I rarely meet vendor CFO's, so it was with some sense of anticipation that I recently sat down with Luka Mucic, CFO SAP. I'd heard/seen Mucic on a number of webinars or analyst calls so had a reasonable idea of what to expect. This story about a recent webinar on cloud topics gives a flavor of my pre-meeting impressions:
...it was refreshing to see recently minted SAP CFO Luka Mucic talk in confident terms about the SAP business model and with a fluency around the product portfolio lacking in some of the other speakers. As far as I can recall, this is the first time SAP’s CFO has chosen to be part of a session largely devoted to marketing SAP’s broader solution portfolio strategy.
My motivation for meeting Mucic stems from the fact it is rare to hear a vendor CFO speak knowledgeably about product and solutions. I also wanted to get the measure of someone who has the financial responsibility of managing a tricky transition from an on-premises business model to one where the majority of revenue comes from subscriptions.
I wasn't disappointed. Not only is Mucic fluent, but he also has a firm and confident grasp on how he sees the transition. this should be something from which buyers can take comfort. Why?
Technology history is littered with the digital bones of once great companies that failed to make a successful technology transition. SAP did it back in the day from mainframe to client/server, emerging as the de facto leader in the ERP space. IBM did it following a near death experience, but now faces the re-emergence of its own demons. SAP is not in the same situation today as IBM but it is very aware of competition that have attacked its dominance in HR and CRM. Neither of these issues appears to overly concern Mucic. He has bigger fish to fry.
Our conversation ranged from the number of spoken languages he speaks (3.5 if you include a smattering of Latin) on to how he sees SAP's cloud model panning out, fast close, Wall Street analysts, the impact of HANA on SAP's own financial systems, his unintended role as a sales guy at the end of last year and tax avoidance arising from transfer pricing measures.
Rather than a verbatim report on our conversation, here's a few selected highlights, repurposed from our conversation to give you a flavor of the discussion and some insights into how SAP is thinking:
On SAP's transition to Simple Financials: The transition was remarkably smooth. SAP reduced the close by five days but of that one day can be attributed directly to HANA, the rest cam from improving processes.
On simplifying financial processes: During the simplification process, SAP discovered thousands of customizations. They were able to radically reduce those. In part, it meant that some period end runs which took 26 hours was reduced to two hours. That gives the finance team more time to review the financial statements at a time when they are normally under pressure.
On greater transparency: SAP has made a lot of progress in improving transparency in the cloud model but it would like to go further. For example, it isn't easy to fully understand the nature of progress because some of the business includes contracts with significant deferred revenue that may stretch up to three years. Other parts of the business - such as Concur, has little by way of deferred revenue because billing occurs on a month by month basis or is on short term (less than a year contracts.)
On the impact of consumer grade solutions like Tripit from Concur: SAP is making Tripit its own standard for travel and expense. This will allow the company to get a better understanding of the consumerizing approach to that type of process. Steve Singh, CEO Concur who heads the 'network' unit inside SAP brings new thinking to the table that hasn't been in SAP's DNA but which Mucic expects will lead to much better customer experiences.
Overall, I was impressed with the extent to which Mucic answered questions without obvious fluff or swerving to PR trained talking points. That was made more poignant by the fact we met without a set agenda. That was evident from our diversion into the financially heady territory of transfer pricing and currency movements impacting the business model. On those two points, I came away convinced that while financial analysts might wish for a bullish outlook, Mucic has ensured the company communicates a conservative, cautious model that takes as many factors into account as possible but without being too downbeat.
As our meeting drew to a close, he mentioned that the CFO of a very large and well known company will take to the stage next week to talk about their implementation of S4/HANA. I quipped that it would be great to see two CFOs discuss this topic. Whether that happens remains to be seen.
Disclosure: SAP is a diginomica premier partner.