American at the Helm of Germany’s Software Giant
WHY YOU SHOULD CARE
It’s a sign of the times. An American salesman has taken over as CEO of the German comany SAP, as the software giant moves its business to the cloud.
Bill McDermott has already invited guests to dinner at his new home near the small German village of Walldorf. The 52-year-old chief executive of SAP, Europe’s largest software company, is expected to have a good barbecue for the occasion, and will be out there wielding the grilling tongs himself, American style. That, at least, is what Germans imagine about their exotic new American boss.
He’s a local celebrity, easy prey for TV cameras, and he knows just how to mug for the camera. “I love it here!” he always says, with a chirpy all-American cheer aimed at gaining the trust of the mainly German employees in Walldorf. They’re still getting used to the novelty of having a brash American at the top, and uncertain of his commitment. Since May 2014, he’s been leading the company alone, after co-CEO Jim Hagemann Snabe moved to SAP’s supervisory board.
An American running a German company is not exactly the norm, especially for a European flagship like SAP. The business, founded by five former IBM employees in 1972, is the world’s largest seller of enterprise software and services, and the third-largest software company in the world, after Microsoft and Oracle, with roughly $26.6 billion in sales last year. Though based in Germany, it’s a global business, with over a quarter-million customers in 190 countries. And it’s survived, like all technology companies, only through a nonstop process of self-reinvention.
… selling simplicity itself to overwhelmed corporate executives.
McDermott’s big challenge: to keep revenues rolling in as businesses big and small move software services to the cloud, and away from SAP’s traditional area of strength: selling software that runs on big in-house computers. And keeping employees focused on the shifting goal posts.
For a long time, Snabe and McDermott were seen as the perfect team. Snabe was the experienced engineer, with a sober tone applauded in Europe. McDermott was the slick sales professional adept at communicating clear, simple messages. McDermott’s challenge now lies in speaking both languages.
And he’s selling not just simplicity of language, but also simplicity itself, to overwhelmed corporate executives.
Born in Flushing, Queens, in 1961, McDermott graduated from the Kellog School of Management, and later studied at Wharton in Philadelphia. Before joining SAP in 2002, he worked at Xerox for 17 years, and later at software company Siebel Systems and market researcher Gartner.
At SAP, McDermott has enjoyed a meteoric rise. As its U.S. boss, he tripled the share of SAP’s American business in just five years. In 2008, he rose to head SAP’s global sales. And in 2010, he began sharing the top job.
McDermott’s rise to sole CEO marks the beginning of a new era for SAP in more ways than one. The American will be relying on an almost completely new executive team, of his own choosing.
“SAP is changing, and therefore so is the management,” McDermott explains.
What’s changing at the company? The old business model focused on selling a standard system to customers on in-house computers and then earning a princely sum by providing years of supporting services. Now, SAP is putting its products in the cloud — on remote computer servers — and running a new super-fast database software, HANA. The aim for its customers: simplicity.
… the most intractable CEO issue of our era … is complexity.
— Bill McDermott
“For every one billion dollars of revenue, most businesses run over 50 disparate pieces of software in their enterprise,” McDermott told CNBC in June. “It’s chaos out there. There’s a lot of data locked up in silos — it’s not tagged, not being analyzed, it’s very inefficient.”
McDermott’s solution: Put everything on a single platform that integrates on-site computers and the cloud.
“The idea behind our business model is really dealing with the most intractable CEO issue of our era, which is complexity,” he says. “We want to help businesses run simple.”
In order to achieve the transformation to a “cloud company powered by HANA,” SAP plans to forgo profits, McDermott said when announcing financial results for 2013. He moved the target 35 percent operating profit margin back by two years, to 2017.
For SAP, this is a revolution. Not only do the company’s software engineers have to change their views and become faster and more user-friendly. Sales must also convince customers of SAP to renew every few years, instead of locking them into a long-term contract to service something they own.
At the same time, McDermott is striving to gain the trust of European employees, who fear the company could increasingly move its focus to the U.S. This is one reason why McDermott does not miss an opportunity to praise the German location.
He also now speaks more clearly about the company’s strategy than he has in the past. He demonstrated this at an employee meeting in Walldorf in April. The company canteen, which hosts these meetings, was filled past capacity.
Until then, it was Snabe who did the serious talk, while McDermott gave inspirational speeches. Now, McDermott talked about the hard stuff, and of his plans to simplify the company structure. “That went down well,” says one of the employees who attended the event.
McDermott said he’d be cheering for the German national football team when they played against the U.S. in Brazil at the World Cup. SAP employees were unsure if he meant it. In any case, it doesn’t matter, as long as the performance is there.
This piece was originally published July 28, 2014, and updated as of Dec. 21, 2014.