SAP’s McDermott Counts On Faster Decision-Making as Sole CEO

May 21, 2014 12:23 pm ET

(Updates with Snabe’s board election in second paragraph.)

May 21 (Bloomberg) -- SAP AG’s Bill McDermott, who became the German company’s sole chief executive officer today, is counting on the leadership change to speed decision-making at the software maker trying to accelerate growth.

Having product road map, sales and personnel actions dealt with by a single CEO lets SAP make quicker decisions, McDermott told reporters today before the company’s annual shareholder meeting in Mannheim, Germany. After more than six hours of questions on competition, growth and management, investors approved Jim Hagemann Snabe’s appointment to the supervisory board as he gives up the co-CEO position.

“We did a lot of good things for SAP,” McDermott said. “We brought SAP together and role-modeled what leaders can do when they trust each other.”

Lately that harmony has been tested. The biggest supplier of business applications software is undergoing a transitional period as McDermott shapes the company and its management to better compete with Oracle Corp., Salesforce.com Inc. and others for a greater share of software delivered over the Web. Sales growth is slowing on lower demand for traditional software installed on customers’ premises. Technology head Vishal Sikka, the company’s face in Silicon Valley, resigned abruptly this month.

SAP, based in Walldorf, Germany, is looking to develop engineering managers in Silicon Valley and needs a person to be its face in the region, McDermott said.

Hana Database

“We have a plethora of talent that has not been seen by the press and the market,” he said. “Sometimes because there is a strong personality they don’t get the limelight they deserve.” Sikka had advanced SAP’s key Hana database and other products through alliances with Valley CEOs, including at Adobe Systems Inc. Now McDermott and others will need to redouble efforts to keep the company plugged in.

“I’m not personally interested in getting rusty,” McDermott said, citing his own ties to the CEOs of partners such as Microsoft Corp., EMC Corp. and VMware Inc.

Shares of SAP rose 1.1 percent to 55.44 euros at the close in Frankfurt. They have lost 11 percent this year, while arch- rival Oracle has gained about 9 percent.

SAP is cutting about 3 percent of its 67,000 workers, or about 2,000 jobs as McDermott repositions it to develop more cloud-computing software. The company plans to hire enough new people to offset the cuts.

“We’ll move through this swiftly,” McDermott said. He said SAP benchmarked its severance plans against other companies and will offer departing employees “the best” package possible. The company is seeking to do away with small satellite offices that may house a “pet project” staffed by few workers, he said.

Management Changes

SAP is also on the acquisition hunt. It agreed to buy SeeWhy, a Boston-based maker of marketing software designed to increase e-commerce sites’ conversion of visitors into buyers, for an undisclosed price yesterday. In March it agreed to buy Fieldglass Inc., a maker of online human-resources software.

McDermott and Snabe oversaw a four-year period of rising sales and profit and gains in SAP’s share price. Investors though are becoming concerned about frequent management changes.

Sikka built SAP’s key Hana database software and forged sales alliances with Silicon Valley companies including Adobe Systems Inc. and VMware Inc. His departure, Snabe’s exit from the executive suite and last year’s resignation of cloud computing chief Lars Dalgaard to join a venture-capital firm constitute “a wave of departures,” Kepler Cheuvreux analyst Laurent Daure said in a note to clients this month.

Russia Impact

“Investors will become increasingly worried if other changes occur in the near future,” he said.

SAP Chairman Hasso Plattner told shareholders that Sikka had been torn between work and family. “It was a personal roller coaster with Vishal,” he said.

SAP’s growth is slowing as it tries to move from financial, manufacturing and HR software designed to run in businesses’ data centers to applications delivered online. Sales this year may rise 4 percent -- the same as last year -- to 17.51 billion euros ($24 billion), according to data compiled by Bloomberg. McDermott and Snabe oversaw three years of growth exceeding 10 percent after taking the reins in early 2010.

Among the company’s challenges are political tensions in eastern Europe, and the escalating sanctions that Russia faces from the U.S. and European Union.

“Recent EU sanctions on Russia could lead to longer sales cycles,” McDermott told shareholders. “We are confident that any impact could be counterbalanced by our global sales.”

Meanwhile Oracle is reviving efforts in a federal appeals court to win more than $1.3 billion in damages from SAP over a seven-year-old copyright infringement suit.