SAP: Less Ego, More Success

When German software giant SAP runs into a glitch, its co-CEO Hasso Plattner,
figures out what is wrong and fixes it with his own bare hands, if necessary.
That’s how he responded in February 1999, after he got the bad news at an
executive retreat that the company was hopelessly behind on the Internet.

Unless SAP did something fast, this would end its era of dominance as the
leading maker of run-the-company software applications for the world’s big
corporations.

Plattner reacted like a man shot out of a cannon. In a matter of days, a
series of frenetic brainstorming sessions yielded a brand-new strategy, which he
personally christened mySAP.com. SAP’s array of software programs would be
made Net-ready before the end of the year, and millions of office workers from
Berlin to Bangkok would tap into the Net and their own companies’ networks on
computer screens with SAP’s logo on them.

It was a grand vision befitting one of the software industry’s most
successful leaders. Problem was, it didn’t work. When mySAP.com arrived seven
months later, customers were confused about what the products did, and the $50
million ad campaign flopped. In the company’s crucial Americas region,
revenues actually declined 3% in the first quarter of 2000. So Plattner did
something completely out of character: He admitted that he and SAP couldn’t
handle this on their own.

Flexibility

What followed is one of the most surprising personal odysseys in the annals
of tech. As one of the top two executives at SAP since its 1972 founding,
Plattner had built a corporate culture in his own image: engineering-focused,
headstrong, and determined to do it all without help. That stiff spine made SAP
into the third-largest software company in the world. But Plattner realized
after mySAP.com was slow to take off that it wasn’t enough just to Web-ize his
products. Unless he and his company started doing things differently, both could
be washed up.

It’s all about being flexible. SAP used to build nearly all its core
technology itself. Now it has deals with upstart Commerce One for b2b Web
software. Convinced that its way was always best, SAP used to strong-arm
customers to buy one massive conglomeration of bolted-together software programs–applications
that did everything from managing financials and human resources to planning and
manufacturing. Now SAP makes it easier for customers to pick and choose between
SAP products and software sold by others. And Plattner once figured he could
have the last word on marketing. Today he relies on a pro–Martin Homlish,
formerly of Sony–and took the surprising step of moving marketing from Germany
to Manhattan.

His efforts are starting to pay off. In the first quarter, SAP’s revenues
grew a more than respectable 29%, to $1.36 billion. And SAP logged $106 million
in profits, more than double the quarter a year earlier. Analysts forecast the
company will meet its goal of attaining better than 21% revenue growth for the
first three quarters of this year. ABN Amro expects SAP’s profits to rise from
$596 million last year to $800 million this year and $1.1 billion the next. A
humbler Plattner is making his company a force to fear in e-business.

That’s humbler, not humbled. Plattner predicts corporations will buy
e-business software to make themselves more efficient and to goose revenue
growth. As evidenced by SAP’s strengthening sales, he believes they’re
relying more on large, well-established software makers such as SAP, rather than
the upstarts. If he’s right, the corporate computing world is about to be
turned on its head. After browser maker Netscape burst on the scene with its
vision of Internet computing, the biggies seemed to be on a path to irrelevance.
Dozens of upstarts emerged as the darlings of corporate software buyers. Now the
old gunfighters are staging a counter-attack, and the upstarts are hurting.

Still, it will be extremely difficult for Plattner to remake SAP into one of
the leaders in the next era of computing. Thanks to the dot-com collapse, he has
a chance to make up lost ground. Indeed, he has retooled before. In the late
1980s, when SAP was a maker of software for mainframe computers, he transformed
it within two years into a maker of applications running on networks. Back then,
though, he was the pioneer. Now, he’s playing catch-up.

Plattner has much to prove. SAP’s share price is hovering around $30, less
than half its peak of $84 in March, 2000. Its relatively healthy revenue growth
may be misleading because its first-quarter results came off that bad year-ago
quarter. SAP’s core market for corporate-finance and human-resources software,
where it has a dominating 32% share, is growing at less than 10% per year, and,
overall, only 30% of its sales are to new customers. Moreover, it’s still a
minor player in newer markets such as customer management, which includes sales
force automation and e-tailing. That sector is growing at a 40% clip. Last year,
according to AMR Research, SAP grabbed just 2% of the market, while leader
Siebel Systems had a 17% share.

By Steve Hamm with Stephen Baker in Paris in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc