Returning to a co-CEO structure completes the executive refresh to support SAP in the ongoing cloud war

Bill McDermott chose not to renew his contract as SAP CEO, making room for SAP to return to its co-CEO structure with Jennifer Morgan and Christian Klein. This changing of the guard is the capstone on SAP’s management realignment, and the announcement comes with some glaring similarities to key ERP challenger Oracle’s announcement a month earlier.

Morgan and Klein take over the refreshed SAP executive suite

SAP has made numerous management changes in 2019, but all changes had been made with CEO Bill McDermott leading the company — and the newly appointed leaders — through each step. That reassuring constant ended abruptly on Oct. 10, when McDermott announced he will step down from his CEO role instead of renewing his contract. McDermott will stay with the company in an advisory capacity through the end of the calendar year to smooth the transition to the newly appointed co-CEOs Morgan and Klein.

While the personnel is changing, the co-CEO structure is a familiar one for SAP. SAP operated under a dual CEO structure for quite some time, with McDermott himself sharing the CEO responsibilities with Jim Hagemann Snabe before taking over in an individual capacity. The new co-CEOs are well paired from geographical and functional standpoints, as Morgan is U.S.-based and focused on sales, while Klein is Germany-based and more focused on products and innovation. In furthering the consistency, founder Hasso Plattner, himself a former co-CEO of SAP, remains chairman of the board and very involved in the overall strategy.

Morgan was in her role as president of the Cloud Business Group for a mere six months between Robert Enslin’s April departure to Google Cloud and her promotion into the role of co-CEO. Before his appointment to co-CEO, Klein became a member of the executive board in 2018 and served as SAP’s chief operating officer and chief controlling officer. We believe Morgan’s focus on sales and customer relationships as well as Klein’s strength in operations will be required to achieve SAP’s dual overarching goals: to grow revenue through sales and improve margins through operating efficiencies.

Notably, Morgan and Klein are stepping into the driver’s seat as other SAP executives are just finding their footing in new roles:

• One of the biggest shifts SAP made in the first half of 2019 was changing aspects of its partner programs, capped by the promotion of Karl Fahrbach from chief operating officer of the partner organization, to SAP’s first chief partner officer in March, after Rodolpho Cardenuto left his role as president of the partner organization in December 2018.
• Without much fanfare, Juergen Mueller was promoted from chief innovation officer to chief technology officer in January 2019, and appointed to SAP’s executive board.
• Elliot Management disclosed its investment in SAP in April 2019, and immediately directed SAP to further improve margins while chasing revenue growth.

While these changes have all come in different areas of the company, they are aligned with SAP’s goals as it transitions from a traditional software vendor to a cloud solutions provider. With its cloud portfolio largely in place (though innovation, replatforming and acquisitions persist), SAP is at the point in its transformation that requires it to invest in partner enablement to sell its cloud solutions and ongoing competitive innovation within its defined solution areas, and to do so with a focus on operating efficiencies. In this same spirit, McDermott aggregated a portfolio, and Morgan and Klein are well aligned to take that portfolio forward to achieve the goals, with the help of an invigorated C-Suite behind them. Arguably, SAP would have been well served by McDermott’s persistence as CEO to complete the technology transition to the HANA platform before departing, but Mueller and Plattner will likely both lend their technical leadership to ensure the smooth transition alongside the other business leaders.

Releasing earnings alongside the CEO announcement proves SAP’s ERP capabilities against Oracle’s speedy September release

SAP’s announcement was not allowed to pass without parallels being drawn to its most boisterous competitor: Oracle. The most discussed similarity is that SAP’s CEO change came almost exactly a month after one of Oracle’s CEOs, Mark Hurd, took an immediate leave of absence for medical reasons. Outside of the timing, the CEO announcements are, however, vastly different in motivation and succession.

The other similarity, which TBR believe is more noteworthy, comes from both companies’ ahead-of-schedule releases of quarterly earnings data in conjunction with their CEO announcements. When Oracle released its earnings Sept. 11, one day ahead of its scheduled release and 11 days after the quarter ended, CEO Safra Catz underscored the speed with which Oracle was able to prepare its financial statements by running on its own Fusion ERP Cloud suite. Nearly a month later, SAP was able to close and prerelease its results in a 10-day window using its ERP solutions. TBR expects this move to prove critical for SAP, as SAP quickly rebutted what could have been used as a competitive proof point of the capabilities of Oracle’s ERP solutions.