SAP's Snabe out, but not yet

There's rarely a dull moment where SAP is concerned is there?

No sooner do we get Q2 2013 earnings out the way and SAP sends out a press release - on a Sunday of all days - telling us that Jim Snabe is stepping down as co-CEO and on to the supervisory board. This change is subject to approval by 25 percent of shareholders (no problem) and due to take effect next May.

As one wag suggested on back channels: "Maybe that was why Snabe was relaxed on your call earlier in the week :-)"  Maybe but then as serving co-CEO, Snabe still has to promote the best interests of the company. As member of the supervisory board, he brings 20 years experience to the table but without the shackles of day to day management. This will make for a smooth transition rather than Snabe abruptly riding off into the sunset.

Caveat - there is some speculative thinking in what follows. I may have some of this wrong so take what you want and leave the rest.

What's going on and why should you care?

Snabe's impending departure is but one of a number of major changes designed to finalize the transformation SAP needs to complete for it to remain a competitive and relevant player in the enterprise applications market. First up  a little history to place this in context.

When SAP appointed Leo Apotheker as sole CEO following the departure of Shai Agassi, there was an open betting book among the cognoscenti predicting he would last no longer than a year. Apotheker was a disaster, alienating everyone along the way. Lo and behold - he was gone inside a year.

Looking back, SAP didn't do a good job of working through the succession issues following Henning Kagermann's retirement in 2009. SAP did not want to make the same mistake again. It therefore re-created a co-CEO situation with Jim Snabe and Bill McDermott as the joint leads. This matters because even in a company as large and powerful as SAP, stability matters to customers. Where there is uncertainty, buying decisions can end up being deferred until whatever dust has settled.

Back to the present.

Plattner's true successor

Bill McDermott has always been the 'senior partner' but Snabe's contribution as the steady handed  'European CEO' should not be under estimated. However, a split up of the largely successful 'marriage' was inevitable as Hasso Plattner, co-founder looked for his next natural successor. This has been an ongoing quest for many years and pre-dates the time when Henning Kagermann was sole CEO.

Plattner calculated that for SAP to succeed into the future it needs a strong technical lead as part of the company's public face. That didn't work when Shai Agassi walked out, unprepared to share with Apotheker. Neither McDermott nor Snabe represent that person despite having pulled the company through torrid economic conditions. That achievement should not be underestimated and both should continue to earn our respect and congratulations. So what now?

The press release makes clear that McDermott will be sole CEO. However, his contract term is due to expire 2017 but it is widely thought he would like to pursue a political career after 2015. If McDermott chooses to move on, that leaves a fresh succession problem but one I believe SAP has in the advanced stage of planning.

When the news broke I Tweeted somewhat impishly:

This is how it gets spinned by media: Snabe out...who fills co-CEO role at SAP? Only one name: Sikka.

— Dennis Howlett (@dahowlett) July 21, 2013

All change at the tier 2 level?

I don't believe Sikka who sits on the executive board at SAP, is ready for that role. He has only just taken over the whole of development. That's a massive job in its own right, leading to a shuffling of the deck immediately below him. For instance, the mobile and platform roles previously shouldered by Sanjay Poonen have been redistributed to Steve Lucas and Anthony Reynolds. Other changes are in the wings. It will take some time for Sikka's organization to settle down and even then there may be more changes. Offering a fresh role at this stage would be de-stabilizing.

Thomas Otter was recently brought back from Gartner to handle product at SuccessFactors and Bob Calderoni took on an enhanced operational role with both Ariba and SuccessFactors following the departure of Lars Dalgaard.

Elsewhere, Werner Brandt, CFO, is due to retire May 2014. Holger Mueller speculates that Luka Mucic is being groomed for that role following his appointment to the global management board as head of global finance.

There are other possible changes. For example, Gerd Oswald currently has all of support under his leadership but he too has a contract due to expire in 2014.

What does this mean?

The last few years have seen power switch from Walldorf Germany to the US and back again. That is disruptive for a company that is attempting the most important transformation in more than two decades. With Snabe out of the picture, McDermott in full control operating out of Newtown Square PA and Sikka leading development out of Palo Alto CA, power shifts purposefully to the US.

Walldorf is not left out in the cold altogether. The central finance function will remain in Germany. There is no need for it to move elsewhere and is important to the German economy and SAP's self interest for it to remain in that location. The same may be true for support and maintenance.

However, it is the combining of power at key areas in the business in the US that brings the most important shift for Sikka's development organization. As Ray Wang pointed out:

@applebyj @vsikka actually we see most of the innovative development in Bangalore, TelAviv, China, PaloAlto. what's happening in Walldorf?

— R Ray Wang (@rwang0) July 21, 2013

That may be true but then the head of HANA and BI development operate out of Walldorf. Having said that, SAP still has a significant body of 'entitlement' personnel that hold the company back at times. In one sense, moving the power base to the US makes it a lot easier to carve out those personnel with the added benefit of contributing to the bottom line.

Previous attempts to get this done have proven largely unsuccessful. But if your power support no longer operates in the same geography then it becomes a lot harder to sustain resistance to change.

Verdict

The changes announced will have no obvious outward impact. SAP has given itself plenty of time for the news to sink in and for everyone to get used to the new reality. The sales bench is on good shape with Rob Enslin leading that charge and Steve Lucas as the street fighter running deals across a broad portfolio he understands very well. It also gives SAP time to build up the senior management bench while Vishal Sikka is mentored into being positioned for a more senior role - assuming he wants that role.

My expectation is that Sikka will now push hard to get a much better and more active developer community in place with which to support HANA's future. If finessed correctly, there will be a solid mix of sales, marketing and engineering.

Sikka is what I playfully describe as 'Hasso's chosen son.' Some will argue that Sikka's management experience is insufficient for him to succeed in a more senior role. I disagree. I've been fortunate to observe at close hand how Sikka operates. He has grown in stature over the last three years but more important, he has the agility of mind to grasp complex issues very quickly. Finally, he has the passion and humility for engineering that are needed to take SAP to the next level.

In the meantime, McDermott has a free hand to develop the company's message while continuing to charm customers into new contracts. No one I know will complain about that.

Final word - SAP is fielding an analyst call 10.30am ET to discuss these changes. Expect the company to be upbeat, excited and reminding listeners that it is firing on all cylinders.

Image credit: SAP

Disclosure: at the time of writing, SAP is a premier partner.