All change at SAP/Ariba: does it matter?

Den Howlett Profile picture for user gonzodaddy January 8, 2014
Summary:
Management changes at SAP open up fresh questions about the future of the company. It looks more promising than some would have you think though there will be an inevitable rush of old questions rehashed to satisfy the headline.

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I am reluctant to opine on this topic and am only penning this because I've received so many requests to say something about the most recent management changes at SAP and in particular about the departures of Bob Calderoni and Kevin Costello and the slight reshuffle that gives Shawn Price more responsibility.

Right now, it is too early to be anything other than speculative so with that in mind, read on or click away.

This news was always going to bring with it yet another bunch of negative driveby comment and while the timing was hardly ideal - it could have been buried in the holiday off season - it was something of an inevitability. SAP's track record of losing acquired top level executives over the last few years should have been the obvious clue.

Contrary to some of the more outrageous headlines I saw on this topic I don't think this is a big deal in the long term. Or at least I hope not.

Calderoni has largely been invisible since his ill advised appearance at SAPPHIRE 2013. Calderoni was never one to claim kudos as a rousing public performer and his effort at SAPPHIRE fell flat. Rumor has it, he's been recently enjoying more time on the golf course than face time in the office. Costello is a bigger loss. His services smarts are something from which the broader business could have continued to learn and which now are lost. Why?

SAP is building a services business for special customer projects around HANA and while this inevitably creates channel conflict, it is an issue that Costello has successfully navigated in the past. My view is that Costello's experience could have helped to accelerate those efforts.

Calderoni had done the job for which he was hired at Ariba and it was always going to be hard to see how he would fit into a company like SAP. The DNA mix just wasn't there. However, I do hope SAP learned enough from him about business model transformation that they can carry through their own necessary transformation in the coming years.

Jason Busch at SpendMatters talks eloquently about how Ariba successfully made the business model shift:

Ariba got the business model right (from a revenue and valuation perspective) by forcing the lock-in of SaaS P2P customer to the network, which would drive its appeal and valuation to investors — and ultimately SAP. Say what you will whether this business model is the right one or not for buyers and suppliers (I have issues with it), but investors ended up gobbling it up. And this was prescient, as was driving network revenue by signing the Quadrem deal (even if the integration of the organizations created some tension internally) and the acquisition of B-Process in France. Both deals were also extremely prescient exercises in the arbitrage of revenues, which tremendously benefited shareholders in the end, especially the former…

I wont pretend to have the same degree of insight that Busch can bring to the table on this element of SAP's business. But for me the Ariba team track record proved that it is possible to shift models and still come out looking good. That was one of the principle reasons I was originally bullish about the Ariba acquisition. It was a much needed perspective inside a company wrestling with its own identity and future.

My current concern is that despite the learnings, SAP has yet to fully understand how the transition needs to work. In the discussion outlined at ASUGNews, Thomas Wailgum reported:

“We’re a cloud company,” says SAP’s Shackleton, [SAP’s senior director of cloud communications, Dorit Shackleton] “and we’re putting our money where our mouth is. There’s no more separation between cloud and the rest of LOB apps.”

I shudder when I read such things because they're simply not true - at least in a practical sense - and something that competitors can rightfully call BS upon.

SAP may have aspirations to be a cloud company but the bulk of its revenue and sales derive from traditional, on-premise applications and maintenance fees. It has cloud architected solutions but as we've seen following the SuccessFactors acquisition, the mixed architectures don't always mesh as easily as the company would like customers to believe.

Even allowing for SAP's unquestioning sales execution prowess, the company has yet to develop solutions, let alone messages that send anything other than mixed messages around cloud topics. The Business By Design flip flop is a good example. It is something they need to address, but not until they've got their cloud product ducks across the whole portfolio in a row.

The other concern I have centers around re-organization. Any search on Glassdoor will quickly show that while SAP maintains its reputation as a great place to work, it suffers from the bureaucratic nature of a large, process driven business. In addition, I am aware that the pace of re-organizations over the last several years has brought significant levels of fatigue in some parts of the business.  That inevitably means a loss of valuable talent. I hope that whatever reorganization occurs is handled quickly and with the least pain.

On the product front, questions have been raised about what now happens with the apparently competing travel and expenses applications, one of which sits inside the Ariba portfolio, the other of which was separately developed by SAP. This could go in any direction and now is not the right time to speculate. I see arguments for scenarios that allow for both to co-exist and for SAP to migrate customers to the Ariba solution. I'm not sure I see a good argument for migrating customers away from Ariba's solution. In the meantime, we will be left head scratching until SAP makes firm statements.

What should customers make of this latest change?

Verdict

  1. Keep calm and don't panic! This applies to both SAP and its customers. As Busch points out, such changes inevitably spook some customers and without care, such issues take on an undeserved life of their own. But they need not. The Ariba network is a solid offering and management changes don't alter that.
  2. SAP has an opportunity to streamline the cloud and other lines of business portfolio. That seems to be the implied message from the announcement of Price taking on additional responsibilities. But it will take time to hash out and the company should not be tempted to go swinging into customer accounts with 'new' offerings that are little more than a repackaging of the past. From what I have seen of Price's performance to date, I anticipate a measured approach that will be coherently communicated by SAPPHIRE 2014.
  3. This is a very good opportunity for SAP to truly mesh the SuccessFactors and Ariba teams in a way that allows for greater learnings that can be applied to the remainder of the business in the longer haul. Price's new responsibilities are an indication of that intent but orchestrated in a way that doesn't ruffle the incumbent business - at least not for the time being.
  4. The SAP HANA story is never far from the surface and, once again, SAP has an opportunity to streamline those messages as they apply to the Ariba network and its portfolio of solutions. Big data anyone?
  5. In short - wait, watch and see how well SAP navigates this latest shift.
  6. Finally, and for what it's worth, I remain bullish about the future of Ariba inside SAP and its positive impact for customers.
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