January 28, 2020 / 1:28 PM / a month ago

Integration the name of the game for SAP's new leadership duo

WALLDORF, Germany (Reuters) - For a decade, Bill McDermott led business software company SAP (SAPG.DE) to growth through a succession of multi-billion-dollar deals that built a dynamic and profitable market leader that had one flaw: complexity.

FILE PHOTO: Members of the executive board of SAP Luka Mucic (Chief Financial Officer), Stefan Ries (Chief Human Resources Officer), Adaire Fox-Martin (Global Customer Operations), Bill McDermott (Chief Executive Officer), Jennifer Morgan (President Cloud Business Group), Christian Klein (Chief Operating Officer), Juergen Mueller (Chief Technology Officer) and Michael Kleinemeier (SAP Digital Business Service) attend the company's annual general meeting in Mannheim, Germany, May 15, 2019. REUTERS/Ralph Orlowski/File Photo

Now McDermott’s successors, co-CEOs Jennifer Morgan and Christian Klein, are tackling a different task - ensuring that all the elements at the $30 billion enterprise software leader work harmoniously together.

In their first three months in charge, they have streamlined SAP’s sales organisation and taken steps to ensure that the business applications it offers can run together seamlessly on top of its flagship S/4HANA database.

“We’re doubling down and we will deliver the integration of our cloud assets,” Klein said in an interview after SAP reported in-line fourth-quarter results and raised its guidance for 2020.

The tandem arrangement is a familiar one at SAP, after McDermott shared CEO jobs at first with Jim Hagemann-Snabe, now chairman of Siemens (SIEGn.DE).

Its latest iteration combines American Morgan’s focus on cloud and customer relationships with Klein’s background in process engineering as a protege of SAP founder and chairman Hasso Plattner.

“Around integration: we know the combinations of solutions that most of our customers are using today. We know what the (sales) pipeline tells us about where we’re headed tomorrow,” said Morgan.

“That’s very important in us getting one set of priorities to the entire engineering team.”

GAINING TRACTION

Europe’s most valuable technology company wants to achieve 35 billion euros (£29.6 billion) in revenue by 2023, with revenues from its cloud operations to treble over five years to three-fifths of that total.

Klein said that 40% of customers who signed up for S/4HANA in the fourth quarter were new - including Ford Motor Co (F.N), Tech Mahindra (TEML.NS) and Standard Chartered Bank - meaning that SAP was extending its market lead.

Cloud sales were also strong and the company now expects revenues to reach double its tradition software licences this year. That’s important because investors value predictable subscription revenues more richly than ‘lumpy’ licence fees.

SAP won 1,200 new S/4HANA customers in the fourth quarter, bringing the total to 13,800 - up 24% year on year. Just over half are now live, Klein said, adding that SAP customers were warming to the product.

While SAP has faced criticism of being slow in implementing S/4HANA with its customers, Klein said mastering the technology was only part of the task.

“You cannot only buy new technology and adapt it one to one, you have to drive a business transformation,” said Klein. “This is where SAP can play a better role.”

Morgan, for her part, is a strong advocate of Qualtrics, the specialist in tracking customer sentiment whose acquisition for a steep $8 billion drew criticism from investors and marked the beginning of the end of the McDermott era.

Qualtrics, now a separate business unit, contributed just over 500 million to the top line last year. Morgan said she saw potential for it as a both standalone business and as a driver of SAP’s broader cloud proposition.

Asked whether SAP might rediscover its appetite for takeovers, Morgan said the message from investors was for SAP “take the great DNA” that it has acquired and channel it into its organic innovation.

“Right now we feel that we’ve got the right portfolio. Could there be tuck-ins? Sure. But right now, we’re focused on the main event,” she said.

Reporting by Douglas Busvine; Editing by Michelle Martin/Keith Weir

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