SAP Layoffs, European Integration, and the Close of Henning Kagermann’s Tenure

Back in 1997, the late, not-so-great Sapphire Europe was being held in Amsterdam amidst huge turmoil in Europe, particularly France. At issue was the economic direction of Europe in the face of the coming of the Euro currency zone, and what economic model countries should adopt to meet those challenges. France’s center-right government had just been voted out, and President Chirac was eating crow over his attempt to impose a more American-style economic model, including greater liberty on the part of employers to layoff employees during an economic downturn. (FYI France is on strike today to protest a similar attempt by their “American” president, Nicholas Sarkozy.)

Meanwhile, by way of contrast, AT&T had the previous year announced the layoff of a staggering 40,000 employees, and IBM and myriad other tech companies were on the way to large layoff as well. The question of a United States of Europe with rigid employment rules trying to compete with a United States of America that gave carte blanche to firings of whatever size suited management was on everyone’s minds.

With this as the backdrop, I and my fellow analysts sat down to a dinner with the SAP executive team, ostensibly to talk turkey about Sapphire, what was happening with new SAP technology like ALE, and how SAP had just signed its 10,000th R/3 customer. I happened to sit next to Henning Kagermann, now the outgoing head of SAP but at the time just starting out in his role of providing the yin to Hasso Plattner’s yang.

Having been technoed and R/3ed to death, I found myself asking Kagermann about the current political climate, and what European integration meant in terms of SAP’s competitiveness, particularly in light of the layoffs in the U.S. and the contrast to what is practiced – or even permitted – in Europe. It proved to be a much more interesting conversation than I had had in a long time, and gave me an important insight into the impact of SAP’s announcement of its first-ever force reduction during yesterday’s earnings announcement.

When the topic of layoffs came up, I asked Kagermann if he wouldn’t like the flexibility to lay off thousands of employees at the drop of a hat, as AT&T had recently done and as many at the pinnacles of European business were saying had to be possible in order to compete with the U.S.

To my surprise, Kagermann said that he actually didn’t feel the need for that flexibility, that it would give the wrong signal to his workers, whom he said he valued highly, and that in a service business like SAP, his main asset was the people who worked for him. He ended by saying that he didn’t want to compete that way, and that if SAP was successful he wouldn’t have any need to act in that manner.

So, with that as a backdrop, I listened to SAP’s 2008 earnings call with the realization that Henning Kagermann was being forced by unprecedented economic conditions to close out his tenure at SAP with the “layoff” of 3000 or so SAP employees as an unfortunate coda to his 26 years at SAP. (It’s possible that this “layoff” will be accomplished through attrition, at least that’s what the official position is at this point.)

It was hard to see through the filter of online video whether Kagermann was visibly moved by having to make this announcement to the world, but to his credit he did so, instead of dumping it on Léo Apotheker. Regardless, I can assure you that this was a more onerous task than it appeared: 11 years ago, in a previous moment of economic uncertainty, Kagermann had bucked some of the conventional wisdom about what it took to compete in the global economy, and, for 10 of those 11 years, he was right. Layoffs may be the only way to keep the company on an even keel, but I’m sure, at least with Kagermann, it wasn’t a popular choice, whatever the economic realities of the moment are.