Commentary
5/16/2010
04:39 PM
Bob Evans
Bob Evans
Commentary

Global CIO: SAP's Top 10 Priorities To Become Undisputed #1

Welcome to SAP Week, our in-depth look at the company's strategy, products, and customers. Today: 10 steps SAP must take to reclaim its global leadership.



Crisis and opportunity often go hand in hand, and just over 100 days ago, SAP appeared to be hell-bent for the crisis ward: one CEO ousted, two new co-CEOs appointed, and a legendary chairman speaking out with brutal candor about lousy employee morale, outdated product-development approaches, and worst of all the loss of trust from customers.

That bumbling and troubled organization of early February is hard to recognize here in mid-May as SAP kicks off its Sapphire global customer conference reinvigorated by impressive quarterly earnings and last week's high-profile agreement to acquire Sybase.

But the biggest change at SAP is one that's simple to describe but often so difficult to achieve: assertive, confident, and highly informed leadership. Co-CEOs Bill McDermott and Jim Snabe—and, of course, chairman Hasso Plattner—have done a magnificent job of clarifying SAP's strategy, articulating its vision, reclaiming its customer-focused perspective, and calming the jittery nerves among employees wondering where in the hell their company was headed in an increasingly aggressive and high-stakes business.

Here's an example: in their comments after SAP announced its quarterly earnings last month, Snabe and McDermott simply and confidently explained not just what had happened in the last three months but how SAP would shape its destiny in the coming year.

Snabe's key points were the unified thread of on-premise, on-demand, and on-device; the enormously important melding of business apps with business intelligence; mobile's move to preeminence (and three weeks later, hello Sybase); and the role Business ByDesign would play in SAP's future.

Simple, clear, confident: here's what we have, here's where we're going, here's how customers will benefit.

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Then McDermott, in equally simple and clear messages, pounded home the company's resurgence by describing the return of transformational deals accompanied by some "knockout" wins against Oracle (except he didn't say it was Oracle, but it was); emphasizing that double-digit growth was broad and deep; and signalling the return of customer trust by noting that 90% of customers were purchasing SAP's top-tier support package.

Enthusiastic, focused, clear, simple:

Here's the market, here's what customers need, here's where we fit in, here's how we'll drive even greater customer value.

As someone who's followed SAP's strategies and activities very closely for the past 18 months—and who's been sharply critical of SAP during some of that time—I have to say I've found this turnaround to be nothing short of remarkable. And in the belief that a healthy and aggressive and customer-focused SAP is much better for its CIO customers than a stumbling and apologetic and internally centered SAP, we're kicking of SAP Week with this list of 10 priorities that SAP should establish to become the world's top enterprise software company. (Share your reactions to our list—pro or con—at [email protected].)

1) Keep Rebuilding Customer Trust: Help Them Grow. McDermott has been pounding home the message that SAP is the only company that seamlessly connect the corner executive office to the shop floor, and that's certainly an essential capability. But customers already expect that from SAP; what they need on top of that are powerful connections to customers, prospects, and markets: more emphasis on the world outside rather than the world within. What better way to build customer trust than to help those customers increase their own revenue and actionable market intelligence? Another vital chore McDermott and Snabe have undertaken is to gain insights into the feedback from all of SAP's 100,000 customers, not just the top 100. In his February comments about the company's problems, Plattner said SAP had developed a habit of devoting rigorous attention to its top 100 customers attitudes and impressions and then assuming those opinions held true for SAP's other other 99,000 customers. That deep disconnect made many of those customers outside the top 100 feel SAP didn't care about their opinions. didn't listen when they were offered, or both. Conversely, McDermott and Snabe are making it clear that the interests, needs, and priorities of customers--all customers—will drive much of the company's decision-making going forward.

2) Keep Rebuilding Employee Morale: Beyond Adrenaline Rush. Snabe and McDermott have delivered clear and concise strategic messages, they've engineered a dynamic acquisition with Sybase, and they've delivered some very promising financial results, and all of that has certainly fired up the troops and got the adrenaline surging. But Red Bull exists because adrenaline is temporary—so the co-CEOs have to prove that the buzz wasn't just fleeting and that the proof will be in the execution of the product strategy of on-premise, on-demand, and on-device; that last month's quarterly financials weren't a one-time blip but rather the beginning of the new normal for SAP; and that the synergies promised from Sybase are rapidly transformed into tangible customer value and business value.

3) Articulate And Pursue A Grand Ambition. "Best-run businesses" is a great line and SAP should do everything in its power to live up to that. But SAP's rapidly moving into a position where its primary value to its customers won't be in how they help them run their businesses but rather in how they help those customers grow, expand, innovate, and transform their businesses, as often as necessary, to keep ace with and take full advantage of the markets those customers serve. IBM has "smarter planet": what's SAP's grand ambition?

A highly directed mission like that will certainly help keep #1 and #2 above on track while also serving notice to the world that the SAP of 2010 and beyond is transcending the SAP of 2009.

4) Raise The Profile Of "Value Engineering." SAP has compiled extensive information the processes, approaches, outcomes, problems, and metrics of more than 6,000 of its global customers, which yields a knowledge asset that few if any companies in the world could match. For example, across multiple industries, SAP has metrics comparing the number of enterprise applications per billion dollars in revenue: at best-run companies, it's 3-5 apps. But at less-effective companies, the number of enterprise apps per billion dollars in revenue soars to 150. Such numbers might not solve any particular big problems, but they sure can give customers a sense of where they stand and how badly major change is needed.

In fact, for the past year, I've been making the case that those insights for what can be achieved with SAP's software are becoming as valuable as the software itself because in today's highly fluid and dynamic global economy, it's not just about how you "run" your business—it's more and more about how you anticipate changes, predict what's coming, and pounce on opportunities as they happen, not after all your competitors are fully aware of them. Here's a perspective from SAP Global Head of Industry Solutions Kerstin Geiger: "The pace and speed of innovation across the board is increasing dramatically, and it's no longer a flat world but rather a world that has been turned upside-down. Traditional industry boundaries are blurring significantly, and companies are beginning to play along their entire value chain and ecosystem instead of being just traditional players in one isolated part of the field," Geiger said in a recent phone interview. "A mining company acquires its way into the steel production business and extends its value chain, and in other cases ecosystems extend from growing wood to paper production—in all these changes, these new ecosystems are creating entirely new kinds of businesses." How can SAP share the promise and detail of such insights most effectively with its customers and prospects?

5) Data Integration And Making It All Work. SAP's pushing prominently the notion that it's an open environment with room and freedom for everyone, while it is stepping up its attacks on Oracle as a closed environment offering customers little or no alternative choices. That's fair criticism, because Oracle's new position is that heterogeneity breeds excessively expensive and complex infrastructure, as we discussed recently based on our interview with Oracle president Charles Phillips (see links to relevant pieces at end of this column in the "Recommended Reading" list). But to live up to its talk, SAP must do more than just hammer Oracle: SAP itself must make a huge commitment to simplifying the thorny and time-consuming problems that enterprises face in trying to weave together data from different applications, platforms, and departments.

6) Dazzle Customers With Mobile Innovation And Value. The acquisition of mobile-enabler and key partner Sybase is a great start because it gets SAP over a huge mobile hump that's plagued many big IT companies: many talk reverently about the coming mobile explosion and the need to lead, but almost none have matched the platitudes with specific action. Beyond Sybase, SAP has committed to mobile as a central element in its 3-tiered strategy—on-premise, on-demand, and on-device—and both Snabe and McDermott have said the day is very rapidly approaching when smartphones and PDAs will become the leading rather than the supporting platform for consuming and acting upon corporate information. SAP's Value Engineering team should be intensively tracking and analyzing the impact of the mobile enterprise—and while they're at it, maybe SAP should partner with a great research partner on that same topic. After all, leaders don't just talk about being leaders; they actually get out front and lead and do things no one else is doing

7) Bring Transparency To Enterprise Support/Maintenance/Annual Fees. The customer-led rebellion from a year ago has been well-documented and the company has said big customers are signing up almost unanimously for top-tier support. Good start, but not enough. Since many of SAP's customers still find the whole philosophy and business model of 20%-ish annual "support" fees to be baffling—and feel exactly the same way about Oracle's annual fees as well—SAP's new commitment to transparency and customer value would be well-served by the company explaining in great detail where those enterprise-support dollars go: product development? Advanced engineering? Value engineering? Bottom line? All three? If SAP wants to truly remake itself and be the world's greatest enterprise software company, it will trust its customers to see and comprehend how SAP is using those support dollars to generate significant value for its customers while also being able to drive profit levels that enable the company to create the next-generation innovations those customers will need going forward.

8) The Dinosaur Label:

Acknowledge And Obliterate It.
We can't escape our pasts but we can prove that they have no role in our futures. Until recently, SAP was clinging desperately to many of the large-scale approaches it had been using since its founding 35 years ago: its software-development processes, its attitude toward acquisitions, its attitude toward on-demand platforms, and its tight-lipped and often-awkward approaches to communication. Just as SAP evaluates its customers based on number of enterprise apps per billion dollars in revenue, so too should SAP show the world how rapidly its changing by highlighting how its leaner development processes are accelerating innovation and product development, how the on-premise model can be enhanced by blending in some on-demand and on-device approaches, and how feedback from customers of all sizes are being incorporated into new products and approaches. The company's promise to revolutionize the flow of enterprise knowledge and insight by uniting the formerly separate realms of business applications business intelligence via its new in-memory technology is one high-potential opportunity. And one specific idea I'd love to see SAP adopt: bullish and confident discussions of its Business ByDesign achievements and customer uptake, to ensure that the entire market understands SAP's not just dabbling in the cloud/SaaS field but is deeply committed to it.

9) Enhance Key Relationships With IBM And Microsoft. If it's true that the enemy of my enemy is my friend, then SAP ought to be cuddling close with IBM and Microsoft, whose disdain (loathing?) for Oracle is beginning to approach the level of SAP's. I would think a 3-way "Enterprise Cloud Alliance" involving SAP, Microsoft, and IBM could advance the interests of each of those companies while accelerating the time to value for customers. For example, joint developments of methods for optimizing the integration of Microsoft's new Azure fleet with SAP's key applications running on IBM's new Power systems.

10) Keeping The Drama Out Of The Three-Headed Leadership. Before taking a leading role in February's media/analyst call to lay out the CEO changes and disclose the company's problems, Plattner had not spoken to those audiences in 7 years—but he promised he'd be back in a deeply engaged and involved role. Since then, he's kept a relatively low public profile and that's probably because new co-CEOs Snabe and McDermott appear to be doing such a strong job of rallying the company, reassuring customers, and reestablishing the company's profile and authority in the marketplace. Plattner's willingness to re-engage with the company he founded 35 years ago was probably a great confidence-builder for many SAP employees and customers, and since then Snabe and McDermott's public comments have been pitch-perfect. Yes, three months is not nearly enough of a track record for the co-CEOs but last quarter's numbers were very solid and the company issued confident guidance for the remainder of the year. So far, the three high-profile execs seem to be settling peacefully and collaboratively into their roles and that is incredibly important to the company's future prospects because Lord knows SAP has enough external folks gunning for them that they don't need to consume valuable time and energy dealing with internal theatrics. McDermott in particular has been very effective in balancing public comments about Oracle—confidently contrasting the two companies' strategies and approaches with brief remarks, and then leaning aggressively away from Oracle and back into discussions of why SAP's technology and customer focus will emerge triumphant.

As Sapphire kicks off, SAP's expected to make a series of announcements relating to product roadmaps, alliances, and strategies so there's sure to be a lot for us to share with you during SAP Week. One thing we'll be watching closely is whether SAP chooses to continue presenting itself to the world as more interested in adapting to the customer demands of the future than in hewing closely to the SAP traditions of the past. Those actions will tell us all a great deal about SAP's intentions toward aiming to become the world's leading enterprise software company.

RECOMMENDED READING:

SAP's McDermott Slaps Back At Oracle And Refocuses On Customers

Global CIO: An Open Letter To SAP Chairman Hasso Plattner

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

Global CIO: 10 Things SAP's Co-CEOs Should Focus On

Global CIO: Oracle President Phillips Says 22% Annual Fees Great For CIOs

Global CIO: Larry Ellison's Nightmare: 10 Ways SAP Can Beat Oracle

Global CIO: Oracle's Larry Ellison Declares War On IBM And SAP

Global CIO: IBM Sees Surge In Customers' Transformation Projects

Global CIO: Larry Ellison's New Acquisition Underscores Vertical Strategy

Global CIO: Oracle's Phillips Says Standardizing On Oracle Is IT Cure

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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