PALM BEACH, Fla. — When Bill McDermott became SAP's sole CEO in May, it helped clarify who was ultimately in charge of the world's third-largest software company.
Now, McDermott intends to make clear the company's enterprise product line and marketing message.
"Run simple. That's it," says McDermott, who is briefly luxuriating in south Florida where he lives part of the year, after a board meeting in late August. A window behind him frames the Atlantic Ocean and palm trees rippling in the breeze. (McDermott spent most of the summer in Germany, where SAP is based, at his other home in Heidelberg.)
The 53-year-old, who has been with SAP for 12 years, personifies a less-is-more philosophy. In a 90-minute interview, his first extensive sit-down in the U.S. since becoming SAP's majordomo, McDermott told USA TODAY the company is transforming itself in an era of cloud computing, mobile devices and the ubiquitous Internet of Things.
His message is simple: Make it easier for corporate customers like Under Armour, ConAgra Foods and the NBA to simplify their technical operations and improve efficiency. Indeed, "Run simple" is the tag line of a major marketing push that is in the midst of a "soft launch" with a TV/digital/print campaign set for early 2015.
"We want to make the S in SAP stand for 'simple,'" says SAP Chief Marketing Officer Jonathan Becher. "We haven't gotten there yet."
SAP has rightly earned its reputation — not to mention billions of dollars in revenue and market value — as a trusted purveyor of business software. Yet it finds itself at a crossroads, competing against upstart software-as-service companies like Salesforce.com, NetSuite and Workday.
The cornerstone, called SAP Hana Enterprise Cloud, is a managed-services version of its popular enterprise app suite on HANA (High-Performance Analytic Appliance), a database-management system. It is capable of quickly churning through massive amounts of information. SAP also offers public cloud apps for key lines of business such as human resources, sales, marketing and procurement, an alternative to software-as-service vendors such as NetSuite, Salesforce.com and Workday.
The most intractable challenge for a CEO today is complexity, McDermott says, waving a sheet of statistics to highlight his point. An Economist piece in 2010 said 90% of executives think business is becoming more complex; 40% of executives polled by McKinsey worry their organizations can't keep pace.
"When Leonardo Da Vinci said that simplicity is the ultimate sophistication, he didn't mean doing simple things," McDermott said in a May 21 note to SAP employees after his promotion. "I think he meant doing complicated things simply."
McDermott says he's counting on the leadership change to accelerate decision-making at the Germany-based software maker and fuel revenue growth in the face of withering competition.
Tough sledding for legacy software
The changes come amid some tough sledding for SAP, whose stock price has dipped this year on slower revenue growth. The company is also in the process of slicing 3% of its 67,000-person workforce.
"Anything they can do to simplify their product and organization is fine. But have SAP's changes come too late?" says Fred Laluyaux, a former SAP executive who is currently CEO at Anaplan, a cloud start-up that competes with SAP. He oversaw financial products at SAP from 2008 to 2012.
"What they're dealing with is a lack of patience from CIOs dealing with expensive, complex software," Laluyaux says. "Many customers are bailing on barbaric, legacy software and moving to cloud and mobile solutions."
SAP is attempting to navigate the difficult transition from designing financial, manufacturing and human-resource software for businesses' data centers to delivering applications online. Revenue this year is expected to increase 4% — the same as last year — to $24 billion, according to financial analysts. Under McDermott and former co-CEO Jim Hagemann Snabe, SAP's growth surpassed 10% from 2010-13.
McDermott and Snabe oversaw a four-year winning streak of revenue and profits, and a bump in SAP's stock.
It's the constant management changes that have investors worried. McDermott's promotion in May coincided with Snabe's appointment to SAP's supervisory board and the abrupt resignation of Vishal Sikka, who headed SAP's tech efforts in Silicon Valley.
"Investors will become increasingly worried if other changes occur in the near future," Kepler Cheuvreux analyst Laurent Daure said in a note to clients.
Then there are things beyond SAP's — or anyone else's — control.
Among the company's challenges are political tensions in Eastern Europe, and the escalating sanctions Russia faces from the U.S. and European Union.
Although recent EU sanctions on Russia could lead to longer sales cycles, McDermott has told shareholders SAP is "confident" any impact could be counterbalanced by global sales.
Oracle, meanwhile, is reviving efforts in a federal appeals court to win more than $1.3 billion in damages from SAP over a 7-year-old copyright-infringement suit.
McDermott leans forward to make his point. "I've been CEO for five years," says the Flushing, N.Y., native who got his start owning a deli as a teenager, and is the only American CEO in SAP's 42-year history. "I make sure to walk the walk and talk the talk."
"The new team around Bill is very strong and while innovation is at the core of our worldwide engineering, they also focus on a radical simplification in all areas of the company," says SAP co-founder Hasso Plattner.
An incongruous goal?
But is the new SAP at odds with what made it a multibillion-dollar company?
McDermott's goal — first broached at SAP's annual Sapphire Conference in Orlando, Fla., in June — is an audacious, some might argue contrarian, promise from a company known for its complicated enterprise applications.
The irony isn't lost on McDermott, who acknowledged SAP's technology has been "too complex."
SAP's cloud technology can be simplified in two ways, according to McDermott. First, you won't have to deal with hardware and systems-management issues. Second, you gain performance and simplification advantages. SAP itself runs on this cloud, and it collapsed its data footprint from 11 terabytes to 2 terabytes.
"Think of Hana as the great simplifier," he says.
The questions remain: Do customers want this type of cloud, amid promises of simplifications and performance gains?
Yes, says Bernd Leukert, head of products and innovation at SAP, who is sitting on a sun-splashed patio at SAP's Silicon Valley campus in Palo Alto, Calif., last Thursday night. He argues simpler, more-efficient products allow corporations to consolidate tech operations, which lead to cost savings and investments in innovation.
Two of SAP's largest customers have made the technological transition to streamline operations and get more creative.
"Our partnership with SAP powers our stats site — they have been an enabler for us," says Michael Gliedman, chief information officer of the NBA, one of several major professional sports leagues that assiduously use Hana to slice and dice data. A program developed by SAP, SportVU, records every movement and action of a basketball player during a game.
ConAgra Foods, an SAP customer for 15 years, has leveraged Hana to simplify its financial closing and forecasting. Managers at the multibillion-dollar conglomerate will soon be able to model business decisions in forecasts for things like advertising dollars and material costs at a detailed level to maximize profit margin.
"The technology was the easy part," says Mindy Simon, vice president of information technology at ConAgra. "The hard part was opening your imagination."
