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When Should a Company Change Its Stripes?

Posted By Chris Chiappinelli, May 23, 2012 at 2:09 PM, in Category: Next-Generation Leadership and the Changing Workforce

Scroll back seven years, and business software maker SAP was the self-appointed king of old-fashioned innovation. The company spent a sizable slice of its revenue on an R&D apparatus that churned out nearly all of its new products. In the estimation of company leaders, innovation was a core competitive differentiator between SAP and its main rival, Oracle. The assertion was simple, and simplistic: Oracle acquired new products; the folks in Walldorf created them.

At the time, the contrast was undeniable. In the early aughts, Oracle was binging on acquisitions, while SAP was sticking to its knitting, regularly if somewhat slowly developing big-bang releases of its core software. Then, shortly after the middle of the decade, SAP began to change its stripes, and the innovation-versus-acquisition distinction began to break down. You can see the philosophical shift in a timeline on SAP’s Website:

2005

Organic Growth: The year 2005 is marked by a series of acquisitions [in the industry]. While its competitors initiate their own major takeovers, SAP focuses on organic growth by acquiring smaller companies whose specific solutions augment its portfolio in sensible ways.

2007

Seizing new opportunity: When an acquisition makes sense in enhancing its product portfolio, SAP does not shy away from the investment required.

In the five years that followed, SAP spent more than $20 billion acquiring companies that sold innovative products in areas outside SAP’s core portfolio:

-$6.8 billion on BusinessObjects, announced in 2007 (analytics)
-$5.8 billion on Sybase, announced in 2010 (mobility management and servers)
-$3.4 billion on SuccessFactors, announced in 2011 (cloud-based human resources management)
-$4.3 billion on Ariba, announced in May 2012 (cloud-based B2B management)

Today, SAP is basically as acquisitive as Oracle is. We can have a separate debate about how each company nurtures those acquisitions; my point is that SAP chose to purchase many innovative products instead of developing them on its own. And that speaks to the wisdom of SAP executives and its board. They recognized that the world of business technology was moving too fast for any one company to innovate on all fronts—cloud computing, enterprise mobility, analytics—and they made a calculated decision to refashion what had been a pillar of the company’s identity.

If the board and company executives had instead clung to a fading ethos, the biz-tech world would have raced right past, leaving SAP the withered grandfather on the corner of the technology porch, mumbling incoherently about the good old days.

As they began to loosen the purse strings, SAP executives softened the innovation rhetoric slightly (although they still champion organic innovation—see HANA. They also stopped sniping at Oracle for its acquisitive streak. In the end, I believe they did shareholders and customers a great service by relinquishing some of what once made SAP SAP. They did not prostrate themselves to tradition.

I imagine there are executives in the audience who feel hamstrung by an outdated corporate identity. It’s not always easy to grasp when it is acceptable—or necessary—to change a company’s stripes. It takes a special kind of leader to plan and execute such a shift. For all its corner-office foibles in recent years, SAP managed to execute its shift effectively. It’s a lesson worthy of study for any business buffeted by the countervailing forces of tradition and progress.

Have you experienced a similar shift? How did you make the necessary adjustments, and who in the organization offered the most resistance?

(Manufacturing leaders interested in exploring the skill of adaptive leadership can learn more about Manufacturing Executive’s Adaptive Leadership program.)


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Written by Chris Chiappinelli

Chris Chiappinelli is the online research manager for Manufacturing Leadership. He covers enterprise software, sustainability, economic trends, workforce issues, and emerging technologies.



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