SAP: Sikka resigns. Three questions that need answers.

sikka - 2SAP has announced that Vishal Sikka, executive board member has resigned with immediate effect for personal reasons. Rob Enslin and Bernd Leukert are promoted to the executive board.

As the chief evangelist for all things HANA and cloud but also with responsibility for the 23,000 person strong development organization, Sikka had a huge portfolio of products to heft. Internally, Sikka was attempting to transform the business to one that reflects the needs of a 21st century company. As someone who grew close to Sikka personally over the last few years, there is a profound sense of sadness at his departure. So what now?

The timing could hardly be worse, coming as it does just shy of a month from SAPPHIRE Now, the company’s annual customer showcase event. It will be interesting to see how SAP responds. One thing is for sure, SAP’s competition will have a field day. But what next for the company? Here are some questions that SAP will need to answer:

What happens to product strategy?

For the last couple of years, SAP has been on a path that looks much like that of a technology company rather than that of an applications business. That was fine up to a point and at least up to the end of 2013, HANA sales were shoring up the declining enterprise apps business.

At the last earnings announcement, it was noticeable that the company chose not to break out HANA sales.

So in the run up to SAPPHIRE Now, customers will need assurance and re-assurance that applications have not gone into large scale maintenance mode but that there is a direction they can buy into. What shape that takes is anyone’s guess. I have thoughts on this but will remain silent until I hear from the company. This is not a time for idle speculation.

What about cloud and mobile?

At the last earnings call, Bill McDermott, co-CEO repeatedly said that SAP is ‘the’ cloud company for enterprise yet beyond acquired solutions in the shape of Ariba and SuccessFactors, there is precious little evidence that SAP is gaining significant traction or is building momentum in that arena.

While SAP is not directly threatened in its core business by cloud competitors today, the fact that Oracle Fusion is now gaining momentum and acceptance among buyers must be a matter of concern. The fact Workday is pushing hard with HR as the Trojan horse for getting into SAP financials territory must be of equal concern.

But what of mobile. Last year, Sanjay Poonen, who was leading that charge departed since when the company has been silent on the topic. This is the one area where SAP could shine yet much of what we’ve seen so far is little more than baby steps.

How stable is SAP?

Leadership changes are always significant. The last year has seen Jim Snabe, co-CEO announce his departure, slated for this month. Now this event leaves important questions around the stability of the company as an ongoing entity. Regardless of speculation, job one for the new board has to be one of assuring customers, staff and partners that the SAP ship is not running aground but sailing into fresh, new waters. This will be tough. Paul Hamerman, analyst with Forrester had this to say on Twitter:

It is hard to disagree. Leukert and Enslin have plenty of experience in both development and sales respectively but will that be enough to satisfy the outside world? We will get an early indication when the markets open. However, in recent months, there has been a steady stream of highly competent people leaving the company. That’s never a good sign, and especially when it includes people who have been with the company many years in an industry known for short term tenure.

Verdict

This is a rough day for SAP. Regardless of bench strength, Sikka’s departure leaves a massive hole in the company that will be tough to fill. What happens next may well define the company going forward.

Disclosure: SAP, Oracle and Workday are partners at time of writing.

Den Howlett

Den Howlett

Dennis Howlett has been taking the buyer's perspective in analysing application vendor offerings for more than 22 years following a 20 year successful career in IT and finance related roles. 'Never knowingly under opinionated,' Howlett takes strong positions in the interests of getting to the truth of what drives customer value.
Den Howlett

@dahowlett

Disruptor, enterprise applications drama critic, BS cleaner, buyer champion and foodie trying to suck less every day.
Den Howlett
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20 comments
kyield
kyield

Hello Den,


A busy morning and time for me, but wanted to leave some thoughts in an appropriate place. 

No question about Vishal's strengths as they've been highly visible, so will just move on. In reading reports from many sources, there are two common assumptions that don't add up to me, at least not yet. They are certainly not new and probably connected in ways that no one truly grasps, but may be easier to see from outside or customers.

1) While the top line revenue and net profit performance at SAP has been better than some of their peers, last time I looked closely at public information I saw a big disconnect that reminded me of MS and Steve B over the past decade, and not in the way most probably would assume. It can be reduced to the cannibalism issue, the conflict between the CFO and the CTO in mature companies (especially SW & relationships with HW & gov'ts), where they have sufficient market power to milk legacy systems for much longer than is good for anyone else. It requires a deep appreciation of both to understand--not many do it seems, but you have demonstrated it often enough. 

There is a big largely invisible disconnect between the apparent collective investment in HANA and the incremental improvement in revenue and profit. I certainly haven't had the time to chase it all down even if publicly available, but what I have seen gives me reason to believe that this is causing a great deal of grief for the more advanced bean counters, and not just at SAP, but Germany & EU, which brings me to second issue.

2) While MS, IBM, HP, and even Google share some similarities in this challenge of both recognizing the opportune time to unleash innovation and cannibalization - R&D is one thing - engineering another - customer market acceptance another - and investor acceptance yet another, SAP was unique due to logistics and supply chain ('Unleash the Innovation Within' was our first post patent app WP at Kyield with thousands of downloads from these companies).

I say was because one cannot disagree that they've come a long way (Appleby's post provides a nice summary), most of it has been in M&A. Selling new candy into the ecosystem is fine to a point, but unless the strategy is to convert to an Oracle of Omaha model--as IBM is discovering--that only provides a window of opportunity to get your '….' together, which speaks to #1. In this regard, SAP's challenge strikes me as very similar to MS's challenge -- Vishal helped course correct the ship from an innovation and tech perspective (which MS mostly refused to do), but I question whether the combination of our SAP's culture and Wall St. are ready for what long-term competition really means? It's pretty damned difficult to milk lock-in market share and be disruptive at the same time.

The German culture is as good as any in doing so, but it tends to work best in the sweet spot of the German economy--the Mittlelstand, which are essentially freed from the pressures that face global giants. Even a BMW is much different than an SAP as the CTO and CFO at BMW have much less conflicting interests. One old friend who is among the best analysts on SAP reflected a couple of years ago that the company thought it had a decade before they would be forced by technology to cannibalize the business model. If they are correct--Ballmer was based on profit and revenue (even if excruciating to many of us), then the franchise is probably OK. If they are wrong, however, they are under increased risk of a big bang disruption. As you suggest, it's probably not only a fair question that has been on the mind of many CIOs and boards of customers--given the cost of legacy enterprise SW and maturing alternatives, but the broader question for all enterprise incumbents is one that many boards have indeed taken up.

The situation is to some respect I think still a culture clash -- reflective of Germany's relationship in the EU and to some extent global economy given that it's so reliant on exports. It's a pivotal time for what we've all observed as the enterprise IT industry. As Spencer Ante recently wrote at the WSJ--he's unusual for big media journalists due to deep relationships in VC--$3 trillion is up for grabs.

Young companies have many challenges, but they don't share some of these conflicts, which is why creative destruction usually manifests as emerging leaders in generational change in technology, which is without question occurring. Transformation in large mature ecosystems is brutal.

KR, MM




Darius  A
Darius A

@dahowlett

After an analyst call held in January, you wrote:

"One disappointment during our discussions was the fact SAP will not split out the HANA specific revenue in 2014. The rationale is that it is no longer a separate category but part of everything SAP does."

http://diginomica.com/2014/01/21/saps-q4-2013/

RickBullotta
RickBullotta

I think on balance this is a great loss for SAP.  I don't see any obvious candidates for replacing the passion, energy, and technical vision that Vishal brought.  However, as is often the case, the pendulum seemed to have swung too far towards "platform" and "technology" and away from applications, which is SAP's bread and butter and, more importantly,  what the sales channel is geared up to sell.  

I also sensed that Vishal was surrounding himself with too many politicians, sycophants, and self-promoters - something I mentioned as a concern immediately after his promotion.  My dealings with some of his direct reports left me quite unimpressed and in some ways distressed about what they might do to SAP.Hopefully those people will be swept out in the change.  I did not like how they conducted themselves and where they were taking a company that I still have great fondness for.  SAP has a lot of great people, a very loyal customer base, and was a good company to work for - I hope those factors can help them evolve the company as the world around it changes so rapidly.  


I'm hope Vishal will become a part of the startup and entrepreneurial scene, where he can really make a mark and have an impact.  I certainly wish him success wherever he ends up.



RickBullotta
RickBullotta

@diginomica does this mark the end of the "we are a platform" charade? Hopefully back to being an app company, which is what they know best.

Krisgo
Krisgo

To a large extent SAP needs to accelerate by rewriting most of its applications for the next generation. If they can dedicate themselves to the Cloud, rewrite all applications in the next 5 years, not promise anything to investors for the next 5 years, streamline customer sales/support they will be good to go for the next 20 years. 


Of course, the above paragraph is substantially easier to write than it is to implement. 

RichardDuffy
RichardDuffy

As a former SAP person myself, this is a big loss for SAP - Vishal was passionate, articulate and credible.


Hard to get all 3 characteristics in one person and I think he will be missed.

dahowlett
dahowlett moderator

@kyield"One old friend who is among the best analysts on SAP reflected a couple of years ago that the company thought it had a decade before they would be forced by technology to cannibalize the business model" 

Bingo - I said 2-3 years ago that 'death date' is sometime in 2017 for current apps but as we stand now, I don't know/see what apps will be available to avoid that problem plus the platform is only half built.

Much is made of the 'German' problem and I do see how that plays out. However, it is very strange because no company lives in a vacuum and yet from everything we're told and from some of what I've seen, that is exactly how they behave.

preston2014
preston2014

@RickBullotta This is precisely the point: Vishal surrounded himself with sycophants and self-promoters. And even worse - he did not think further than Palo Alto, not understanding that he leads a global organization. He let his sycphants in Palo Alto work on ppt presentations and his people - especially in Walldorf - had to fix the shortcomings. And Vishal was never willing to accept that he may be wrong - very, very sad. He was not a visionary, only his masters´s voice. And even worse: Sikka did not care for customers and disregarded their represensatives (no willingness to communicate) and preferred to talk only to his ivory tower entourage. The majority of SAP employees wellcome his departure (sorry Dennis - it appears you only know a few people at SAP, I doubt you talk to people outside Palo Alto). It is sad this Vishal´s behavior is is already perceived as "visionary". It is key that Bernd Leukert will be able to encourage the SAP team in Palo Alto to keep their creative spirit. It would have been better if Vishal had reseigned earlier so SAP would have kept Snabe. But now SAP must concentrate on beating the competition.

dahowlett
dahowlett moderator

@RickBullotta As we've seen from the appointments announced, SAP has tremendous bench strength where it matters the most so while many adjust to the new regime, the question will come: where's that brand of passion that Vishal Sikka brought and which has now left the building?

On the question of direct reports, I can't get into that publicly since I had a number of sensitive conversations on that topic. However, there is one story I may well tell in the coming days that provides insight into the situation from my perspective. 

Like many others, I share your best wishes for Vishal.

dahowlett
dahowlett moderator

@RickBullotta -  there are arguments for both platform and apps. 

SAP cannot simply abandon HANA as a platform. They have many customers using it for that purpose and let's not forget all those startups that bet their future on it. 

On the other hand I take your point on apps but what might that be as a portfolio of solutions? Can you honestly say we've seen much that was of genuine differentiating value that could be productized and sold at scale the last few years? 

kyield
kyield

@milesahead1 @kyield  


I had it slightly wrong --

It was Spencer, but was a post at LinkedIn rather than WSJ (not surprising in hindsight), and apparently he doesn't think entire industry is up for grabs as it's 1 trillion rather than 3. I am on run today so going on memory -- but agree. While a very general large number, it probably is something more like a quarter to a third of the enterprise IT cluster in play--maybe half. Depending on how much money is printed and to what extent fiscal discipline is introduced to public sector, it could be a shrinking pie relative to the global economy. I suspect my view is not being taken into account by most industry forecasts, but the technical architecture I am designing--the physics that is, does indeed allow for consolidation of value across acronyms.

State of Business Technology: A Trillion Dollars Up For Grabs

https://www.linkedin.com/today/post/article/20140325114845-23945-state-of-business-technology-a-trillion-dollars-up-for-grabs


dahowlett
dahowlett

@josephrngr < but it comes with risks...like somebody deciding to splat you on said wall ;)