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SAP reverts to co-CEOs after showman McDermott's decade of growth

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10/11/2019 | 03:20am EDT
FILE PHOTO: SAP CEO Bill McDermott attends the company's annual general meeting in Mannheim

BERLIN (Reuters) - Bill McDermott stood down on Friday after a decade building up SAP as the world's leading enterprise software company, handing the task of completing its transition to cloud computing to new co-CEOs Jennifer Morgan and Christian Klein.

SAP announced the management overhaul, with immediate effect, after rushing out third-quarter results that showed it gaining traction in its drive to offer a more streamlined range of services and boost profitability.

The succession, which helped to send SAP's shares up 7% in early trading, ends an era in which McDermott struck a string of multi-billion-dollar deals that built SAP into Europe's leading technology group but also created complexity that frustrated many clients.

McDermott's exit follows the entry this year of activist investor Elliott, amid broader market concern that his acquisitions - including last year's $8 billion deal to buy customer relationship platform Qualtrics - had caused SAP to lose focus.

"SAP would not be what it is today without Bill McDermott," said Hasso Plattner, a co-founder of SAP who chairs the company's supervisory board.

"Bill made invaluable contributions to this company and he was a main driver of SAP's transition to the cloud, which will fuel our growth for many years to come."

Plattner founded SAP in the early 1970s with three former IBM colleagues. He has continued to exert quiet influence from behind the scenes, giving room for extrovert McDermott to play the role of showman and salesman.

The tandem arrangement is familiar at SAP, with Plattner running the business together with co-founders Dietmar Hopp and, later, Henning Kagermann. McDermott was co-CEO with Jim Hagemann-Snabe, now chairman of Siemens, before he took sole charge.

Its latest iteration combines Morgan's focus on cloud and customer relationships with Klein's background in process engineering that is rooted in SAP's German heritage.

"This is part of our fabric, part of our culture. It works," McDermott told analysts on a conference call.


Analysts said McDermott had led a company struggling to recover from the 2001 dot.com crash firmly into the cloud, achieving a difficult transition to a new way of doing business while at the same time growing the top and bottom line.

"Jen and Christian are in a good position to further SAP’s own transformation while delivering the technology to fuel their customers' own transformations," said Joshua Greenbaum, principal at EAConsult. "It won't be easy by any stretch of the imagination, but the foundational elements are in place."

In Europe, Klein has been on a listening tour, including SAP's TechEd event in Barcelona where the company holds seminars for its developer community that is so vital to keeping its software ecosystem up to date.

Veteran tech commentator Den Howlett said he had an "unusual and wide-ranging" conversation with Klein in Barcelona. Howlett aired his concerns that SAP's sprawling product portfolio was deterring customers from upgrading to next-generation products.

That has created an opening for long-time rival Oracle, which trumpeted its success in winning over SAP clients with its own cloud business suite at a recent U.S. user conference.


McDermott had launched an efficiency drive, promising to expand profit margins by 5 percentage points through 2023. After a wobble in the second quarter, SAP's latest results showed the strategy shift was delivering positive results.

Growth in new cloud bookings more than doubled to 38%, lifted by a major three-year cloud deal with an unnamed partner, while operating margins expanded by an underlying 1.7 percentage points.

McDermott, speaking earlier with reporters, denied bowing to pressure from Elliott, saying he would have had to decide on renewing his contract in early 2020. He chose not to, on his own terms, in consultation with Plattner.

"I've enjoyed a great run and an exciting ride," said the 58-year-old New Yorker, who has worn dark glasses since he was blinded in one eye by an accident at home. He will stay on in an advisory role until the end of the year.

"You get to the point where you've done what you set out to do and then some," he added. Asked about his future plans, McDermott answered that it was too early to say before adding with typical ebullience: "I'm just getting warmed up."

SAP has brought fresh management talent to the fore over the past year in preparation for the handover.

Morgan, a polished saleswoman who joined SAP in 2004, was handed board-level responsibility for cloud and 'go-to-market' operations.

Klein, who came to SAP as a student, was promoted to the position of chief operating officer. He has managed SAP's flagship S/4HANA database - the 'brain' for applications that include finance, human resources and logistics.

The new leadership duo pledged short-term continuity, saying they would update investors when SAP publishes final third-quarter results on Oct. 21, and at a capital markets day in New York on Nov. 12.

(Reporting by Douglas Busvine; Editing by Tom Hogue, Christopher Cushing and Keith Weir)

By Douglas Busvine

Stocks mentioned in the article
ChangeLast1st jan.
BYD COMPANY LIMITED -1.47% 43.5 End-of-day quote.11.97%
EURO / US DOLLAR (EUR/USD) 0.04% 1.11069 Delayed Quote.-1.21%
SAP SE 0.80% 113.5 Delayed Quote.-5.67%
SERVICENOW INC. 2.63% 387.93 Delayed Quote.37.41%
SIEMENS AG -0.57% 98.53 Delayed Quote.-15.45%
WORLD CO., LTD. -3.03% 1567 End-of-day quote.-41.77%
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