Henning Kagermann: Balancing Change and Stability in the Evolution of SAP’s Enterprise Software Platform

When Henning Kagermann became the sole CEO of SAP in 2003, a role he had previously shared with company co-founder Hasso Plattner, he faced a number of challenges, including an economic slowdown that hurt SAP’s growth. Kagermann moved quickly to put in place a program to reshape the company’s product offerings and adjust its market focus to position it for the next generation of software. But because major corporations use SAP’s software to run nearly every aspect of their business, change at SAP requires a delicate balance between progress and stability.

Based in Walldorf, Germany, SAP is the worldwide market leader in enterprise software applications with annual revenues of $10.08 billion at the end of 2005. Microsoft and Oracle compete with SAP and are among the fiercest rivals in the industry. Oracle’s recent acquisition spree — scooping up PeopleSoft, Siebel Systems and more than a dozen smaller companies — has increased its customer base and consolidated much of the market. Microsoft poses an additional challenge: While serving as a vital partner for SAP to link its ubiquitous Office products to SAP’s enterprise backend, Microsoft is also SAP’s main competitor in the mid-range market, a key segment for SAP’s future growth. Managing such complex relationships is one of Kagermann’s major challenges.

In addition, he must navigate SAP through industry changes that are rewriting the rules of software deployment. With a long history of developing tightly integrated client/server systems — which use traditional desktop “client” software tightly coupled with back-end server applications — SAP has to compete in a rapidly-evolving world of Internet-based software applications. Some competitors, such as SalesForce.com’s brash CEO Marc Benioff, have even declared the death of traditional, locally installed software. Determining whether these are growing trends or passing fads are key decisions for Kagermann.

Knowledge@Wharton recently sat down with Kagermann in New York City to discuss his views on these topics as well as his vision of SAP’s future. An edited version of that conversation follows.

Knowledge@Wharton: Internet-based technologies and standards are transforming the $80 billion market for enterprise software applications. What strategic opportunities and challenges does this pose for SAP?

Kagermann: For us a key opportunity is the business-to-business segment. From the outset of the Internet age, people started to build business-to-business communication, but it has not been working that well. There is still a need for this. Companies are working closer together and they have to be seamlessly interconnected. These technologies are important because they give us the underlying standards to develop a business language which allows applications of different companies to talk to one another. Without these standards you don’t have the same syntax underneath, and it’s nearly impossible [to achieve these goals]. So it has brought a set of standards which helps us tackle this need of business-to-business communication.

Another piece that has impacted SAP is the concept of Web Services, which was also developed to provide more interoperability between the applications of different departments and companies. We have extended this concept to an enterprise level. We felt it was still too technical, it was still not in business language, and it didn’t have the scalability and the robustness that business needs. 

And we have used the standards of Web Services, or the Web Services stack, to build what we call Enterprise Services, which helps companies to communicate. So, yes, it has impacted SAP, but we went beyond this because companies expect us to solve their business problems and not just to deliver the technology.   

Knowledge@Wharton: For many years your products were primarily based on a  three-tier client/server architecture. Now you are moving into Web Services. But various Web Services architectures have different goals. There is the ability to make software applications more modular, more easily configurable by the customer and more flexible for you to develop. But there’s also this notion of “on demand,” hosted “software as a service,” where the customer uses only a web browser. Are you doing both of those? Is one more important than the other?

Kagermann: They both are interconnected, but the first one is more important — that you have an architecture which is modular enough to “plug and play,” to use existing services to compose different innovative business processes. It means that you can innovate your process and be quicker than your competitor. Or you can better integrate into the process of your customer. That is the number 1 priority, because it gives us a competitive advantage. 

The second one is more about how you deploy software and how you buy software. And, yes, with this architecture we will have different deployment options for having software “on-premise,” like today, but also in a hosted, on-demand mode. But we have one difference to traditional on-demand models. The traditional approach to “software as a service” is an ASP [application service provider] “hosted” model. So it’s one size fits all.

We take advantage of the progress we see in hardware, like what blade servers are doing. What we do is — we share the program but we separate the data of the company because we want to help with security and protection. This is always an issue — companies don’t want to share [their data]. The cost of this approach is only slightly higher than in the software-as-a-service model, but it is much lower than having it on-premise.

On the other side, whenever a company feels that it doesn’t want to own the data, it’s easy to switch. So I feel we have a good model in between the traditional way and the very modern way, where software is really a service. 

Let me say why: You cannot convert everything into a service. It always depends on whether something is strategic for a company. Why are companies buying assets and not leasing them all the time? The same thing happens with software. There will be areas where companies still believe they have to own the software and have it on site because only then are they entirely independent. But there are areas where it’s not that important and they say, “Why should I own this? I can have it as a service, and I can switch it off.” 

What is important is that we have an architecture where companies can mix these two deployment options according to their strategic needs. It’s not either/or — it’s both in the future.

Knowledge@Wharton:  So your view of the future is that the choice between on-demand vs. on-premises will be split primarily by the kind of task and the kind of data?

Kagermann: Yes, I think so.

Knowledge@Wharton: You’re not buying into the SalesForce.com philosophy that you’ll just use a browser to run applications over the web?

Kagermann: Never. He [SalesForce.com CEO Marc Benioff] has never, ever in his life installed software for an entire company. He has never been liable for closing the books, for compliance, etc. We serve companies that run 95%-98% of their business on SAP. It’s an entirely different way of doing software — that’s the point.

Knowledge@Wharton: Speaking of your competitors, how do you differentiate SAP’s strategy from that of your key competitors, like Oracle and Microsoft?

Kagermann: In enterprise applications we are the market leader — and that means that we have to lead the market. And if you want to do that, you should believe in your own capabilities, and therefore we have adopted organic growth strategies. We have developed most of our products ourselves. We acquire [other companies] only if we are not fast enough to market and in areas where we have no capabilities. That’s our difference from Oracle and Microsoft. 

Microsoft entered the market with two acquisitions and is building competency from there. That’s fine, but we don’t have to do this. And Oracle has consolidated the market to buy market share and customers.

We are the market leader. If we bought customers [through acquisition] we would have to maintain the acquired products in parallel for a long time, which would split our R&D capabilities and defocus us from what is really important. We could not push clients to migrate quickly to our products, because we have a good relationship with our clients. We didn’t want to be in the position where we have to maintain, develop and migrate three or four different products designed by different people. We have done a pretty good job with the organic growth strategy. We have gained a lot of market share.  

Knowledge@Wharton: Do you think you will maintain your strategy of organic growth? Or are you likely to make niche acquisitions in areas like retail, for example?

Kagermann: You are right. We did that last year. I think we made more than 10 acquisitions, but smaller ones — more in areas where we don’t have the competency.

You mentioned retail. We have a retail system, but there are areas where an acquisition makes more sense and we will do so in the future. But it’s a different strategy if you do “fill-in” acquisitions or if you acquire customers that somebody brings [with their software]. That we don’t want.

Knowledge@Wharton: You mentioned Microsoft briefly. You compete with them on mid-range business software, but they are also a key partner of yours. You’ve launched “Duet,” which integrates their front-end client tools with your back-end enterprise software. How do you manage that kind of relationship?

Kagermann: That’s a good question. First of all, we are driven by customer demand. If you are a strategic partner to your customer, you have to follow the demand. And the demand is for interoperability between the key vendors.

Even if you compete in some areas, you have to be professional enough to be a good partner. We are continuing to support Oracle’s database with our applications, because our clients want this. The point of view that drives us is: If it’s a client demand and it’s important for the client’s success, we have to do it. 

Now, internally you are right, it takes strong leadership to make the organization aware that the customer’s success is more important than the little fights you might have internally. And as long as you deal fairly with your partner and the partner is fair with you — it works. It only starts not working if one of the partners doesn’t believe in win/win and fairness in business. But so far we have had fair partners. 

Knowledge@Wharton:  There is some one-sidedness in this case, though. SAP is not going into the desktop productivity software business, while Microsoft is making moves into enterprise business software. Isn’t there a concern that the amount of information that you have to share to make a strong partnership may come back to hurt you at a later date?

Kagermann: No, it’s okay. If you are open and if you cooperate with many partners, you have to take risks. And you have to be confident enough to believe that this is an area where you have a core competency and even if you share some knowledge, you can be faster. If you don’t believe this, you cannot follow an open strategy. That’s a strength we have — we believe that we are strong enough here.

Knowledge@Wharton: To broaden the question a bit, much of the enterprise software industry is marked by “coopetition” [a combination of cooperation and competition]. What kind of principles do you think make for successful coopetition?

Kagermann: I come back to this: It has to be a win/win for both sides and you have to have respect. If one party believes that the other is just fighting for their own benefit, it’s not good. In a partnership you always have to think about the partner. If you feel that there is a spirit to do something good for the client together, and not “I’m winning and you’re losing,” then it works.

It is not easy. You cannot solve this with just a contract. But it’s similar to working together with larger clients where you cooperate and do co-innovation. The contract doesn’t protect you; there has to be the will to be successful together.

Knowledge@Wharton: Speaking of co-innovation, you have made efforts to develop an ecosystem with your product partners. What is your strategy for managing innovation through this ecosystem? 

Kagermann: We started from the point that one company cannot be the best in all areas. So the more partners that we have to innovate around our technology, the more it will be a win/win situation. We have a win for our customers because they get innovation faster and they get it on a reliable backbone. We have a win for our partners because we make a market for them — we give them access to a big installed base. And we have a win for SAP because the customers view us as a strategic partner and they don’t have to wait until SAP gets it done. So, from a philosophical point of view, it is a win/win/win situation for all three of us. 

Now, you need some rules. There is business and there is pleasure. We have to be extremely clear with our partners about what they can expect. One rule is that we cannot protect the partner forever — [we cannot guarantee] that there may not be a time when SAP is forced to enter his space. But we can define these rules at the beginning.

The better the partner’s product is, the higher the likelihood that customers will pressure us to consolidate this function into our backbone. So you have to have an agreement with the partner that this is possible, and it is not [an attack] against him and you might give them some money, or whatever. Or you say upfront, “I’ll only protect you for two years” but that may be good for you [as a start-up company].

If you set the expectation in this way and treat them fairly, it works. It’s good for both sides. We have seen such an example when we acquired Versa Systems.

So we have a certain framework when we talk to our partners. We tell them what the rules are, what we think makes sense, and we listen to them as well. As long as you are very clear from the beginning, it works. Clarity is key. 

There are also different relationships that we have with partners, and we tell them up front. We have relationships where we are extremely close and strategic, and we have others where we are very loose, where we just say, “Okay, you can connect to our infrastructure,” but there is not even certification. So there are different levels of strengths of this relationship. The majority will have a very loose relationship and a few will have very strategic ones. 

Knowledge@Wharton: Let’s look at a specific example. One of your partners is Adobe Systems. What do they bring to your platform that SAP couldn’t or didn’t want to develop itself? 

Kagermann: Adobe has a few core competencies where it would make no sense for us to compete. SAP has always had a text system and we did a lot of our own forms, etc., because we were pushed to do it — you have to print invoices and those types of things. Adobe is a kind of a standard here, like Microsoft, and they did something with interactive forms. Adobe’s PDF [portable document format] and Acrobat Reader are well known.

That’s one area where we work together with them. For Adobe it’s an advantage to be incorporated with SAP because that opens up a market and increases their opportunities. It’s win/win.

The second one came up when Adobe acquired Macromedia and Flash. Flash is a good rendering system. It’s not replacing what we do; it’s complementary. This is the second way we work together. There might be more in the future, but these two ways make a lot of sense.

Knowledge@Wharton: Coming from a strong client/server background — where your customers are accustomed to having a rich client interface — is what is happening around the development of Web 2.0 interfaces, such as Flash and AJAX, of particular interest to you? There has been a lot of talk about AJAX vs. Flash and Flex vs. Microsoft Windows Presentation Foundation. Is there one that seems best suited to the kind of applications you are doing now and in the future?

Kagermann: Not now. We will keep some openness there. We go further into the direction of Flash because of the Adobe partnership. We announced a rich client effort at [the SAP event] Sapphire, where we work with Adobe. This technology helps us — we have more control of the clients than when we just have the web browser. But don’t get me wrong — we will not substitute the browser. It’s just an alternative and a different user experience. There will be users who like it and there will be users who don’t and will still use the browser.

So we will keep our software independent. It’s another abstraction layer, a different user experience. If, over time, we see another technology that is very important, we can easily add this technology. It’s not tightly integrated. We have separated the rendering from the underlying logic.

But I don’t think — coming back to software as a service — that Web 2.0 can substitute a business.

People should always have in mind that community is not business. There will be communities. There will be communities in companies. There will be communities across companies. But a company is a legal framework. So let people in the company build communities — that’s fine — but that cannot substitute for the framework of an enterprise. That’s my point. 

As the CEO of a company, yes, I would like my people to work as independently as possible. But, on the other side, I need some discipline; I need rules that they have to follow — because otherwise I cannot prove to my customers that we follow certain quality guidelines. I cannot prove to my customers how I avoid risks if SAP goes out of business. I can only guarantee these things if I show that there are certain processes and procedures in place that I am following.

So, yes, empowerment, creativity, thinking and collaborating — but in a legally binding framework. And this has nothing to do with government; it has to do with customers. Customers come to me and say, “We are a big food company. We want you to provide the software and we have to be FDA compliant.” Or the Defense Department asks, “What are you doing to make [our systems] as secure as possible — tell me.” Or another company will say, “What are the risks if you are not there any longer?” We have these questions. That’s my point. People always forget this. 

Knowledge@Wharton: Where do you see growth coming from for SAP?

Kagermann: We have three areas where we want to extend the market. Most of the growth would come from the mid-market and from the platform. If we have business platform-based applications we can get additional revenues from companies that just use the platform.

And the third one is that we want to reach out to more users within the company and beyond. To put it differently — we have the philosophy that in the future people will work differently. They won’t just sit down and have a transaction with a computer. It will be more of a “push” principle, managed by exceptions — so that the application is pushing exceptions to your desk. For example, in the morning you would have not only email, but also an inbox of all the urgent business issues you should know about — information which is critical for you to make decisions. This empowers people and brings decision making down to a decentralized level. People can act very quickly, but still — I come back to this — within the company’s rules. And if you do those things you can reach more users. That’s the third thing.

Knowledge@Wharton: This “push”-based approach gets us back to the Microsoft partnership, because they make the tools — like Outlook — that people use every day to get their information.

Kagermann: We talked with Microsoft about pushing our business alerts in Microsoft Outlook. If companies want business alerts in Outlook, they can get them. It’s up to Microsoft. It doesn’t have to be all SAP. But if they click on the alert, they will be in the SAP environment. We will do both.

In Duet, some of the Microsoft screens have an SAP panel on the right-hand side, where the user sees the productivity environment and can then go for deeper information. But there will also be users who are not using Outlook. If you go to manufacturing plants, for example, it’s more about the integration between manufacturing execution systems and ours. It’s more about the information coming from the NC [numerically controlled] machines, etc. 

It’s about collecting all of this information so that the guy who is managing the manufacturing flow is getting all the information on one screen. He can make smart decisions [based on information] coming from different systems. So, if I say “push,” it doesn’t mean that the user has to have an SAP user interface. If he wants a different user interface, we could push the alerts into it. And we also have to do it for mobile [hand-held devices].

Knowledge@Wharton: What are you doing with mobile devices?

Kagermann: To give you an example: The people on the shop floor are not sitting at a computer screen all the time. People walk around. If you have an alert that there is a production issue, you push it to a BlackBerry. The BlackBerry might not be large enough [for the person on the shop floor] to act [on the information], but he knows what is going on. If it is urgent, he goes to a computer screen and logs onto the browser.

But it comes down to information. He gets the alert; he then wants the context. Now he is back in our system. That you can’t do in Outlook. If he’s in Duet and he is in Outlook, he can click seamlessly to the SAP system. It’s perfect.

Knowledge@Wharton: If the three items you named are your big growth opportunities for the next five years — what are the biggest challenges that you are facing over the next five years?

Kagermann: We have two challenges. One is to get our clients seamlessly to these platform-based solutions because for large implementations, we have to do it step wise. And the second challenge is the volume business. If you want to be successful in the mid-market you have to manage a volume business, which is beyond just providing a product. The total customer experience, the deployment of the software, the implementation, the maintenance has to be simpler, cheaper. That’s the second challenge.

Knowledge@Wharton: Historically your software has had the reputation of being a bit complex, difficult to install and, perhaps, rather inflexible… 

Kagermann: Yes. Yes.

Knowledge@Wharton: Is there some justification for this? 

Kagermann: You have to be fair here. On the other side you hear “highly integrated,” “big productivity improvements,” “entirely reliable,” “highest quality.” With the existing architecture, these are more or less [exclusionary]. If you have lots of functionality, you are not simple any longer. If you have lots of choices, it takes time to find the right thing. If you have a high degree of integration, you are not the most flexible. So, these benefits we brought to the market are always a trade-off.

We have seen other products which were more flexible and [yet they] died, because all of a sudden, the books were not in sync. Those types of things happen when it is too flexible.

But I’m with you; the future is getting both. And that’s what we are trying to do with a new architecture. We don’t want to give up on what we achieved in the past — 100% compliance, etc., but we want to add much more flexibility. And I think we can do so.

I feel that [what we have done] was the right sequence. You should not come with highly flexible but noncompliant and unproductive software. You should first come with highly integrated, highly productive software and then make it flexible. I think this is the better sequence.

Knowledge@Wharton: While the new architecture will give you flexibility and modularity, as we discussed earlier it also opens up this opportunity to create an ecosystem where third-party ISV’s [independent software vendors] can build their own software on top of the SAP platform. While there are advantages in terms of giving customers a richer set of options, are there also some perils here? You’ve talked a lot about control and compliance; doesn’t this present some challenges to what has long been the strength of your products? 

Kagermann: This concept of enterprise service and process components is so important. We would not bring flexibility and modularity to a level where it’s not compliant. This is a big point. We will not open up the platform. Our flexibility starts on top of the platform. What is inside the platform we will not open up because that’s where we can guarantee that the pieces are compliant.

Here you have a platform which should also guarantee compliance. You can innovate; you can put pieces together but only pieces that still guarantee the compliance. The components have built-in integration so that you cannot, [for example,] decouple logistics from finance.

It’s more like exchanging documents. If you do it by a message flow, by a document, it’s decoupled enough, but we would write this document and show it. If somebody then plugs in a different finance system, which has bugs in it, we are at least compliant so that we can say, “Our file documents the entirety of what’s happening on a client level so that you can have clear books.” So, this type of compliance we will keep. We would not allow people to say, “We don’t need this any longer,” and switch it off.

Knowledge@Wharton: Is there also an internal challenge that this new architecture and the growth of an ecosystem of third party ISVs brings to your company? You have engineers who are used to developing a pure SAP solution. You have a sales force that sells SAP services, but now also supports a platform with third party offerings as well. What are the internal ramifications of this architectural change?

Kagermann:  There are some. I think it took some time until people understood what co-innovation is. But the more they think this way, the more they understand. 

We have to design enterprise services keeping in mind that somebody else has to use them. In the past, we were focused on having it as integrated as possible. But the more people understand the design principles, the more flexible they get.

It takes time. It might even take years. But the more people see that they can do something brilliant with this idea, they become proud that others are using it. Through the platform they enable the others to do some innovative stuff. I think there is a mind shift in the company.  

If you look back at how we did it, there was a point in time where we were asking ourselves what our mission statement was. And when we asked ourselves, “What is the winning proposition?” we said, “Yes, it is this type of software.” And then it was a question of what type of values we need and how do we cascade these down [throughout the organization].

So it was an entire framework — to make the entire company aware of this strategy and to align the departmental goals, etc. It was just not in a vacuum. We knew that this would affect the entire company.

And we have distributed development now. It’s by design that we can guarantee the integration. Another advantage is that it’s the first time that SAP can build a real global R&D infrastructure. Some people feel it’s a threat, but it’s a big opportunity because you can hire the best talent and you have the best development force in the world. It is the same in sales. We hire our sales people in the country where we want to sell.

Knowledge@Wharton: This is a good time to ask about growing along the geographic dimension. Knowledge@Wharton recently interviewed Michael Dell, who told us that even though for the past couple of quarters their business has been down, they had significant growth in China and India. Can you explain SAP’s strategy for these key markets?

Kagermann: We are doing what most companies are doing. We watch the BRIC countries — Brazil, India, China and Russia — separately. All of them are growing much faster than SAP. But all of them are smaller than, for example, the U.S. or Germany. So, it will take a long time before they become this size, but they are growing faster. 

Interestingly enough, India was very strong, particularly in the last quarter. Before, China was stronger, but now it’s India. Surprisingly — maybe it has to do with our European heritage — Russia did best.

Knowledge@Wharton: Why did Russia do so well?

Kagermann: We started a little bit earlier in Russia — immediately [after] the Berlin Wall went down. And I believe it also has a little bit to do with SAP.

Russia is a large, highly developed country. We forget that in the past Russia was the second superpower. And, if we do it right, there are a lot of large companies that potentially need our software, whereas in China it took longer for the Communist regime to open up. And, in India it has more to do with the infrastructure.

Another reason might be that we started with Russian-speaking Germans in Russia — which is closer from a cultural point of view. Now we have Russians, but in the first years it was with Russian-speaking Germans who were educated in Russia. So I think it helped us at the beginning that Eastern Europe is closer to Russia. But now the growth rate is the same as in India and China.

And, if you look to the IT environment, India is doing best and China is following. Here Russia has to catch up to some extent.   

Knowledge@Wharton: What are some of the challenges that you have faced in your efforts to grow in India and China?

Kagermann: In China it is the IP [intellectual property] issue. Everybody is saying this, and they’re right. In India it is the infrastructure. I was recently in India where I had to give a speech, and I said that if India believes it can move directly to a knowledge economy and thus skip the industrial economy they are making a big mistake — because not everything is digital. And once something is physical — and people are physical and food is physical — you need transportation. That is something India has to focus on. Even if they want to be a knowledge economy immediately, there is still physical transportation. That’s the only thing I see. 

Knowledge@Wharton: The key to any strategy is always execution. How does SAP ensure exact execution?

Kagermann: Cascading [information throughout the organization] is very important. We had a time a few years ago when our key executives — the top 30, 40 people — were very frustrated about our lack of execution. You first ask yourself, “What do we want to do? What is our strategy?” But then you need to cascade it down [the organization]. And this cascading included, first of all, writing the strategy down. We had sets of slides where we could communicate down to the employee level. You can access it through the intranet. We revise it every year. 

We have KPI’s [key performance indicators] and we link the KPIs of the departments to the KPIs of the strategy. So each department then [asks its units], “What are you doing that fits to the strategy?” Some of them have done their own strategy paper. For example, in the U.S. [CEO of SAP Americas Bill] McDermott and his team did the strategic plan for North America which is linked to the corporate one. 

From that you achieve two things. One is, you [assure] that people are not making strategy which is not linked [to the corporate strategy]. And it’s transparent. This is very important. The second is that it’s measured.

And I go through this with my board colleagues. That is my department. And they do the same at the next level. This keeps us focused on “What was our intent?” and “Have we achieved?” 

Otherwise, new ideas always come up. In companies like SAP, people have a lot of good ideas — and we need this — but it doesn’t help you if you have no framework to prioritize these ideas. If you cascade the strategy down, then people can create their own ideas as long as they know they fit into the strategic framework. So I can make decisions decentralized.

People always like to talk about values that you have to instill, but I think strategy is as important. You can talk a lot about values, but if you have strategy and you link objectives, you can measure it. But with just values alone, you cannot.

We have also had a discussion of values. We have defined six values and we tried to explain to our people why we need these values now. We had five fundamental values like integrity — everyone has this quality — and engineering excellence. Then we have five new ones — like agility, simplicity — and we try to explain why now, in this transition. So you can link values to strategy. 

Because I believe that there is not [an inherent] company culture, the company culture has to support the strategy of the company. That was a big debate we had. Some people always talk about the SAP culture. And one day I said, “Okay, this culture is not [a given]. Our strategy has changed.” And so we had to think about what the proper culture was for our strategy — not the opposite. This was a big debate, but I think that has to happen. 

Knowledge@Wharton: Until your mid 30s, you were a physics professor. How do you go from that to being the head of an enterprise software company? 

Kagermann: I was lucky. I would not say it’s possible to do this if you enter SAP today, with its size. I was lucky to join SAP when it was less than 100 people. I had the chance to grow with the company and that gave me the chance to learn business … including the entire cost accounting system.

Cost accounting sounds boring but it isn’t. You understand more or less everything because you have to understand manufacturing, financials, etc. So you come across a little bit of everything, which helped me to develop myself, and I was able also to learn a little bit about business. And later on I was running Europe. So I had the chance to learn a lot in SAP to prepare myself. It was a long learning curve — and I’ve now forgotten everything that I had learned before [laughs]. 

It was very interesting when I started at SAP and I saw the first client. I had to talk to this client because they wanted me to sell the project system [I was working on]. I was not too good at this in the beginning. I remember I said, “It’s pretty simple, it’s a [monotonic] function.” They just looked at me. It was then I decided to forget everything I learned. [Laughs.] All I [talked about after that] was percentage, plus, minus and nothing more. That helped me a lot — to come back to a normal language. That’s another thing that you have to learn.  

Knowledge@Wharton: In May 2003, you took over leadership of SAP from Hasso Plattner. What has been the toughest leadership challenge that you have faced and how did you deal with it?   

Kagermann: I have not really felt there was a challenge, honestly. But looking back, I think the transition from a founder-driven company to a manager-driven company was my biggest challenge. As a manager you are always following the rules of the stock market more than a founder — because it’s not your money.

A founder company can focus more on long-term thinking, and can be more family-like — with all of the good and bad that entails. A managed company can’t do this. You are more responsible to the different stakeholders.

If you look to the competitive environment and see you are still not the number one, you cannot ignore it as a manager. As a founder, you can focus on longer term priorities.

Knowledge@Wharton: BusinessWeek recently published its selection of the “ten most competitive business people on the planet.” Of those ten, two are your competitors — [Oracle CEO] Larry Ellison and [Microsoft chairman] Bill Gates. How would you compare your management style to theirs?

Kagermann: I am not motivated by just winning against a competitor, I can honestly say. It’s good, but it’s not what drives me. I have two things that drive me that come perhaps from my legacy. The first is that I am curious and the second is that I want to do something good for my customers.

It’s not priority number one that I should win against my competitor. It’s not the first thing. I believe that it is the right thing to do to be competitive, but in a different sequence. I don’t think that I would do things that would, over time, not be beneficial to our customers just to be competitive. It’s not what I like to do. I am not saying the others are doing this — it might be that they have the same style and just express themselves more competitively. But that’s my style. Winning per se is not the key driver number one for me. 

Knowledge@Wharton: We understand you’re a fan of Heavy Metal music? 

Kagermann: Yes, yes.

Knowledge@Wharton: What are your favorite bands?

Kagermann: It’s not really tough Heavy Metal — other people have said this. It came up when people saw that I was a fan of a normal hard rock band — Deep Purple — and then they asked about bands like Queensrÿche and Dream Theater and others which were more in the Heavy Metal area — although not Metallica by the way — just to make that clear. [Laughs.]

Knowledge@Wharton: Given your current job, you probably don’t have much time to go out to rock-n-roll concerts these days? 

Kagermann: No, not much. The last was, indeed, Deep Purple in Mannheim, which was very nice. The entire board of SAP was with us…. We always have off-site board meetings, and after our discussion, we went to this concert. It was great.

I invited a few CEOs and they said it was the first time an invitation was different — being invited to a rock concert. This arena is like you have in basketball. You have the suites, you can go outside, you can listen, but you can close the doors. You have wine, you can eat. And you can see everything. It’s perfect.  

And two of the guys [from the band] came up later on and drank wine with us. It was unbelievable.

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