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In the wake of Bill McDermott's abrupt departure as SAP CEO, questions remain about the company's direction for products and strategy.
The main challenge for the new SAP leadership team of co-CEOs Jennifer Morgan and Christian Klein will be to sell customers on the two concepts: the intelligent enterprise, which is centered on the "next generation ERP" SAP S/4HANA and cloud technology, and the experience economy, which is centered around SAP's $8 billion acquisition of Qualtrics last year.
Both efforts represent a significant change for SAP as it struggles to move away from its back-office, on-premises past into a world of real-time business built on a modern cloud architecture.
SAP is betting on the tag team efforts of Morgan and Klein, a strategic move that bridges distinct expertise and culture. Morgan is an American who ran SAP's global sales organization and, most recently, its cloud business. Klein is a German who most recently served as COO. Most experts expect the two to work well together. It's expected that Morgan will focus on sales and Klein on products and technology, but the roles may blend.
"Morgan comes from the sales organization but she can handle the tech side of her job as well; she has the ability to take their strategy forward," said Joshua Greenbaum, principal of Enterprise Applications Consulting. "The cloud group is clearly where the transition for company is; it's obviously where the customers are transitioning to and that's been a hot seat for a number of years. But I think there's a really good balance there now."
Get the products story straight
The Morgan-Klein duo will need to get SAP's products story straightened out, said Holger Mueller, vice president and principal analyst at Constellation Research in Cupertino, Calif. SAP's challenges lie less in dealing with the competition posed by the likes of Oracle, Infor and Workday, and more in defining its own portfolio for customers.
"SAP's problems are all on the product side, but this was [McDermott's] problem as well because he was never close to product development," Mueller said. "SAP's problem is that the value proposition of where SAP is going is not clear. They have to clarify and say what's in S/4HANA, what's not in S/4HANA and how to integrate all this, and they have to issue roadmaps for when they're going to deliver what."
It appears that Morgan and Klein have a good working relationship, but time will tell, said analyst Jon Reed, co-founder of Diginomica.com.
"You could argue neither has the depth of experience of some potential candidates, but on the other hand, fresh perspectives can help too," Reed said. "Both seem to have good reputations in different areas. Klein is definitely open to outside views and I hear good things on his sessions with customers as well. Morgan also has struck me as a good listener in our interactions to date, who gets some of the ways SAP needs to modernize, like with cloud integration and better customer experiences overall. But, as with all of these things, it's all in the execution. "
Help customers build the intelligent enterprise
The new SAP leadership team needs to help customers find their way to becoming an intelligent enterprise, said Geoff Scott, CEO of ASUG (Americas' SAP user Group). ASUG claims to have more than 100,000 members, including SAP users, partners, and independent consultants.
"First, the opportunity and challenge for [Morgan and Klein] is to provide a path for SAP customers to find their own intelligent enterprise -- whatever is most beneficial to their companies -- which is not a one-size-fits-all proposition," Scott said. "Second, in order to become a more intelligent enterprise, customers need to see comprehensive roadmaps and strategies from SAP. How can SAP help me innovate across the enterprise, rather than thinking in silos?"
Morgan and Klein will need to work particularly hard to continue to "win the hearts and minds" of SAP customers as they move more into the cloud business where keeping customers happy for renewals is critical, Scott said.
"We all know that on-premises dollars are decreasing, so a coherent cloud story becomes paramount," he said. "From a technical perspective, [SAP] has to solve the integration challenges that customers are facing and ensure feature parity between cloud and on-premises versions, because if the features of on-premises outweigh the features in the cloud, then customers won't move."
SAP will face challenges in transitioning customers to the cloud and keeping growth going, said Shaun Syvertsen, CEO and managing partner of Convergent IS, an SAP partner based in Calgary, Alb., that focuses on SAP applications.
"SAP is great at selling on-premises licenses and charging for maintenance," Syvertsen said. "SAP is not as good at engaging a cloud customer to keep them renewing, and they have not yet reconciled this as a cultural pillar. Economic uncertainty will also make the current growth pace challenging."
Demystify Qualtrics and the experience economy
The Qualtrics acquisition is a mystery to some, but experts agree that the new SAP leadership needs to work hard to demonstrate the value of combining the operations data from SAP systems with the experiential data from Qualtrics.
"Qualtrics is the only billion dollar-plus acquisition I've seen where I can't find anything about the architecture -- not even old architecture," Mueller said. "I don't know what they have, and I don't know what they bought for their $8 billion."
Qualtrics' experience management platform measures customer, employee, product and brand sentiment about goods and services, called "X data." SAP's vision of the experience economy combines this X data with operational data, or "O data," from SAP systems, allowing companies to better understand their products, offer new and better services, and respond more quickly to market changes.
Time is still needed to judge the value of SAP's acquisition, Reed said.
"In general, the two new CEOs have a lot of work figuring out how to unite and integrate the cloud portfolio, and the integration of Qualtrics as a differentiator for SAP might be their biggest challenge," he said. "We won't really know how serious they are about this for a while. The Special Capital Markets day [an event where SAP will present growth initiatives] on November 12 will give us some clues, but Sapphire Now 2020 in May will be the real benchmark on their progress with Qualtrics."
ASUG's Scott agrees that Qualtrics has great potential, but said the SAP leadership will need to get this message to the customer base.
"I believe that experience management is the next frontier, and although McDermott brought Qualtrics and the new 'X plus O' strategy into SAP, I can't see that changing under Morgan and Klein," Scott said. "It's now a matter of bringing SAP customers along on the journey -- which may take some time -- so that they can see the value and also make more possible with the SAP products they own."
Co-CEO Morgan should be ready to take over from McDermott in selling Qualtrics to the SAP customer base, said Greenbaum.
"Morgan was in the room at SAP's very first meeting with the Qualtrics people," he said. "It's possible she was there because, even at that moment, she was being groomed for the CEO spot. But more importantly, I think she gets it. She's been with the customers, and she understands the experiences side of the business pretty well, so I don't think McDermott is needed to make Qualtrics successful."