It’s been a tumultuous two years for German technology giant SAP AG. Its CEO was dismissed in the face of poor numbers, and two new co-CEOS were appointed. It was ordered to pay $1.3-billion (U.S.) in penalties after an SAP unit stole trade secrets from rival Oracle Inc. But now things are breaking SAP’s way. A U.S. judge last week rejected the damages as ‘grossly excessive’ and recommended Oracle get $272-million – or seek a fresh trial. And 39-year old SAP – with annual revenue more than €12-billion ($16.8-billion) – is still on top of the enterprise-software world. At the centre of the whirlwind is co-CEO Bill McDermott, a rangy hoops-shooting U.S. marketer who operates out of suburban Philadelphia. He was interviewed the day before the judge’s decision.
Have you been doing a turnaround?
To an extent, the company has turned emotionally around. SAP was never in a situation where it needed a turnaround, because it was still a very successful company; but it needed an emotional lift, and it needed to have the strategy revitalized. We focused on the structural change in the IT industry.
What did that involve?
Customers want their investments to work for them again. So there is this move away from hardware and services toward software, because that’s the innovation layer of technology. So instead of spending 85 cents on a dollar keeping the lights on, companies want to innovate and they want to grow again. Our software plays a very big part of that growth strategy, because technology is not just an enabler of the business. In the end, technology is the business.
But why two co-CEOs – one American, one European?
The culture of the company really matters. The original founders were co-CEOs, and that model worked for three generations of CEOs. So we’re picking up something that has been a long-standing success. And we’re a very global company. The fact that you can have two leaders on different continents driving the strategy really matters, The other thing is focus. Jim [Hagemann Snabe]can focus on the development activities on a day-to-day basis, and I can focus on the customer operations on a day-to-day basis. In the middle of that is our strategy, which we share.
But where does the buck stop?
It stops here. We look at the office of co-CEO as one office. That’s a very important point. It is not two offices. We have one person who stick-handles everything for both of us – a guy by the name of Rick Knowles, who is basically organizing both offices, aligning the offices with the executive management team, the various meetings.
Have you had to direct lots of attention to SAP’s reputation after the first Oracle judgment?
None. Our relationship with Oracle is a complex one. On one hand, we have common interests, because we have customers between us. We’ll partner in some instances because it’s the right thing for the customer, and that’s the way it should be. I am choosing – and I hope that Oracle is also choosing – to take the relationship and its tone to a higher level. I really want that. But no customer thought less of SAP because of the TomorrowNow incident. [TomorrowNow was the newly acquired SAP unit at the centre of the scandal. It has since been closed down.]
You called it an M&A debacle?
Correct. And there wasn’t a single customer that ever put into question the SAP franchise or the integrity of the SAP franchise, because they looked at the facts. There was an M&A of a $10-million U.S. company; they did some inappropriate downloads. We took full responsibility for it. Certainly, it wasn’t done out of malintent, and we certainly don’t think the [original] settlement was in any way representative of any actual damages caused to Oracle.
You apologized for the downloads. Was that decision heavily debated?
No. I did it spur of the moment, because I felt it was the right thing to do. If you take responsibility for something, and it’s something serious, there’s no reason why you can’t say, “I’m sorry.”
Candidly, we’re so far beyond that, and we’ve dealt with that – it’s just part of history. But I’m hopeful that there can be more professionalism going forward in the rhetoric, because otherwise it’s not healthy for the customers.
Do you know Oracle CEO Larry Ellison?
I don’t, and I certainly have no issue with him personally. He’s a very successful man. He’s built a very successful company, and I’m sure he’s a very smart strategist. We’d probably have fun having a beer together. So there are no personal issues.
The German governance structure, with its dual management and supervisory boards, is alien to North Americans. I can’t imagine a U.S. CEO coping with that extra layer.
I made the adjustment a long time ago. But you’re right – the U.S. culture tends to be: “I’m in charge, and I’ll take the hill.” There are some very good things about that. But in the European culture, there tend to be checks and balances, a little more balance of power, a little more thoughtfulness before the hill gets taken.
Because I have the natural DNA to take hills, the complementary nature of checks and balances and collaborative thinking actually broadens me as an executive. I consider it a real attribute to have the supervisory board. We have a great relationship with the employee representatives and the workers’ council, and it helps get things done.
What is your outlook for Apple without Steve Jobs as CEO?
Apple is an outstanding brand, a brilliant company, and obviously has proven innovation. That’s the bottom line.... And they have a proven management team that’s worked very closely with Steve. People could underestimate the proven leaders that have worked under him, and how much he has taught them.
And I assume there is a healthy stable of young, brilliant scientists, engineers and mathematicians thinking about the future – and I don’t expect that to go away. But nobody really could say for sure, because a leader like Steve Jobs casts an amazing shadow. It will remain to be seen.
Aren’t you worried about the state of the world economy?
I’m more confident than most. I look at these headlines, and I see two different economies. I see the consumer economy that’s largely been held back because of jobs and housing, So ‘my job, my house’ is definitely having a difficult run, and it’ll probably be ongoing, although I do think it’s getting better. But I see the corporate economy with $1.7-trillion on the sidelines looking for a good investment. I do believe that companies will not invest in tactical non-value-add technologies, but will absolutely invest in innovation and growth.
So how do you pry some of that cash loose?
I’ve been all over talking to companies – in Canada, Russia, Brazil, Europe, the U.S., Australia. When I’m in these boardrooms, there is no lack of interest in investing [capital expenditure]dollars in things that will move the CEO’s strategy forward – on the efficiency or growth side of the equation.
If you have solutions that can deliver shareholder value and move earnings per share, CEOs will open up their cheque books. If you’re in there talking about a technology-refresh of their old hardware systems, they’ll be calling in their assistant – they just got a phone call and they have to leave the office to take it. That’s the world we’re in right now.
Co-CEO, SAP AG; global head office in Walldorf, Germany
Born in New York City, 50 years old
Bachelor’s degree, Dowling College; MBA, Kellogg School, Northwestern University
Spent 17 years at Xerox Corp.
Served as president of Gartner Inc.
Was executive vice-president, sales and service, at Siebel Systems Inc.
Joined SAP in 2002; rose to co-CEO in February, 2010