Besides the Super Bowl and that great win pulled-off by the New Orleans Saints, the other big news in the U.S. this weekend, at least in the blogsphere, centered on enterprise software.

SAP AG announced that former CEO Leo Apotheker has abruptly resigned, and that the company would return to a dual-CEO leadership structure. Both Jim McDermott, head of field operations, and Jim Hagermann Snabe, head of product development, will assume co-CEO roles for SAP. Apotheker’s management contract was up for renewal and the SAP Supervisory board obviously decided it needed to make a change.

Hasso Plattner, co-founder of SAP and head of the SAP Supervisory Board, was charged with putting the public voice to this announcement. It also appears that Hasso will again take a high profile role in leading SAP through yet another executive leadership transition.

Naturally, an announcement involving such a large global enterprise provider such as SAP is bound to draw a lot of business media and blogsphere commentary. An article in the Financial Times (free sign-up account is required for viewing) written by a reporter in Berlin notes that SAP has admitted that it had lost the trust of some of its customers. Previous efforts to increase software maintenance fees last year in the middle of an unprecedented global recession obviously did not go over well with SAP customers, particularly those in Germany and the rest of Europe. A direct quote attributed to Hasso Plattner notes “Unfortunately, SAP has made a few legal and technical mistakes, especially in Germany, …” Delays in the release of long hyped SAP Business by Design Suite of software applications tailored for small and medium sized business have also been attributed to leadership disappointment. These are both significant admissions.

Supply Chain Matters has penned a number of previous commentaries (latest is linked here) regarding the poor timing and arrogance of enterprise software vendors in increasing software maintenance fees at such an inopportune time. If one considers that CIO’s and IT groups are your core customer influencers, then why place these same groups in such a precarious and awkward organizational dilemma by having to deliver the news that despite all efforts to reduce internal costs, an ERP provider is demanding increased maintenance fees. More often than not, these increased fees were passed along as an added “tax” to supply chain functional teams who utilized many of these ERP applications, and who obviously did not appreciate having to pay more overhead costs.

Blogsphere commentary has been widespread, particularly from those who profess to be “in the know” of enterprise software and IT industry trends. Keep in mind that SAP has the influence to call on certain favored bloggers to provide background commentary to top-tier business media stories. I do not elect, as other bloggers may, to repeat or hype this commentary except to call out where I specifically agree with or differ in viewpoint, particularly where it may have implications for manufacturing, supply chain and procurement customers of SAP.

Leo’s success at SAP came from his accomplishments in sales and his broad influence in the SAP field organization. In previous commentary, I have noted that his previous ascension to the role of CEO was a de-facto transfer of organizational power to the field organization. There were many reasons for this, but the primary one was that product development and solution management had dropped the ball in the ability for SAP to stay current in rapidly evolving software buying trends, including software component services and software-as-a-service (SaaS) platform offerings. Instead, SAP was forced to spend multiple years in re-architecting its ERP and Business Suite applications platforms, including supply chain and procurement, leaving loyal SAP customers and prospects little option but to wait months for desired enhancements. This also placed IT teams at the ire of supply chain functional teams tasked with getting more done with less people.

On his Enterprise Irregulars blog, Ray Wang pens that Apotheker’s demise was a result of “…Low morale among the Walldorf engineering team, the issue with Enterprise Support and maintenance, and uncontrollable poor quarterly performance proved to be factors beyond his control. Customers over the past 2 to 3 years began to wonder how to tap SAP’s innovation. A clear need emerged for having more technologists at the helm.” While I agree withsome of these statements, I disagree that another technologist at the helm would have solved anything. SAP’s manufacturing and supply chain customers have seen little innovation because of other priorities among SAP’s direct sales and solution marketing groups. During these past months, it seemed to me that most all of the SAP messaging and communication was hijacked by Business Objects and not on the core applications and sharp industry focus that have always been the soul of SAP’s success. The SAP sales teams are too vested in maintaining their commissions, and marketing in turn was too vested in maintaining a share of budget dollars and individual attention. Vinnie Mirchandani in his Enterprise Irregulars posting, captured the essence of this view. “SAP needed someone to dismantle that “old field” as the market transitions away from the big, honking upfront license and implementation and operating cost model. It is screaming for soul and innovation. Instead they rewarded Leo. Surely, they did not expect him to choke his own baby?”

I believe that the elevation of Jim Hagermann Snabe as co-CEO is a good decision for the very fact that Hagermann has led both the industry business units as well as product development teams. He has always impressed me with his sensitivity to customer needs and his awareness of how important value chain and industry-specific capability is for SAP’s installed customer base.

I for one have never believed that a co-CEO model brings success to any software firm. Supply Chain Matters readers might recall some years ago when AspenTech tried to follow this model with a dismal outcome. There can only be one person to make the final call, and SAP’s Supervisory Board should have known this by now. Some may speculate that the final call may again be Hasso, who can then throw another executive”under the bus”.

Time is indeed the sole judge of any senior leadership change, but in the case of SAP, time is marching all too fast. On the one hand, the SAP Supervisory Board should be applauded for taking bold action. One wonders if Larry Ellison and Oracle will ever back down to customer push back on increased maintenance fees.

On the other hand, can a sharing of leadership power among the field and product development actually bring customer innovation and satisfaction to the table in a much more rapid manner? Will SAP ever re-capture innovation in managing external manufacturing and value-chains?

We will all find out in the ongoing drama at SAP.

Bob Ferrari

Note:  The following posting can also be viewed and commented upon in the Kinaxis Supply Chain Expert Community web site.

About a year ago, Sony Corporation initiated a massive corporate restructuring after announcing its first annual loss in more than 14 years. Sony had a significant profitability crisis which specifically involved its consumer electronics and games businesses and Chairmen and CEO Howard Stringer was forced to take direct operational control of all operating businesses.

In May of 2009, Supply Chain Matters provided a commentary, Sony’s Supply Chain Challenges, in which we noted that the restructuring would involve aggressive cost reduction goals for Sony’s supply chain. Taking on a challenge to reduce overall material costs by 20% in two years has proven to be challenging for companies in profitable times, let alone in crisis situations. I noted that Sony would have no choice but to move quickly, given the economic and industry conditions that were occurring in the consumer electronics sector.

The corporate restructuring included a combined manufacturing, logistics, and procurement organization led by a longtime Sony executive, Yutaka Nakagawa. At the time, various reports indicated that the company would close three plants in Japan by the end of December 2009, and the number of plants around the world would be reduced to 49 from 57. Other efforts noted were that the company would also slash material costs by 20% ($5.3 billion USD), and cut total suppliers to 1200 from the current 2500 by March of 2011.

In a rather sudden and dramatic turnaround of events, last week Sony announced that it has actually turned a profit in its latest fiscal quarter and will narrow its previous full-year loss projections. A Wall Street Journal article notes (paid subscription may be required) that in the area of supply chain, Sony has already cut costs by $3.63 billion USD. That is indeed rather aggressive in such a short period of time. The article further notes that Sony has closed 20% of its manufacturing plants and now eliminated 20,000 jobs, 4000 in excess of last year’s target. In the area of material costs, the WSJ article makes note that Sony has targeted a 15% cost reduction for the PlayStation 3 by March 2011. Currently the company loses six cents for every dollar of PS3 hardware sales.

Upon reading the executive briefing transcript published on Seeking Alpha, there is management acknowledgement that the bulk of the supply chain cost reductions thus far were achieved mainly from top-down senior management directives specifically targeting headcount and excessive inventory levels. Payment terms to suppliers have apparently been extended although it’s difficult to decipher from the transcript. There is also an acknowledgement that no business processes or systems changes have occurred thus far.

The picture for Sony in its first year of crisis has the appearance of top-down, slash and burn cost cutting. While these efforts did result in the required significant take out of cost, the real work related to supply chain process transformation still remains a work-in-process for Sony. This next phase will be more significant in terms of making the right moves to insure that Sony’s supply chain capabilities can sustain both continued efficiency and adaptability to changing business conditions. I trust that Sony’s supply chain teams will utilize more advanced analytical methods in navigating this next phase since we all know that cost cutting alone does not bring the ability to innovate for customer fulfillment needs.

Supply Chain Matters will continue to monitor and provide ongoing commentary.

Bob Ferrari

Disclosure: Kinaxis is one of other sponsors of the Supply Chain Matters blog, and as such provides financial consideration for having its product logo and product information linked to this blog.