Understanding the SAP bloodbath

Den Howlett Profile picture for user gonzodaddy May 13, 2014
SAP is at a tipping point in its life. What happens next will determine its future.

Bill Mc Dermott - co-CEO SAP

There is no kind way to put it: SAP is in the middle of a major reorganization that means many people I have known over some years will fall by the way side. That's always sad to see and in some cases I am left head scratching as to the reasons behind their departure but overall I believe it is a necessary thing and a long time a-coming.

Make no mistake - this is a bloodbath on a scale we've not seen for years.

Competitors that have little useful to say about their own products and solutions will likely poke fun at SAP both in public and privately in the deals they are attempting to do. Let them take that low road. It is littered with failure.

What we are seeing is a management doing exactly the right thing, however painful that might be. In this context, SAP is a bellweather for how mature businesses in the software applications industry have to take a hard look at themselves occasionally and then wield the ax. In that sense, I believe SAP is anticipating its 'IBM moment' - that time when you either switch gears or you wither into irrelevance.

What's going on?

When Vishal Sikka walked away last week there was a major schism among those that intimately know or are part of the company. On the one hand there were plenty of people who bewailed his departure. There were  just as many positively jumping for joy. It makes for great eyeballs fodder for those wishing to write lurid and uninformed headlines but doesn't convey the sense of what is happening inside SAP.

Regardless, SAP is a company that is coming to terms with a 21st century reality that is  extraordinarily difficult to parse for a business that has been largely successful across four decades, has north of 67,000 employees and which continues to employ some of the smartest people I've had the pleasure of meeting.

From what I can gather, the company is attempting to do several things  in one go:

Cut away idiotic applications that nobody cares about. Here I am thinking about some of the woeful attempts at consumer apps driven by a misguided need to make people think SAP is 'cool' in a space that is largely driven by fresh air and not much else.

Protect the core. Or - as one person told me: 'We're not a startup, we have industries to run.' You can take that one of several ways but you cannot deny that SAP's claim to run large parts of the world's back end processes is real.

Forklift to the cloud. However you position applications, the subscription model is with us. That takes a very different mindset to what went before both in terms of development and sales. It is a major undertaking for a company that is accustomed to enjoying multi-million dollar transactional fees and patching customers on a needs basis rather than as part of their DNA.

Coming to terms with global reach. Much of the press comment I've read has sneered at SAP's German background where the truth is that SAP has been a global company for many years. That doesn't always work so well when you have multiple cultures to heft and a strong culture at the heart of the business that feels under threat. The company's top management is addressing that most pressing topic.

Innovate like crazy. I've been privileged to see some of the stunning work undertaken by super smart people, startups and SAP itself. Those who prefer to laugh at this company as old and 'stuck' do so at their peril although I totally understand the frustrations of those who believe the company should move faster in this area or should make a better fist of marketing some of the genuine innovations the company has to offer. One thing is for sure - it beats the crap out of marketing your sports credentials.

What next?

These are testing times for SAP. While those of us with long memories might easily sigh and say 'we've seen it all before' that would be little better than a drive by analysis. This time, it is a play for survival and the very soul of this company. The extent to which management is applying the knife to the company is evidence enough.

SAP is at a tipping point of its own.  Top management gets that in spades. When Bill McDermott, co-CEO talked about the Hasso Plattner Founder's Award my immediate gut reaction was: 'OMFG - they've run out of ideas.' Upon reflection I understood that SAP is much bigger than itself and that perhaps it really should look within itself to surface great ideas for the future. Over the years I have seen plenty of those great ideas lie fallow. The Award is entirely consistent with what McDermott told us last week.

Developers are always top of mind for me and in all the gyrations currently underway I don't see a strong message for that audience. If SAP slips up on this one then it will find itself dying by a thousand cuts as otherwise brilliant people go elsewhere.

SAPPHIRE Now is but a few weeks away. Management has to come up with something compelling while settling the stomachs of the 45.000 core customers that rely upon its technology. That will be a tough ask given all the airtime devoted to HANA the last few years and for which just about everyone I know has run out of patience.

Disclosure: SAP is a partner at time of writing.

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