(Bloomberg) -- SAP AG Chief Executive Officer Leo Apotheker unexpectedly resigned, amid customer and employee discontent, and a failure to boost revenue at the world’s largest business-management software maker.
SAP’s supervisory board decided not to extend Apotheker’s contract, which would have expired at the end of the year. His exit comes less than a year after he took over in May 2009 as the sole CEO of the Walldorf, Germany-based company. SAP said in a statement yesterday that board members Bill McDermott and Jim Hagemann Snabe will take over as co-CEOs.
“The challenge is going to be what SAP will be doing five years from now; they need a coherent vision,” said Thomas Otter, a Ladenburg, Germany-based analyst at market researcher Gartner Inc. and a former SAP employee. “Their current messages aren’t getting anyone excited. Ten years ago they had the ability to excite the market.”
Apotheker, 56, who has been with SAP for more than 20 years, presided over the first annual drop in revenue at the company since 2003 as customers faced with the economic slump put off investing in new software. SAP, whose software is used for payrolls, customer relations management and Apple Inc.’s iTunes download system, is fighting off competition from Oracle Corp., which in December said it is winning customers at the expense of the German company.
Hasso Plattner, SAP’s supervisory board chairman and co- founder, rather than the company’s new co-CEOs, elaborated on the company’s plans on a conference call with analysts and reporters today. It was his first such conference call in seven years, he said. The board wants Plattner, who is also SAP’s largest shareholder, to play a greater role in its development.
‘Happy Company’
Plattner, who holds 10.41 percent of SAP, declined to specify the reason for Apotheker’s departure, saying instead that SAP has to win back the trust of employees and customers.
“For a public company, profit is everything, but in order to be profitable it must be a happy company, and I will do everything in my power to make us a happy company again,” Plattner said. “We are working to re-establish the trust inside and outside and make the company to work as one.”
SAP’s software license revenue fell 28 percent in 2009, after rising for years. Total revenue fell 8 percent to 10.67 billion euros ($14.6 billion). The company’s efforts to recoup lost ground may be too little too late, said Peter Goldmacher, an analyst with Cowen & Company in San Francisco.
“I think SAP is structurally impaired,” he said. “I don’t think SAP is competitive as an independent company. They need to be acquired. It needs someone that can really leverage the business, but I don’t think anything is imminent because management will exhaust every opportunity before seriously considering shopping around for a buyer.”
Employee Morale
SAP shares slid as much as 2.6 percent in Frankfurt. They were 2.3 percent lower at 32.62 euros at 4:56 p.m. Before today, the company’s shares had risen 14 percent in the past year, giving SAP a market value of 40.9 billion euros. Oracle shares have risen 34 percent.
Apotheker was not agile enough to counter Oracle’s efforts to steal away customers and the board received results of an internal employee survey that showed that he failed to inspire workers, said Gartner’s Otter.
“The recent employee survey highlighted that under Leo, employee morale dropped significantly,” he said. “This was a major influence on the board’s decision to change.”
According to a Feb. 1 statement on the IG Metall union’s Web site for SAP staff, the employee satisfaction index fell 15 points from the last survey. About 50 percent of the employees gave a positive approval rating for the board.
New Blood
“Yes, the employee survey was not good and SAP has to work on all levels to change that,” Plattner said today. The last employee survey was done in the autumn, the results of which came two weeks ago.
“SAP’s long-term vision is murky,” Otter said. “It’s not something you can explain in a couple of sentences.”
Apotheker become the sole CEO of SAP when his co-CEO Henning Kagermann stepped down.
“When you look at SAP’s performance in 2009, it was really dismal, from a financial perspective,” said Paul Hamerman, an analyst with Forrester Research in Virginia. “I think the 2009 earnings call less than two weeks ago signaled the beginning of the end of Apotheker. Apotheker projected a persona that was defensive rather than a man of vision.”
SAP needs to look outside the company for new ideas to revive growth, Hamerman said.
“I don’t necessarily think SAP insiders can turn the company around,” he said “The company could benefit from new blood at this point.”
Co-CEOs
The new co-CEO Snabe is currently head of product development. Snabe, who joined SAP in 1990, was appointed to the board in 2008. He is responsible for product development and services for large, medium and small businesses and the company’s technology platform. He is a resident of Copenhagen.
“Snabe will be leading the development,” said Gartner’s Otter. “He been good at the organisational side of development, in streamlining development methods.”
McDermott joined SAP in 2002 and was appointed to the board in 2008. He has been overseeing strategic business activities worldwide. He was previously at Siebel Systems Inc. and Gartner and spent 17 years at the Xerox Corp.
“McDermott did a fine job in getting the U.S. sales organisation into gear,” said Otter. “He will be the sales face of SAP and dealing with the investment community will be a key role.”
Short Term
During his reign, Apotheker tried to push through higher- margin support contracts, backing off after customers balked.
Karl Liebstueckel, head of the German-speaking SAP user group DSAG, said in an interview today that while the company lost the trust of customers when it tried to raise prices, he was surprised Apotheker departed after “such a short term.”
“We are glad that they’ve chosen to promote from within and not bring in somebody that doesn’t have SAP experience,” Liebstueckel said. DSAG has 2,214 member companies, including Siemens AG, Bayerische Motoren Werke AG and Deutsche Bank AG.
In January, SAP caved in to customer demand and offered lower-priced support and froze prices for existing support and maintenance agreements, seeking to retain clients and sign up new ones.
The move marked a major about-face by the company that had wanted to migrate all its clients on to “enterprise” support, a full-range of tailor-made services to cut corporations’ costs.
‘Contentious Relationship’
Instead, Apotheker was forced to offer customers a choice between “enterprise” support and a lower-priced standard package with basic software backup. SAP also delayed a price increase on its enterprise support for a year.
Support sales, including upgrades and maintenance, make up more than half of total revenue at SAP, which counts Apple, McDonald’s Corp. and Wal-Mart Stores Inc. among its customers. Expanding those sales is a key growth driver for the company.
“What happened during the past year was a contentious relationship that emerged with the customers over enterprise support prices,” Hamerman said. “They lost touch with their customers. I think Leo’s persona didn’t help. At times he was defensive and condescending toward the media and the customers.”
Plattner said he had been part of the decision to try to raise maintenance fees. “We made a mistake and have to change course here,” he said. “Unfortunately, the head of the company takes a lot of the blame, whether it is just or not,”
No comments:
Post a Comment