SAP hits reset button with CEO change

The German company hopes to focus more on innovation and making customers happy again.

With the replacement of Léo Apotheker as CEO of German ERP giant SAP, company officials are hoping to rebuild customer relations and ignite more innovation within the company, according to a conference call held with co-founder and chairman Hasso Plattner on Monday morning.

Analysts, aware of the company's recent stumbles in the marketplace, are taking a hopeful but cautious stance to the announced changes.

On Sunday, SAP announced that it had not renewed Apotheker's contract as CEO, and appointed two co-CEOs to fill the role: Bill McDermott, who was the head of the field organization, and Jim Hagemann Snabe, who was in charge of product development.

Apotheker's departure was preceded by months of rumors over whether his contract would be renewed, given his troubled reign as CEO.

He bid SAP workers farewell in an internal memo, which was obtained by IDG News Service.

"Confronted with the worst and most brutal economic crisis since the Great Depression, and faced with the consequences of decisions and actions made in the past, the Executive Board under my leadership had to take some very difficult decisions to steer SAP through the worst storm in its history," he wrote. "Yet we didn’t simply try to maneuver SAP thru the economic crisis. Indeed, we simultaneously started to build the foundation for a brighter future."

However, "the pace of change was rapid, probably too rapid for some," Apotheker said. In addition, his communications with employees were "not always optimal," and the negative results of an employee survey "did not completely come as a surprise to me given what happened during the time of the survey," he wrote.

The Financial Times reported Monday that an employee survey conducted in September found "a dramatic loss of confidence" in senior SAP management.

"I regret that I wasn’t able to earn the support of each and every one of you, but I serenely stand before you today with the knowledge – and the clear conviction -- that what I did was for the best of the company and that your future is brighter because of the actions the Executive Board and I have taken," Apotheker added.

SAP has been beset on all sides by a number of difficulties over the past few years. Like many companies, SAP has been fighting a difficult economy. Revenue had declined from €11.5 billion (US$15.7 billion) to €10.6 billion from 2008 to 2009. Customers had groused over maintenance fee increases implemented in 2008.

On the technology side, SAP has been slow to catch up with IT industry trends such as cloud computing and software-as-a-service. And Plattner hinted Monday at employee dissatisfaction as well.

Going forward, the company plans to address all these concerns, Plattner promised.

"The focus is on growth, margin and innovation. It has to be kept in mind that all three have to be dealt [with] simultaneously," Plattner said. "Without growth, even strong margins don't help. Without innovation, you cannot grow. And without margin you can't have a streamlined company."

The company will change its approach in developing new technology, moving from simply updating existing products to boldly developing entirely new lines of software, Plattner said.

"Incremental improvements were once one of the favorite styles for development. This is OK where it makes sense," he said. "But radical changes have to take place where the opportunity presents itself. We are at a crossroads in technology. We will see radical changes on the horizon. SAP is more than prepared to take advantage of super-large in-memory systems with a high number of parallel cores."

In order to make this innovation happen, some reorganization will be necessary.

"We will have changes in management style," Plattner said. He promised fewer hierarchical levels of management and more agile software development teams "with a flat structure," he said.

Plattner admitted that customer trust and employee morale have suffered of late. "I will do everything possible to make SAP a happy company," he said.

He addressed head-on one of the most heated issues in SAP's recent history: Its 2008 decision to move customers to a richer-featured but more expensive Enterprise Support service. The plan rankled users worldwide, particularly those with older, stable systems and little need or desire for additional support.

"I was part of the decision that we had to raise maintenance fees," he said. "That is not something we can put in Léo's shoes. This was done by SAP. We made a mistake and we have to change course here, and regain trust from the customers who were more than upset. Unfortunately, the head of the company takes the blame, whether it was just or not."

Plattner would not discuss why Apotheker's contract was not extended, but admitted that it was his idea, although it went through board approval. "I decided that I will only make forward-making statements," he said.

Plattner did offer reasons why Apotheker was not fired. For example, it was not because of problems with Business ByDesign, SAP's on-demand ERP (enterprise resource planning) suite for the midmarket.

SAP has scaled back the roll out of the software while working to ensure it will be profitable enough. A broader launch is expected later this year. "Léo was the one who really was instrumental in turning it around," Plattner said.

Plattner's remarks "are going to go a long way in having SAP restore trust," said Forrester Research analyst Paul Hamerman. "He was very candid on the call. He admitted mistakes. His candor and his accountability will go a long way toward getting SAP back on track."

Although Plattner will leave the day-to-day operations of SAP to Snabe and McDermott, he will remain visible for some time, said Jon Reed , an independent analyst who closely tracks SAP. "I think he's going to stick around ... until SAP's on the right track, in his view," Reed said. "He doesn't want to endure the reputation hit of tooling away in his lab while the company he created goes to pieces."

Apotheker's legacy at SAP in one sense helped foster his demise. Prior to his ascension to CEO, he built "a very successful" global sales organization, Hamerman said. But Apotheker carried that emphasis forward as CEO, to the detriment of technology, he said.

Meanwhile, McDermott and Snabe "complement each other well from both a business standpoint and personality standpoint," Hamerman said. The gregarious, sales-driven McDermott stands in contrast to the soft-spoken but more technical Snabe.

But it's questionable whether a co-CEO approach is sustainable, meaning further changes may still come to SAP's leadership, Hamerman said. "At some point there needs to be a clear CEO in charge. Will it be one of these individuals or someone from the outside?"

When asked about running the company with co-CEOs, Plattner said that this is "not a short-term solution," and he expects the set-up to remain in place permanently. Neither of the new co-CEOs spoke during the conference call, although both were present for it.

Plattner admitted that co-CEO leadership is not a typical setup for European companies, but pointed to the results of high-powered executive pairings, such the success Microsoft had with Bill Gates and Steve Ballmer co-running that company.

Plattner's comments Monday may serve as a rallying cry for SAP customers. But the company still needs to fill in many blanks about future product direction and strategy, said Ray Wang, partner with the analyst firm Altimeter Group.

"A lot of efforts have not gone to market, and a lot of efforts have been late," he said.

Customers should pay close attention to SAP's upcoming Sapphire conference, scheduled for May in Orlando, Hamerman said. "There should be key announcements about the company's direction and where it's placing its bets."

Copyright © 2010 IDG Communications, Inc.

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