Bill and Jim’s Bright Shiny Penny: Understanding SAP’s Success and the Challenges It Brings

Nothing succeeds like success, the old saw goes, but there’s a dark side to the kind of success that SAP has been enjoying for the past year. Success of SAP’s magnitude is hard to achieve, but, more importantly, it’s even harder to maintain. And as I look at SAP’s recent financials, and its growing market clout – not to mention the strategic stumbling of arch-rival Oracle – it’s become obvious that co-CEOs Jim Snabe and Bill McDermott now have an even more daunting task at hand: keeping the luster bright on the shiny new penny called SAP.

The essential nature of this task can’t be emphasized enough. The problem with success is that people get used to it, and then require ever greater measures of success, or else: it never takes long for the congratulatory glad-handing and back-thumping to be replaced by a series of “what have you done for me lately” questions, that, absent the right answers, lead inexorably to a reversal of fortune and an ignominious exit for the same leadership that seemed to be infallible only moments before.

The best metaphor for what is currently happening to SAP comes from mountaineering: experienced mountaineers know that having enough energy and supplies to get you to the summit is only half the battle, and sometimes it’s the easiest half. To be a successful mountaineer also means knowing how to save enough energy and resources to get back safely to base camp, with the emphasis on safety: for lots of reasons – fatigue being only one of them – getting down off the mountain can be much more treacherous than going up.

And, getting back to base camp is what it’s all about, because if you’re a real mountain climber you’re not going to be satisfied with conquering just one peak, you need to get down off the summit you’re on in order to get ready to climb the next one.

SAP is facing its own mountaineering trial, and the going promises to be as much a challenge as anything else the company has faced. This climbing-down-the-mountain-to-climb-back-up problem is totally, and willfully, self-inflicted:  the problem, simply put, stems from the fact that SAP is  standing on the summit today. Pretty much any way you measure success, SAP has it. Great revenues, growing customer count, some amazing innovations, two recent, very strategic big acquisitions, good people, and, if you subscribe to the zero sum theory of enterprise success, a ton of affirmation in the apparent flaws in Oracle’s business and technology model.

Part of what SAP needs to do is just get off this particular mountain successfully, the other thing it has to do is get started on identifying and climbing the next peaks. Here’s my take on these two imperatives:

Getting back to base camp

SAP’s biggest challenge is in consolidating a long list of initiatives, products, technologies – not to mention acquisitions – into a coherent whole.  Or as coherent as possible. It’s not only that the company has too many individual products in more than a few categories – five HRMS systems, three CRM systems, four databases, a wide-ranging collection of mobile apps, and an even wider range of development environments – it’s that SAP has to find a single voice and a single message to surround this ever-growing portfolio, however broad and overlapping it might be. This is essential not just for the immediate go-to-market effect of having internal and external consistency, it’s a main requirement for scaling the next set of big peaks SAP needs to focus on.

With that coherency of message must come coherency of leadership. The dynamic tension that exists in a company with two boards and two CEOs can be a major source of strength: I’m convinced that this large and complex structure has served as the forge for the market leadership and success SAP enjoys today. So, while I don’t think for minute that SAP should move to a more centralized and autocratic model (which it couldn’t if it wanted to), but I do think that as SAP climbs down the mountain it needs to be seen inside and out as working from the same playbook. And that involves not just ensuring that messaging and positioning are synchronized, but also that SAP’s famous consensus culture be valued as an asset and not used as an excuse for disharmony.

This is essential as SAP tries to harmonize its products and messages under a single banner. It’s clear that there are a hundred battle lines that could be drawn in the fight to build a more singular vision and product set: the worst thing SAP could do is actually let those lines be drawn in the first place. Being able to get the company ready to scale the next peak also involves making sure that SAP functions more as a team and less as a set of competing factions. For better or worse, SAP is competing in a market where the autocratic model predominates, which gives SAP’s rivals a maneuverability that an SAP at war with itself will eventually lose to.

Finally, SAP has to take a greater position on the world stage as a global player. The fact that no one from SAP was at the table when U.S. President Obama came to Silicon Valley last year is emblematic of the issue. While Obama detractors saw this event as just another fund-raiser, the real issue is that, fund raiser or not, it wasn’t even expected that SAP would be there.

As part of getting ready for the next set of peaks, it should be a given that SAP plays on this stage. SAP co-CEO Jim Snabe meets with German Chancellor Merkel frequently, and SAP should be taking a seat at the President’s table here in the US frequently and visibly. This isn’t about politics as much as it is about perception, especially in the consumerization of IT mountain that SAP want to climb.

Obama’s dinner companions included a number of aspirants to this opportunity: Yahoo, Google, Apple, Twitter were all there, at least in part because they are identified across the consumer and business domains and therefore made for a good Valley photo op for Obama. And they were all there because they’re seen as leading edge companies driving innovation and growth, not to mention jobs. Et tu, SAP?

And, to top it off, Oracle’s Larry Ellison was sitting at the table too. Bottom line, SAP needs to be counted as a member of this club. What good is having an American co-CEO if he can’t get a dinner with the President?

Climbing New Peaks

If SAP can climb down the mountain with an understanding that products have to rationalized, internal harmonization needs to be more harmonious, and SAP needs to play more on the global stage, then I believe the company will be ready to scale three new peaks that will help Bill and Jim keep that shine alive.

The first is the growth of a developer community worthy of the new harmonized platform and product strategy that SAP needs to create. It’s clear that everything about SAP’s aspirations as a cloud company, an analytics company, a database company, and mobile company will depend on having a solid, unified, and highly focused developer community that can make SAP the App Store of the enterprise.  That developer community will only show up if there’s a clean, easy commercial environment – a la the Apple App Store – where the developers can sell their wares. This is a huge mountain to climb, and an expensive one. But everything on the enterprise side of SAP’s future success, and on the consumer side as well, rests on the creation of this community and a place to sell its wares. And without the harmonization of product and direction, this community won’t even know where to start, much less where SAP will be able to take them.

The second is harnessing the sensor revolution, also known as the internet of things. There are literally billions of sensors being sold in the next few years, every one of them capable of enough intelligence to act as a data source, if not a data consumption device. These include the sensors in our phones, tablets, and smart appliances as well as in cars, factories, refineries, libraries, utility meters, and medical devices, just to name a few.

These devices present two extraordinary opportunities for SAP. The first is on the data analysis side: if ever there were an incredibly rich source of data for HANA to analyze, these sensors are it. The petabytes of data generated will need analysis, and HANA would be an ideal place to start. The second opportunity is on the business process side: the data streams that are analyzed from these sensors will present decision makers with opportunities to much more intelligent decisions across the enterprise and in their customer interactions, and the richness of those data and those decisions will create new ways to improve on existing business processes and create new ones. That will be particularly true when these sensor-based data are married to internal ERP, supply chain, CRM, or HRMS data: if SAP can broker that marriage, than the gains of the last two quarters will look modest indeed.

The final mountain to climb with be the convergence of the consumer world and the IT/business process world. This will be huge, and hard, for SAP to do credibly: there are very few that can actually do both – Microsoft and HP can, but that’s mostly a back-end convergence, not a go-to-market convergence built on leveraging internal synergies. And despite the iPad’s success in the enterprise – as SAP has proven so well – Apple still has to prove that it can change its DNA and get into the enterprise space via the front door, instead of coming in the backdoor as it has with the iPad.

All this means that SAP will need to get its ducks in a row to be able to graft a real consumerization play on top of its enterprise play.  It won’t be easy, but not making the consumerization play is not an option: this is where technology is going, and it’s where SAP needs to go too.

Notice how I haven’t mentioned mobility, in-memory, or on-demand once. That wasn’t a mistake: while I think the on-going focus on the big three initiatives at SAP has provided a much-needed coherence over the last two years, I think these concepts have worn out their welcome. The reason is simple: all three represent enabling technologies, not business-ready or consumer-class solutions. Bill, Jim, CTO Vishal Sikka, and pretty much everyone at SAP has done their level best to make sure everyone knows that SAP can deliver on these three technologies.

But now is the time to talk about what SAP is going to do to synchronize these technologies with demonstrable business, and eventually consumer, value. HANA as a replacement technology for Oracle DBMS in the SAP Business Warehouse is an excellent example, and from a sales pipeline standpoint it’s a big win. But SAP needs more examples like this one, not just for HANA but for mobility and on-demand, and this solutions dialogue is the one that it needs to have with the market, much more than the pure technology conversation it’s been having of late.

Keeping the shine on SAP won’t be easy, so don’t be surprised if there’s a new sense of urgency now that SAP is on top of its game. The old battles – Walldorf vs. Palo Alto, marketing vs. development, my new thing vs. your new thing – need to abandoned so that room can be made to engage the new ones. And that’s not just because SAP needs to get ready to scale a few more peaks, but because its never-ending list of rivals – Oracle, IBM, Salesforce, Microsoft, Workday, Infor – will be trying to either climb the same mountains or find others from which they can challenge SAP.

Every one of the above rivals, and many others, will be dead-set on putting a little tarnish on Bill and Jim’s shiny new SAP as they climb down the mountain and get ready for the next peak. Nothing succeeds like success, but success also helps increase the size of the target. This year marks the 40^th anniversary of the founding of SAP. With the benefit of 40 years of hindsight, it’s safe to say that things have never been better for SAP. And they’ve never been as precarious either.