Tuesday, April 16, 2024

Can Christian Klein bring SAP into the cloud era?

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The night before he was due to announce his appointment as sole CEO of SAP in April, Christian Klein was woken up by a pat on the shoulder of his wife, who was about to go into labor.

Hours later, as the 40-year-old faced the press at a morning conference, his second daughter was born in a hospital in Heidelberg a few miles away.

The next nine months were hardly less chaotic for the youngest German leader, but neither a global pandemic nor parenthood were the main catalysts.

SAP, the country’s most valuable listed company, which has more than 400,000 of the world’s largest companies as clients, has seen five leadership changes during the period, including the unexpected departure of co-CEO Jennifer Morgan after only six months on the job. .

Klein has been given the solo task of transforming SAP, which sells enterprise software, into a largely cloud-based company, convincing existing customers with large, secure on-premises server farms to go online. , while gaining new customers who are courted by more nimble US competitors such as Workday and Salesforce.

The transition has been slow. SAP’s cloud business, while still growing at around 20% per year, accounts for less than a third of total revenue. The 48-year-old technology group’s oldest customers, including Siemens, Daimler and BASF, tend to prefer so-called “on-premises” software, which has fallen out of favor with investors.

“The on-site business is currently not as valued,” Klein told the Financial Times, “which I also find a little odd at times, as these are very large customers; it’s a sticky business, it’s a very resilient business, it’s a successful business for us.

“We’re doing well there,” he added, “especially against competitors, against Oracle.”

Mr. Klein’s predecessor, Bill McDermott, tried to bridge the gap by shopping, but SAP customers became increasingly frustrated when purchases such as the Concur travel booking tool and the platform -Human resources form SuccessFactors were not properly integrated into existing products. Some general managers even called the boss of SAP to complain in person.

Then, in July, Klein announced that Qualtrics, a cloud-based customer feedback tool bought by McDermott for $ 8 billion, would go public and independently developed – an unspoken admission that just passing the vacuuming of promising start-ups had not helped SAP in its quest for modernization.

Months later, SAP’s share price fell by more than a fifth, when Klein told investors the move to the cloud needed to be accelerated and that would delay earnings targets as the company Walldorf-based traded the traditional on-premises income for cloud contracts that take up to five years to show up as profit.

Revenue histogram (in billions of euros) showing SAP transitions to the cloud

The biggest challenge for Mr. Klein, and his new management team, was to make customers believe that SAP had more to offer than smaller, more concentrated competitors and to become “a very dominant cloud player in 2025”.

When SAP salespeople present in the United States, “they’re considered dinosaurs,” said a person close to the company, pointing to the complexity of some of the German tech group’s products.

“The software is extremely powerful, but it is difficult for users to discover the features and get the most from them,” said Julian Serafini, analyst at Jefferies.

“They are a little guilty of using a lot of fancy terms. It is sometimes a little difficult. “

In an effort to change that perception, Klein enlisted Julia White, a former Microsoft executive who helped migrate the US company’s Office suite to the cloud, to share “success stories” with customers.

“We need to tell stories better,” he conceded, “because our software is extremely relevant.”

Since taking the helm in April, Klein has been working on a new product to help his cause. “Rise with SAP” is a pre-packaged suite, offering services such as robotic process automation and artificial intelligence on a single platform, designed to “bring the pieces together [of SAP] together ”and simplify the move to the cloud.

Launched with great fanfare last week, with the participation of Microsoft CEO Satya Nadella, the move is recognition that “we need to build our capacity to take the customer by the hand and show them what are the best practices for this business process, ”Klein said.

“I am so convinced that with the new offer, we are seeing an even further acceleration of the migration [to the cloud]. “

Line plot of revenue growth rebased to 100 * showing that SAP's revenue growth was lower than its US rivals Salesforce and Workday

According to SAP management, this acceleration will result in a reassessment of the market value of the company. After all, Klein argues, Qualtrics, in which SAP remains a majority shareholder, was worth around $ 25 billion after its stock market debut last week, and “they’re making $ 500 million in revenue. [a year] while we have six or seven of these solutions growing at the same time [rate]”.

Jefferies’ Serafini said investors would first closely monitor how quickly SAP’s cloud ambitions materialize. Mr. Klein and his team, he said, “have laid out the vision, they have to go and execute it and make it happen.”

The pandemic, which has had little impact on SAP’s business other than a slowdown in profits from the Concur travel tool, will accelerate the transition, Klein said.

To complement Rise with SAP, the company bought Signavio – a small Berlin-based business process intelligence start-up and rival of German unicorn Celonis, which helps customers find ways to optimize business chains. supply, shipments or stocks.

The price, which was not disclosed but was valued at around $ 1 billion by Bloomberg, was worth paying as it would have taken two to three years for SAP to grow internally, said Mr Klein – time the German group could no longer afford to waste at the age of Covid-19.

“The business transformation of our customers must happen now,” he added. “A retailer without an online store, without curbside pickup, without door-to-door delivery will not be successful.”

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