Bill McDermott, a telegenic US salesman, is not due to take over as sole chief executive of SAP until later this week, but already there are signs the business software group will be transformed under his leadership.
This month the abrupt resignation of Vishal Sikka, the US-based innovation chief, shocked SAP watchers as Mr Sikka oversaw the development of Hana, the data-crunching tool that has fast become the platform for all SAP does.
The departure of a man once tipped as a future leader of the company, which SAP said was for personal reasons, comes as Mr McDermott seeks to overhaul SAP’s leadership team to drive the next phase of the company’s expansion.
“[Mr Sikka’s] style was disruptive in nature – which was what the company needed at the time – but you could argue that a style focused on execution rather than disruption is what’s needed right now,” said John Appleby, global head of SAP Hana at Bluefin Solutions, a consultancy.
SAP is in the early stages of a disruptive shift from selling traditional boxed on-premise software to allowing customers to rent it via the internet.
That marks a big change for a more than 40-year-old software company as it demands faster development cycles, more investment in remote data centres and new web-based sales and support operations (which will increasingly replace on-site staff).
After a period of acquisition-driven expansion and rapid innovation in analytics, the cloud and mobile, a new era beckons of consolidation, customer focus and building scale in the cloud.
SAP has denied reports that the McDermott era will begin with mass lay-offs – the first since 2009 under former chief executive Léo Apotheker.
But following the absorption of multi-billion-euro cloud acquisitions SuccessFactors and Ariba, some restructuring is inevitable.
Mr McDermott, SAP’s first American chief executive, is preparing to move to Heidelberg from the US in a move designed to appease some of SAP’s German workforce, who fear an Americanisation of the Walldorf-based company.
Following the recent turmoil, SAP’s chief will also have an opportunity to reassure investors and customers at its annual general meeting in Mannheim on Wednesday and its Sapphire Now customer convention in Orlando, Florida in early June.
“What happens at Sapphire will dictate customer sentiment quite heavily,” said Mr Appleby.
Mr McDermott is expected to tell the faithful that SAP’s core strategy around Hana and the cloud will remain the same: “Hana is SAP; Hana is the bedrock of our brand, of our soul,” he told analysts in April. “It’s built into everything we do.”
SAP is a very different company to when Hasso Plattner, SAP’s hands-on chairman and co-founder, challenged Mr Sikka in 2009 to reinvent the company’s technology platforms at a time when innovation was stalling and morale was low.
Mr Sikka, an India-born intellectual who is as enthusiastic about Hermann Hesse’s Siddharta novel as he is about databases, helped embed Hana and the cloud as the platform for SAP’s future operations.
Joshua Greenbaum, principle at Enterprise Applications Consulting, said: “The direction set by Vishal for Hana and the cloud are irrevocable at this point. He was very successful at positioning SAP as an innovator.”
SAP’s share price doubled between 2009 and 2013. But since then investors have grown more cautious as the shift to the cloud means SAP will have to forgo some upfront sales; instead cloud customers spread their rental payments over several years.
Although SAP’s cloud sales are growing fast, they still are a relatively small portion of the total; the more scale SAP can build in the cloud the more profitable those sales become.
In January SAP pushed back by two years its target to achieve a 35 per cent operating margin, to 2017.
Walter Pritchard at Citi Research told clients in a recent note that the “Get rich quick” mentality was now out of the stock. He wrote: “2012-13 was filled with inflated expectation: first cloud, then Hana and finally subscription transition dreams… Relatively lofty cloud revenue goals that look likely to be missed have turned investors sour on cloud.”
Mr McDermott told the Financial Times in April: “You say to yourself: what does SAP have to prove to get back on everyone’s darling list on Wall Street? Here’s what I think: you have to make this transition to the cloud and show evidence that you cannot only do it but keep the core business … intact.” He added the company was doing this.
Mr McDermott will start as sole chief executive with a new senior management team. Co-chief executive Jim Snabe is stepping up to the supervisory board this month and Werner Brandt, chief financial officer, will step down in the summer and be replaced by Luka Mucic. SAP’s second-tier “global managing board” – from which SAP tends to pick board members – has also been overhauled.
Paul Hamerman, vice-president at Forrester Research, said SAP would find it difficult to replace Mr Sikka’s “vision and technical leadership in the short term”.
SAP also announced that Shawn Price, SAP’s cloud unit chief, would leave the company and not be replaced. His responsibilities will be divided among other executives, as cloud is no longer seen as a separate business but integral to the whole.
The high turnover of key executives in the cloud business is a potential worry as SAP tries to fend off nimble standalone cloud competitors such as Salesforce.com and Workday.
Holger Mueller, principal analyst at Constellation Research, said: “The technology direction and vision are largely set … now it’s time for SAP to build the next generation business applications for the 21st century.”