SAP’S Bill McDermott: The Overdog Who Thinks He’s an Underdog

As he told his employees in its suburban Philadelphia headquarters, “Things at SAP are too complex, too hard.” This was not news to anyone. “Inefficient internal processes were one of the top complaints on our latest employee survey,” he observed.

Headquartered in Walldorf, Germany, with locations in more than 130 countries, SAP has a dominant worldwide share in enterprise resource planning (ERP) software and software-related services.

All major companies, along with most mid-market companies, use some form of ERP software. It’s the DNA that knits all operations within a company—productions, sales, accounting, payroll, you name it—into a seamless whole. The problem is that it can get really complicated; and if installed with too many adaptations, it can get messy.

Since the board named him sole CEO early in 2014 (he had been co-CEO with Jim Hagemann Snabe since 2010), the former Amityville, Long Island deli owner and youngest executive officer at Xerox has taken major steps to transform SAP. “We’ve got to simplify how we give our customers our innovation and our technology. CEOs around the world want to get complexity out of their organizations so they can grow,” he says.

This partly explains why SAP saw continued, broad market adoption of SAP HANA, the real-time, cloud-based business platform. HANA is at the core of the company’s “Run Simple” strategy: integrating all SAP solutions on a single business platform in the cloud. SAP now has more than 4,100 SAP HANA customers and more than 1,450 customers for its HANA business suite. SAP’s HANA is also evolving into the leading development platform with more than 1,600 startup companies’ building applications on SAP.

The corporate-software industry is undergoing a rapid shift from packaged software that customers run on their computer systems to software run over the Internet in remote data centers, making data easier to manage, analyze and use on mobile phones. SAP specializes in providing a mix of business applications for companies, from accounting and human resources to supply-chain software, but it has come under pressure from rivals that offer cheaper services over the Internet or in the ”cloud.” SAP, as Europe’s largest software firm, aims to boost the proportion of its software sold via the cloud to compete with arch-rival, U.S.-based Oracle and purely cloud-based competitors, such as Salesforce.com. But there is a slight downside.

Analysts say the accelerating switch from packaged software to so-called “cloud” software would shave about 200 million euros off a previous profit forecast. Packaged software sales are recognized immediately, while cloud orders are booked as sales over the life of a multi-year contract. McDermott insists the transition is both necessary and, in the longer term, more profitable for SAP, whose revenues approach 17 billion euros.

A natural-born salesman, McDermott nonetheless considers himself an “underdog.” In explaining why he wrote his book, he says, “I never forgot where I came from. I want to give people a blueprint toward being a winner through having an original dream. That dream sustained me through good and bad times, and my working life actually became my life’s work because I had the dream. I want everybody to have the dream.”

Q: In your book, you write, “Historically, SAP software was not known for being user-friendly but instead, for its somewhat clunky interfaces.” That seems to resonate with a number of CEOs we’ve talked to about SAP. So, what have you done to address this issue?

Bill McDermott: We have focused on the “consumerization” of software so that user experience is our most important priority. We’ve always been good at mission-critical business processes. But we weren’t as good as that individual user’s looking at the screen and saying, ‘wow, this is as pretty as Facebook.’ That’s what we’re doing now. It’s a major change, a major transformation. Our new user-interface technology is called Fiori. It is the same user interface whether you’re running a cloud or an enterprise application.

Because most of the Fortune 1000 companies already use some form of SAP software, you are migrating to the middle market for future growth. This must represent some challenges, because mid-market firms can’t afford the same total suite of enterprise software that big companies can, plus the fact that the complexity with which your software has historically been associated might put a few people off. How do you overcome that?

BM: I couldn’t agree with you more. That’s why we have become the cloud company, powered by HANA. In 2010, none of our revenues came from the cloud. In 2014, we’ve become the No. 2 company in the world in the cloud. We’re No. 1 in the world based upon the number of users that consume our software through the cloud. So we’ve transformed the company to be the cloud company, powered by HANA. A small, midsized company today can procure our software in the cloud without investing in the hardware, the infrastructure and the expensive consultants to install it. They can simply consume it out of the cloud, pay a service fee on a monthly basis and pay as they go. So you are radically reducing the complexity that stands between the company that you’re trying to serve, which is consuming your software, and SAP’s provisioning that software to as many customers around the world as possible. The company we are today is very different from the company we were five years ago.