Once again, there has been a sudden and unexpected senior leadership change at enterprise Cloud ERP and Supply Chain Management technology provider SAP SE.
The company announced this week that Christian Klein, Co-Executive Officer (CEO) will assume the sole leadership role of the company. Jennifer Morgan, appointed Co-CEO in October, has reportedly mutually agreed with the company’s Supervisory Board that she will depart the company, effective at the end of April.
The SAP announcement includes the following statement:
“More than ever, the current environment requires companies to take swift, determined action which is best supported by a very clear leadership structure. Therefore, the decision to transfer from Co-CEO to sole CEO model was taken earlier than planned to ensure strong, unambiguous steering in times of an unprecedented crisis.”
In our Supply Chain Matters blog commentary that included the original appointment of Morgan, we noted that here SAP tenure, primarily spanned the company’s sales and field management groups including prior roles as President of SAP North America, President of Americas and Asia, and leader of SAP’s reorganized Cloud Business Group. Morgan became the first ever woman appointed to the SAP Executive Board in 2017. She was cited as Fortune Magazine’s Most Powerful Women in Business, and Most Powerful Women in the World of Technology by Forbes.
German born Christian Klein’s tenure at SAP dates back to 1999 as a student, and subsequent roles in SAP’s customer support operations. He previously served as CFO of SAP Success Factors and he was appointed Chief Operating Officer in 2016 and member of the SAP Executive Board in 2018.
In our October 2019 blog, this Editor was frank and candid in the view that as far back as 2010, we have voiced our observation that co-CEO models have marginal track records, especially in times where strong leadership models are required. In October, we were willing to reserve judgement as to the latest SAP Co-CEO arrangement.
What the Announcement Portends
Similar to the unexpected departure of former CEO Jim McDermott, there is to state the obvious, a lot of speculation regarding the suddenness of this senior leadership change. As we position most all of our coverage related to SAP, developments often related to what will be the implications for existing customers.
Similar to McDermott, perhaps Ms. Morgan has found new opportunity. That would be the simplest explanation.
Long time SAP blogger Den Howlett posted an editorial blog on diginomica citing the unusually blunt and direct wording included in the press release, and that it is hard to fully understand what motivated SAP to remove Morgan from the board in the context of the current COVID-19 challenge related to the enterprise software market. He acknowledged that there is a lot of speculation in back channels.
Howlett also pointed out that once again, the Co-CEO leadership model likely do not work well for the German company’s leadership structure.
Our sources would generally confirm the above speculation.
Those of us who have either followed SAP for many years or actually worked at SAP know that in times of crisis, organizational power invariably shifts back to a Walldorf centric perspective, as well as founder’s and Supervisory Board Chairperson Hasso Plattner’s leanings and perspectives.
In Monday’s announcement of Q1 financial performance, while setting a tone of a positive set of financial results in the quarter, the company’s outlook was revised downward in the light of the ongoing COVID-19 global pandemic.
That included revised operating profit and cash flow outlooks in the magnitude of a €1 billion reduction. The revised outlook assumed the current COVID-19 business demand impact environment deteriorates through the second quarter before gradually improving in the third and fourth quarter as economies reopen and population lockdowns end.
A further unstated concern is the large amount of debt that the company incurred through multiple acquisitions of Cloud based providers, including the November 2018 $8 billion acquisition of Qualtrics in the area of customer experience management. In the most Q1 quarter, the business segment reported an 11 percent increase in revenues at constant currencies but incurred an €11 million net loss.
As we have noted, there is also the shadow of activist private equity firm Elliott Management which now has to deal with its own broader portfolio of companies financially impacted by the pandemic, including SAP.
There remains the shadow of Ambition 2023, a financial goal pegged to a year 2018 baseline of:
- Tripling non-IFRS Cloud revenues
- Growth to more than €35 billion in non-IFRS Total Revenues (€7.4 billion addition over three years)
- Approaching a predictable revenue metric of 80 percent and a gross margin percentage of 75 percent. There was no mention of status to this framework in the latest Q1 financial performance.
The ongoing highly uncertain COVID-19 business environment has the likely potential to jeopardize attainment of these metrics.
We closed our October 2019 commentary on the statement: ‘..we believe that SAP customers should anticipate other significant changes as this new (Co-CEO) leadership team comes to grips with what needs to occur.’
We revise that statement in the light of the now consolidation of senior leadership that both SAP customers, employees and partner ecosystem should anticipate further significant changes in the months to come.
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