industry, a portfolio that will deliver superior value to our customers and expand our addressable market and fuel our growth," Snabe said during the earnings call (per the transcript on SeekingAlpha.com).

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2) Uniting business applications and business intelligence. As more businesses require real-time access to not only transactions but also analytics, SAP believes it has the means to tie those two disparate information sets together. "In addition, we continue to leverage in-memory computing power to achieve an unprecedented speed and simplification of applications going forward," Snabe said on the earnings call. "With this technology, we plan to pave the way for real real-time analytics and finally remove the decade-old barrier between business applications and business intelligence."

And next come mobile, Business ByDesign, and analytics:



3) Making mobile matter. Outlining SAP's new "on-device" approach on the earnings call, Snabe touted the company's intensified focus on mobility: "Mobile devices are becoming the preferred interaction point with business applications. We want to make sure that SAP solutions can be accessed from all leading mobile platforms, like RIM, Nokia, Apple, Google Android, etc. We are building and delivering mobile applications on these platforms."

4) Great expectations for Business ByDesign. Promising to have its long-awaited SaaS platform available in volume by "mid-year," Snabe said SAP intends to compete aggressively against a wide set of smaller companies that have dominated the market for SaaS in the enterprise: "We have worked hard to ensure that the technology platform in SAP Business ByDesign is not just a me-too, but in fact a next generation on-demand platform," Snabe said on the call. "We believe that there is an opportunity for us to disrupt the on-demand market with this platform." McDermott expanded on that in the phone conversation we had after the earnings call, saying that the enterprise SaaS sector now resembles the on-premises space from 10-15 years ago with "lots of point solutions from lots of smaller companies. But when the big companies started to develop suite applications, the suites started to win. In the same way, we're saying this is a new game with new providers, and we think we can deliver to customers everything they need from supply chain to CRM," which McDermott said means better data integrity, less integration, less risk, and less complexity.

5) The rise of analytics. Snabe told analysts that "with the acquisition of Business Objects, we have also taken the lead in analytics, as recently demonstrated by Gartner." McDermott noted that SAP added lots of new customers for analytics and the overall "business user" sector of which analytics is a part, with sales to new customers making up 37% of that sector's revenue for the quarter.

Five Reasons From Co-CEO McDermott.

1) The return of transformational deals. "We also saw a return to some large transformational deals that deals over 5 million euro, which accounted for 27% of order entry compared to 12% in last year’s first quarter," McDermott told analysts. "And the average deal size was up 36% year-over-year."

2) Double-digit growth: broad and deep. On the earnings call, McDermott cited "our return to double-digit software and software-related services growth in Q1" across all geographic regions and "in our small and mid-sized enterprise business, in SAP Business Objects, and in our focus industries." And that momentum is continuing into the future, McDermott said on the earnings-call transcript: "There is in fact a strong pipeline for Q2 and the remaining quarters."

3) Enabling business-driven CIOs. In our phone chat after the earnings call, I asked McDermott to describe the Number One objective that CEOs express to him: "Growth. They need to grow—every company we talk to says that. And the higher you go in the organization, the more you see that growth is back on the agenda and is the major topic of discussion. Everyone is looking to create the right plan or agenda to grow, sometimes directly in the industry they're in, and sometimes out into new businesses, sometimes within their own established ecosystem or sometimes out," McDermott said. "And I have to say that with respect to CIOs, we have tremendous respect for them and their management and IT overall—but the business world has reached the point where if you can't have a conversation that goes way beyond technology stacks to roadmapping business strategies and creating growth, those CIOs are just not gonna be relevant... For any IT project, hitting budget is okay and finishing on time is okay but what decision-makers really want is value--they want to know that these IT projects are going to steadily increase the company's ability to grow."

4) Regaining customers' trust. More than 90% of enterprise customers are choosing to buy SAP's top-end enterprise-support package, McDermott said on the earnings call, which he described as a huge sign of trust in SAP and its capabilities. He also pointed out to the analysts additional evidence of renewed trust from the investment community: "Our public bond offering in Q1 was significantly oversubscribed."

5) "Knockout" deals against major competitors. While McDermott didn't identify Oracle by name in describing a series of huge competitive wins in the quarter, he also did not deny that it was Oracle whose products got ripped out and replaced by SAP's at 24 customers. "We also had some large competitive knockouts in the quarter—but I can't mention any names. We had 70 significant competitive wins, and of those, 24 were literal replacements of competitive installations."

Looking back on the ills outlined 11 weeks ago by chairman Plattner, it appears that Snabe and McDermott have delivered on the strategy and execution needed to address each of those significant problems. For the new co-CEOs, so far so good.

GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
or write to Bob at [email protected].

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