Monday, February 08, 2010

SAP top management changes: impact on maintenance fees?

SAP pulled a surprise change in its leadership team over the weekend, with Léo Apotheker out as CEO and replaced by Bill McDermott, head of the field operations, and Jim Hagemann Snabe, head of product development, who will now share the top job. At the same time, SAP elevated Vishal Sika, chief technology officer (CTO) to the SAP Executive Board.

Analyts and bloggers have been buzzing about the news for several reasons, not least of which is the fact that SAP announced the switch in a press release over the weekend, following up with a somewhat terse conference call this morning by co-founder and chairman Hasso Plattner.

Joab Jackson and Chris Kanaracus have an excellent write up at Computerworld, including some contents from an internal email from Apotheker to SAP employees. In it he refers to the results of a recent SAP employee survey, which found a dramatic loss of confidence in senior management, according to a Financial Times report.

In the conference call this morning, Plattner sounded a humble note on SAP's unilateral decision to increase its software maintenance fees, in the midst of a recession. As reported by Computerworld:
He addressed head-on one of the most heated issues in SAP's recent history: Its 2008 decision to move customers to a richer-featured but more expensive Enterprise Support service. The plan rankled users worldwide, particularly those with older, stable systems and little need or desire for additional support.

"I was part of the decision that we had to raise maintenance fees," he said. "That is not something we can put in Léo's shoes. This was done by SAP. We made a mistake and we have to change course here, and regain trust from the customers who were more than upset. Unfortunately, the head of the company takes the blame, whether it was just or not."
Implications for SAP maintenance fees
I normally do not pay a lot of attention to management changes at software companies, as I find them to be more of interest to insiders and financial analysts. But I've been convinced by a couple of my fellow Enterprise Advocates that this switch matters because of what it means to customers.

If the issue of the maintenance price-hike is one of the main issues behind Apotheker's departure, what does it mean for maintenance fees? Last month, SAP appeared to be backing off its decision to unilaterally migrate all customers from Standard Support (typically at 18% of license fees per year) to the more expensive Enterprise Support (at 22%). But a more careful analysis by David Dobrin revealed that SAP's apparent reversal was no reversal at all: in fact, by invoking cost-of-living clauses in many of its customer contracts, SAP might actually be raising fees for Standard Support above 22%!

So, if Plattner is now expressing humility on the maintenance fee issue, does that mean SAP might be backing off its enforcement of cost-of-living increases? One can only hope so. After this morning's conference call, it's hard to imagine SAP's sales force turning around and playing tough guy with cost-of-living increases.

Other voices
Fellow Enterprise Advocate Dennis Howlett, who reads SAP tea leaves more closely than I, has been all over the story. He reports on SAP's need to rebuild trust with customers. At the same time, he feels now is the time for SAP to beef up its technology with some targeted acquisitions of firms such as Software AG and TIBCO.

Vinnie Mirchandani views the leadership change at SAP as not addressing the real issue of the total cost of ownership for SAP and its ecosystem partners. He writes:, "Bill McDermott and Jim Snabe, the new co-CEOs are good solid, likable executives – but they represent more of the same."

Finally, for those interested in SAP "inside baseball," former SAP executive Helmut Gumbel has a good post.

Update, Feb 9: Bob Evans has a very good piece in InformationWeek on SAP's failure to put its customers front and center, including this zinger (emphasis, mine):

I think it helps to paint a picture of a company that is dangerously out of touch with what its customers do and want and need, and with how those customers rate and reward IT vendors in these days where it's essential to do a great deal more with a whole lot less.

Speaking in broad strokes about trust and the need to rebuild it, Plattner said this: "What SAP has to re-establish is that we have trust between all involved parties: the [SAP] Supervisory Board, [SAP] Executive Board, the co-CEOs, the management team, the employees, the works council, the partners, the customers, and the employees working for our customers." Setting aside that bizarre customer/customer-employee split, look at where customers rank in the great chain of being constructed by Plattner: dead last. Almost an afterthought. What good does it do SAP to have gushers of harmonic convergence among its own employees if the company's customers feel alienated, unfairly treated, and unwilling to trust anything SAP says? I just don't get that—again it's a degree of tone-deafness that is hard to fathom.
Read the whole thing.

Update, Feb. 10: Bob Evans has another excellent piece in InformationWeek: An Open Letter To SAP Chairman Hasso Plattner.

Related posts
Flash: SAP backs down on 22% maintenance fees
SAP postpones its maintenance fee price hike
Enterprise software: who wants to be the low-cost leader?
Attacking and defending software vendor maintenance fees
SAP and third-party maintenance: good for me but not for thee
SAP maintenance fees: where is the value?
Mad as hell: backlash brewing against SAP maintenance fee hike

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