Subba’s Serendipitous moments

February 10, 2010

SAP faces the moment of truth

Filed under: Business,Competition,Leadership — Subbaraman Iyer @ 10:58 am
Tags: , , ,

 

In a surprise move, SAP announced the resignation of Leo Apothekar as CEO of SAP and instituted a co-CEO model. In retrospect, the problems at SAP has been in the making for a number of years.

SAP’s financials fell in 2009, like many others but it was in a recovery mode. In the full fiscal year 2009, total revenue was down 8% to €10.67 billion ($15 billion) and net income was down 5% to €1.83 billion (€2.57 billion). Q4 revenue was down 9% to €3.19 billion or $4.8 billion. Net income decreased 12% to €727 million ($1.02 billion) or €0.63 per share.

Software revenue in Q4 declined 15% y-o-y to €1.12 billion but doubled from €525 million last quarter. Software and software-related service revenues were down 4% to €2.57 billion but up from €1.94 billion last quarter. For the full year, software revenues declined 28% to €2.61 billion. Software and software-related service revenues were down 3% to €8.20 billion.

In the SME segment, SAP has just  73,000 customers globally despite making multiple product offerings like Business ByDesign, SAP Business One and SAP All-in-one.  SAP defines SME as business with 100-500 employees and revenue of less than $500 million. This was a clear under-perform given that Oracle managed to penetrate this segment.

SAP failed to execute the SME strategy effectively, something that I clearly foresaw about which I commented here.

The moment of truth was not just the revenue decline, but the impact of the lack of strategy both internally and externally.

This can be attributed to SAP’s lack of commitment to the SaaS strategy despite making public announcements about its willingness to offer the SaaS model. SAP’s strategy that Business ByDesign would essentially serve as an ‘on-ramp’ to its on-premise customers rather than be a distinct separate offering is a flawed one. This created huge confusion in the minds of the customers (something I had told them in 2007). Further it seems that this confusion spread amongst the internal staff who never understood how to position the SAP’s offerings in the market place. Hence I am not surprised that 50% of the internal staff didn’t express confidence in the executive board.

SAP’s decision to increase maintenance fees in the midst of the economic slowdown didn’t win any friends amongst the customers. It has shaken customer confidence about SAP’s customer orientation.

Is the co-CEO model the solution to the leadership challenge amidst such strategic and operational challenges? I am not so sure. SAP has had several leadership challenges in recent times as listed here.

Hasso Plattner was his usual candid self when he said “ But to be profitable, we will have to be a happy company and our customers have to be happy as well”. .

So expect Hasso Plattner to be not just visible but with his hands firmly on the wheel.

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