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Bob Evans
Bob Evans

Global CIO: SAP's Striking Turnaround Triggered By Customer-Centric Strategy

The Year's Top Tech Stories: A year ago, SAP was rudderless and lost. Today, under new co-CEOs, innovation is back and frustrated customers are now excited and delighted. (#6 on our Top 10 list.)

In one of the most striking turnarounds ever undertaken by a big, global IT company, SAP this year has totally recast how it creates products, why it creates products, how it engages with customers, how it co-defines and co-develops value with its customers, and what type of strategy it needs to extend its lead as the world's most successful provider of business applications.

Other than that, 2010 was just another hum-drum year for SAP . . . .

Pushing the company far beyond its roots in rigid ERP applications created in massive, Newtonian development processes, SAP co-CEOs Bill McDermott and Jim Hagemann Snabe have blown out the company's stuffy and inflexible culture and myopic management perspective that earlier this year led to founder and chairman Hasso Plattner firing former CEO Leo Apotheker and installing the new leaders.

Less than 10 months ago, Plattner contritely confessed that his company had lost the trust of its customers and that its employees were miserable.

Less than 10 months ago, Plattner admitted SAP's development processes were outdated and ineffective.

Less than 10 months ago, Plattner said SAP had lost touch with what the vast majority of its customers wanted, needed, and expected from SAP.

(For extensive analyses of SAP, its competitors, and its customers, please check out the "Recommended Reading" section at the end of this column.)

Today, under its new leaders, SAP is growing at a double-digit pace, is once again solidly profitable, and has stopped providing Oracle executives with juicy soundbite material stemming from the weak financial and market-share results posted during Apotheker's reign as CEO.

Today, SAP's revamped development processes are allowing it to bring multiple new products to market more rapidly than ever before in strategically vital fields such as analytics, mobile, real-time business, and collaboration.

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And today, instead of viewing its customers as merely ballast for its stock price, SAP is engaging with customers in innovative ways that tie SAP's fortunes to the business outcomes of its customers, provide those customers with the unparallelled insights SAP has into best practices, and radically redefines the relationship between software vendor and enteprise customer.

After a recent conversation with Hagemann Snabe, I wrote the following in a column called Global CIO: SAP's Sweeping Turnaround: Exclusive Co-CEO Interview:

"Knowing that former management had already squandered any such multi-year cushion, SAP co-CEOs McDermott and Hagemann Snabe have spent the past eight months remaking their sprawling company and its vast product lines from the inside out, shredding the traditional SAP approach that I think we could call 'Complexity as a Service' in favor of one that puts a premium on customer value, speed to value, and consumability.

"To understand the scope of SAP's transformation that co-CEOs Hagemann Snabe and McDermott have undertaken since assuming control of SAP eight months ago, consider these comments from a very recent phone conversation I had with Snabe:

--'Large enterprises have begun to prefer simplicity to perfection—that was not the case before the global economic crisis.'

--'We knew we needed to simplify the consumption of our on-premise offering.'

--'On-demand has become more popular not because customers want to consume software over the Internet but rather because they wanted quicker time to value.'

--'For Business ByDesign, we want to build up a channel that is low-touch: customers are not interested in adding a lot of services to something that's already simple.'

--'Instead of building software for companies, which SAP has always done, we are now designing software for people' (end of excerpt).

Here's one more highly revealing excerpt from that conversation with Hagemann Snabe—and while pithy comments are no substitute for sustained execution, they sure can go a long way in inspiring customers and employees who beforehand were rapidly losing confidence in SAP.

"And he says SAP's 'central planning' model is largely to blame:

" 'As we spend more time with our customers and users, we notice that while competitiveness of products used to be all about features and functions, it is now focused very much on consumability, consistency, and usability,' said Snabe in one of his first interviews since taking the co-CEO job in February.

" 'We had become too bureaucratic, with too many boundary conditions—now, instead of trying to force all of our work through central planning, we are allocating people to strategic issues, which yields iteration and speed of innovation that's significantly different: our developers can now spend more time doing rather than planning.' "

While Hagemann Snabe's responsibilities require him to focus a lot of his energy inside the company to drive that customer-centric philosophy, you'll see that his thinking meshes precisely with that of McDermott, who heads up SAP's global field operations. Here's an excerpt from a column several months ago called Global CIO: The CEO Of The Year Is SAP's Bill McDermott:

"Those views haven't changed in my 25 years in the IT industry, and today customer innovation is the Number 1 factor for us in determining real customer value: can we help them run their business differently and better, can we help them access new markets, can we help them motivate their people, can we help them build and extend business networks, and can we help them create real opportunities."

And SAP's new aspirations are not limited to achieving those results for only large corporations, McDermott said in that late-July conversation:

"On top of that, consider a couple of other factors that McDermott highlighted in a phone interview with Global CIO Tuesday afternoon, including the addition of 5,500 new customers in the quarter: 'In 2005, we had a total of 30,000 customers, and we laid out a very ambitious goal of increasing that to 100,000 by 2010—it was one of those 'send a man to the moon and bring him back safely' kinds of goals,' McDermott said.

" 'We've always loved the Fortune 1000 and we still love them today and we always will love them, but we realized there was one thing problematic with that Fortune 1000: there are only 1,000 of them,' he said with a chuckle. 'So we said if we're gonna go and be a real market leader in the world, we have to expand—we also have to reach medium-sized businesses and small businesses' " (end of excerpt).

And has SAP hit its man-on-the-moon goal of 100,000 customers by 2010? The current total is about 103,500, McDermott said.

In concluding this overview of SAP's striking 2010 turnaround that's been centered on the primacy of customer results, I'd be remiss if I didn't highlight the eye-popping results achieved by SAP customer Airgas, which I covered in detail in a column called Global CIO: SAP Stunner: ERP Deal Boosts Customer Profit $100M Per Year. Here's an excerpt:

"4) The Happy CEO! From Airgas CEO Peter McCausland, here's the type of IT-afterglow in which every CIO would love to bask: 'In response to Air Products' offer to acquire Airgas, we have consistently stated that it is all about value, and we believe the substantial economic benefits of our robust, customized SAP system should be reflected in any valuation of the company. We expect this system to further optimize the power of the Airgas platform, and are excited about the game-changing potential of this enhancement to our business."

"5) The Promise of Raising Operating Profits by $100 Million per Year. Here's the math, which Airgas billed as 'incremental annualized operating income upon full implementation': from accelerated sales growth, between $25 million and $50 million per year; from price management, between $40 million and $60 million per year; and from administrative and operating efficiencies, between $10 million and $15 million per year. Add 'em up and that comes out to between $75 million and $125 million in additional operating profits per year for Airgas.

"Lest there by any doubt about Airgas's confidence in the ROI on this SAP deal, here's one more comment that underscores the company's unwavering optimism and conviction: 'Airgas is highly confident that by the end of calendar 2013, the benefits detailed in this announcement will be achieved and will constitute a minimum of $75 million in aggregate annual run-rate benefits in operating income, with a strong likelihood that these benefits will reach or exceed $125 million in the aggregate' " (end of excerpt).


Global CIO: Top 10 Most Influential IT Vendors, Part 2 (Microsoft And HP?)

Global CIO: SAP's Sweeping Turnaround: Exclusive Co-CEO Interview

Global CIO: The CEO Of The Year Is SAP's Bill McDermott

Global CIO: How SAP Is Leading The Mobile-Enterprise Revolution

Global CIO: SAP's Last Chance: It's The Customers, Stupid!

Global CIO: An Open Letter To SAP Chairman Hasso Plattner

Global CIO: Larry Ellison Declares War On IBM And SAP

Global CIO: SAP's McDermott Slaps Back At Oracle And Refocuses On Customers

Global CIO: Inside SAP: 10 Factors Behind Its Dramatic Turnaround

Global CIO: SAP's Top 10 Priorities To Become Undisputed #1

Global CIO: SAP: The Top 10 Reasons We'll Beat Oracle In Applications

Global CIO: SAP's Hasso Plattner On Databases And Larry Ellison

Global CIO: 10 Things SAP's Co-CEOs Should Focus On

Global CIO: An Open Letter To HP CEO Leo Apotheker

Global CIO: SAP Stunner: ERP Deal Boosts Customer Profit $100M Per Year

Global CIO: Tibco Surges And CEO Flips Off IBM, Oracle, And SAP

Global CIO: The Awesome Transformative Power Of The Apple iPad

Global CIO: As HP And Oracle Brawl, IBM And SAP Snatch Customers

Global CIO: SAP Confronts The Real-Time Culture Wars

Global CIO: Oracle Hammered By SAP For Stifling Customer Choice

Global CIO: Are HP And SAP Perfect Match Or Train Wreck?

Global CIO: Larry Ellison's Nightmare: 10 Ways SAP Can Beat Oracle

Global CIO: HP CEO Apotheker Has Deep Expertise But Checkered History

Global CIO: SAP Promises Business Value Over Products: Can It Deliver?

GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
or write to Bob at [email protected].

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