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A Chat With SAP's Bill McDermott

Posted By David Brousell, June 06, 2011 at 12:03 PM, in Category: Enterprise Resource Planning

After lunch on Friday, I took the E train in Manhattan to meet with Bill McDermott, the co-CEO of SAP, the world leader in enterprise application software. Friday was a brilliant day in New York City: A clear blue sky, cool temperatures, and sunshine so bright it would have made a cinematographer drool all conspired to create the perfect day. I was to meet McDermott at a fashionable restaurant called Oceania, which, at the appointed hour, promised to be relatively quiet for a Midtown hot spot, for the purpose of getting an update on the company a few weeks after Sapphire, its most important customer and partner event.

As is my usual practice, I was early for the meeting, but the maitre d' had been alerted that I was coming, thanks to the diligence of McDermott's always-nervous personal staff, and I was welcomed to a table. Within moments of my arrival, McDermott staffers were there, anxiously getting ready for their boss's entrance.

I use the word “entrance” deliberately because Bill McDermott doesn't just walk into a room. He enters it, or, perhaps more accurately, transforms it as he does so. A sales executive by background, McDermott came to SAP in 2002 from Siebel Systems to run SAP's U.S. operations, which had been going through a period of management turmoil under German executives. McDermott stabilized the operation and set it on a growth path that eventually led to his ascension to the top job 17 months ago. An irrepressible optimist with a ready smile and a firm handshake (and occasional backslap), he shares the CEO post with Jim Hagemann Snabe, who joined SAP in 1990 as a consultant and then went on to run the company's products and technology strategy.

McDermott and Snabe took over SAP following the abrupt departure of Léo Apotheker, whose tenure as CEO was marked by customer and, some say, employee unrest (Apotheker is now CEO of HP). When they took the reins in February 2010, the duo vowed to create a "new SAP," one that would re-establish trust with its customers, expand its ecosystem of partners, possess a sense of speed and urgency, achieve the status of a breakthrough innovator in technology, and leverage the size of SAP itself.

Since then, SAP has pushed hard on the innovation message. It has tried to draw a clear contrast with its nearest applications competitor, Oracle, which has acquired dozens of software companies. For its part, SAP has gone to market with an applications delivery strategy that encompasses on-premises, on–demand, and on-device channels as well as its in-memory database technology, which offers far faster processing speeds than conventional DBMS technologies. Mobility, in particular, and the applications that go with it, is a key McDermott mission, and SAP is now talking about reaching one billion people by 2015 (it now has 170,000 "customers" in 120 countries).

Reaching that number may take some time as well as further definition, but SAP's financial performance has been strong, with the last five quarters showing double-digit revenue growth. Software license sales grew 26% in the first quarter of this year (SAP will report second-quarter results on July 27). Indirect sales now account for 20% of revenue, a percentage McDermott wants to grow to 40% by 2015.

But our meeting occurred on a day when U.S. economic news was again disappointing. Job growth slowed dramatically in May, with manufacturing, which had been leading the recovery, showing serious slippage. The job numbers followed earlier reports of continued problems in the housing market and fresh worries about the automotive sector, all of which was prompting speculation about the strength, or lack thereof, of the recovery.

My first question, then, was how does he see the market now? For SAP, he said, there is a dichotomy. He said that individuals will continue to face uncertainty, but the corporate world has to deal with forces and requirements that are not specific to any one period in time -- the need to lower IT costs, the data explosion as access proliferates, the necessity for analytics to enable real-time decision-making in a business environment moving faster than ever.

In saying this, McDermott is relying on a traditional, if still somewhat valid, argument that has been used in the IT market for many years; to wit, that IT investments enjoy some protection from economic cycles because they can improve efficiency and lower costs. In this context, according to McDermott, the demand for SAP's technology is holding up, and he has not seen any slowdown in the pace of buying. He also reaffirmed SAP's financial guidance of 10%-14% growth for the full 2011 year.

But McDermott is determined that SAP will not become what he called a "commodity player" in IT, and will instead focus on delivering real value to its customers through software, not hardware or services, as some rivals have.

"Software is the brain; it's where the high value is," he said. "It's about value engineering. If I can lower your IT spend by 40%, would you give me a higher percentage of your remaining budget?"

McDermott believes that most companies would answer this question with a resounding yes. As such, he sees SAP playing the role of the "disrupter" in the industry. Mobility, cloud computing, and analytics all add up, in his view, to a wave of change that is profoundly affecting both buyers and sellers of IT. "We're in the next big wave of disruption," McDermott said.

Personally, after 17 months at the helm, McDermott feels "resolute" about SAP. "We had the right strategy," he said. "There was no plan B." And he talks like someone who has come to fully understand the vast gulf that exists in any organization between the CEO's position and any other executive rung on the corporate ladder.

"I see the world now through wider eyes," McDermott said. "I'm more humble. I understand the pain, sacrifice, the ambition of other CEOs. The biggest risk a leader can take is not taking a risk. You might have a shelf life of six months if you wait for the world to come to you. So, you must be a change agent. With character and the right strategy, you can definitely change the world."

Written by David Brousell

Global Vice President, General Manager and Editorial Director of the Manufacturing Leadership Council

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