Overnight, and somewhat unexpected, SAP SE announced the CEO Bill McDermott has elected not to renew his contract and will be stepping down from his role effective immediately.

SAP Executive Board members Jennifer Morgan and Christian Klein were appointed as co-chief executive officers effective immediately.  According to the announcement, McDermott will take on an advisory role until the end of the year.

While this move has been characterized by SAP as part of the company’s formal executive succession plan, it is quite sudden.

Shares of SAP stock rose upwards of 8 percent on Frankfurt exchange on receipt of the news.

Supply Chain Matters views this executive change as a positive one for SAP customers.  SAP SE

 

Perspectives on This Development

The nine-year legacy of McDermott’s tenure as SAP’s executive leader will likely take on varied perspectives. His was, of course, the first American executive to have led SAP. He further was deeply rooted in sales and field management culture where sales growth is often the overriding objective.

In the announcement, Chairman of SAP’s Supervisory Board, Hasso Plattner, indicates that McDermott’s contributions provided the main driver of SAP’s transition to the Cloud, fueling growth for years to come.

Others can and will point to a number of rather expensive acquisitions that the enterprise technology provider undertook under McDermott’s tutelage.  In chronical order, they include the acquisition of database technology provider Sybase for $5.9 billion, B2B indirect procurement Cloud platform provider Ariba for $4.5 billion, expense management software provider Concur for $8.3 billion, HRM software provider Success Factors for $3.4 billion, and sales performance management support technology provider Callidus for $2.4 billion. More than likely, the most controversial acquisition was the recent $8 billion acquisition of customer sentiment technology provider Qualtrics.  In total, they amount to a rather expensive strategy to springboard Cloud based offerings for customers.

A further open question was SAP’s changing strategy relative to positioning as both a Cloud infrastructure and Cloud database provider. In the former, SAP initially embarked on a strategy to globally host its Cloud applications for customers, accommodating believed customer needs for either private or public Cloud infrastructure deployments. Subsequently, the strategy has changed to that of Public Cloud future deployments hosted by either Alibaba, Amazon Web Services, Microsoft Azure or Google Cloud infrastructure.

The other unanswered indeterminant factor will likely be whether activist investor Elliott Management had any behind the scenes influence in a needed executive leadership change. When asked by Tech Crunch for comment, an Elliott spokesperson declined comment.

 

New Leadership Team

Jennifer Morgan’s tenure at SAP dates back to 2004. Similar to McDermott, her executive roles primarily span SAP’s sales and field management groups including prior roles as President of SAP  North America, President of Americas and Asia, and most recently leader of SAP’s reorganized Cloud Business Group. Morgan became the first ever woman appointed to the SAP Executive Board in 2017. She has also been cited as Fortune Magazine’s Most Powerful Women in Business, and Most Powerful Women in the World of Technology by Forbes.

German born Christian Klein’s tenure at SAP dates back to 1999 as a student, and subsequent roles in SAP’s customer support operations. He previously served as CFO of SAP Success Factors and he was appointed Chief Operating Officer in 2016 and member of the SAP Executive Board in 2018.

As far back as 2010, and via this blog, we have voiced our observation that co-CEO models have marginal track records, especially in times where strong leadership models are required. That stated, we will reserve judgement as to this new team.

 

Added Perspectives for SAP Customers

Once again, we view this change as a positive one for SAP customers, and opportunity for perhaps a fresh perspective, including a more cohesive engineering development and customer perspective for the SAP.

History is often a predictor to change. We remind our readers that a near revolt from global customers relative to increased annual software maintenance fees led to a prior change at the CEO level   In early 2010, the Co-CEO structure of Jim Snabe and Bill McDermott assumed the reigns and that later led to McDermott being appointed to the sole CEO slot.

For SAP customers, the tenure of McDermott has featured a series of constantly changing product development strategies and timetables, with the overriding notion that customers must continue to rely on a changing future development timetable vs. technology and software that has proven time-to-value. It has become more and more obvious that supply chain functional and IT focused customers are struggling to be able to present a convincing argument to senior management to undergo the transition to Cloud in the forms of SAP S4-HANA, SAP Integrated Supply Chain or SAP Leonardo.

Judging from the overall messaging from this week’s SAP TechEd event, there was candor that S4-HANA amounts to an ADAP Cloud vs. Open Cloud platform, requiring a more modular adoption implementation plan. There are new indicators that SAP seems to now have a renewed focus on industry-centric Cloud needs.

Going forward, this new CEO leadership change comes with a dual challenge for both addressing and resolving SAP customer Cloud migration needs for quicker time-to-value and business benefits, less disruption, along with the stated need of Initiative 2023, calling for significantly growing SAP subscription-based Cloud revenues and overall profitability.

It is indeed a significant challenge and we wish this new executive team the best in their new efforts.

A final note, again, from our lens, we believe that SAP customers should anticipate other significant changes as this new leadership team comes to grips with what needs to occur.

 

Bob Ferrari

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