Bill McDermott - Genius Salesman

Bill McDermott loves making a grand entrance with cufflinks on his shirt and a tailored suit. He loves the contact with his large and international customers. Regular meetings and in-depth discussions on a smaller scale with selected existing customers are his elixir of life. He is always perfectly prepared and very eloquent. Even if he knows little about Hana technology, he can sell SAP's innovations!

McDermott learned the "sales job" in the best place - he worked at Xerox for 17 years and there was no better place to learn "sales" back then. The unconditional focus on the customer and user as well as their wishes and needs.

In his book "My Path to SAP: The Autobiography", McDermott writes the following in chapter two under the heading "Empathy":

"In the morning, Bob received a tip-off about a potential customer, and the faster we follow up on such leads, the greater our chance of closing a deal."

Bill McDermott's business world consists of closing deals based on empathy with his potential and existing customers. There is no plan B. This manager is currently a stroke of luck for SAP, but he could never have invented and built SAP with this strategy.

At the right time, McDermott sat down at a fully laid table and got started with a lot of charm, empathy and knowledge from the Xerox Sales Academy.

Surprisingly, things have been going very well for salesman Bill McDermott at SAP for several years now. His predecessor Léo Apotheker, also a brilliant salesman, albeit with a completely different intellectual and family background, failed spectacularly in and against the SAP community.

The times for increasing sales without in-depth technical understanding and sustainable relationship management are currently very favorable - SAP is big and successful by doing things differently.

It is not brilliant salespeople who have made SAP the world's leading ERP provider, but "technicians" and allies of existing customers. It makes a big difference whether SAP comes to a potential existing customer as an expert in technology and processes or with the empathy of a brilliant salesperson.

SAP was founded by five visionaries who recognized the power and sustainability of software. They left the then hardware-oriented IBM behind them. Until the legendary SAP CEO Professor Henning Kagermann, top management was always technically interested and oriented.

Kagermann had Hans-Georg Plaut explain the essence of the marginal cost principle and standard costing to him, because Kagermann could program in Abap and was a passionate mathematician.

Bill McDermott may know less about Abap, NetWeaver, SolMan and Hana, but he sells SAP's innovations like hotcakes. As a brilliant salesman with a lot of empathy, he also knows where the market is heading and what the top managers of existing SAP customers want.

The balance sheet figures and, until last fall, the share price proved the SAP CEO right. But two parameters could very quickly put an end to Bill McDermott's success at SAP: Communication and cloud computing.

Relationship Management

While other IT giants are constantly expanding and developing their communities and organizing "in-house exhibitions" with 50,000 to over 100,000 visitors, SAP's in-house exhibition Sapphire and TechEd are shrinking from year to year under the leadership of Bill McDermott.

When McDermott took over the dual leadership of SAP in Walldorf together with Jim Hagemann Snabe, there was still a European Sapphire. This event was discontinued due to SAP's lack of "communication skills" and relationship management.

Since then, Bill McDermott, together with Professor Hasso Plattner in Orlando, USA, has been trying every year to salvage what can still be salvaged in relationship management with existing customers.

The old bond between SAP and its users no longer exists. The global economy is performing satisfactorily and this is where the brilliant salesman McDermott makes his mark - there are no alternatives to a constantly growing market in his business plan.

In the Austrian SAP community, the anecdote of sauna sessions in the Carinthian tourist resort of Nassfeld is often told, albeit less and less frequently. Once a year, Heinz Hartinger, the founder and first managing director of SAP Austria, invited his existing customers to go hiking, eating and taking a sauna together at Nassfeld.

The "sales targets" were discussed together there. They also chartered a large jet together once a year and well over 100 SAP users flew together to the European Sapphire in Amsterdam, Nice or Lisbon.

Cloud alternative

In addition to the prevailing communication deficits, an alternative SAP cloud strategy is also missing: at first glance, SAP's cloud subscription and sales figures are very impressive. A second look reveals the secret of success:

SAP has acquired many "cloud companies" in recent years, resulting in impressive numbers of participants today, and SAP is trying to make on-premise as the traditional data center operation as unattractive as possible for existing SAP customers.

At SAP, this strategy for a "forced" switch to the cloud involves on-premise product discontinuations and "innovative" structuring of license payments and additional claims.

A third look at Bill McDermott's cloud strategy shows that there are no answers to AWS, Google and MS Azure. SAP relies on the "vendor lock-in" strategy. History shows that many existing customers are "happy" to pay a little more in order to continue cooperating harmoniously with SAP in the future.

However, this fortunate situation for SAP does not have to last forever. At the moment, Bill McDermott is still benefiting from a healthy global economy. If IT budgets were to become tight in the future, many existing SAP customers could return to the on-premise model or switch to cheaper cloud providers such as AWS, Google and MS Azure.

These three hyperscalers have a scaling effect that is out of reach for SAP. But McDermott not only has no answer to this simple economic threat, there is also no counter-strategy for the worst-case scenario, for example if AWS buys Rimini Street and thus offers not only hosting, scaling and storage for Hana and S/4, but also support and maintenance.

Manager of the year

Nevertheless, the German Manager Magazin announced in its January 2019 issue that a jury of the magazine had named SAP CEO Bill McDermott "Manager of the Year". This appears to be a great honor for the American, who has been driving SAP's revenue and share price to ever new heights for several years - also to his personal benefit.

At the last Annual General Meeting in Mannheim in May 2018, co-founder and SAP Supervisory Board Chairman Professor Hasso Plattner made an urgent request for the remuneration of his CEO to be presented accurately:

McDermott's remuneration in 2017 was around ten million euros and he received just over eleven million euros in the form of share options. This makes Bill McDermott one of the best-paid DAX board members. Hasso Plattner defended the high share option to McDermott by explaining that only the increased share price made this record payout possible, but ultimately a high share price benefits all shareholders present.

This put the issue of the SAP CEO's salary off the table and Bill McDermott was able to present his vision of tripling SAP's market value to 300 billion euros.

Future of the share price

It's probably McDermott's genes that he measures all his success as SAP's chief salesman by the share price. The measurement of the business world in the USA is all too often stock market-oriented.

McDermott was still able to cheer at the SAP Annual General Meeting last May. However, the performance of the share price over the whole of 2018 is sobering (see chart on page 46). 2018 ended where it began, at around EUR 90 per share, a far cry from the interim high of EUR 108.

"I am firmly convinced that the best times are still ahead of us"

emphasizes Bill McDermott in an interview with Manager Magazin on the occasion of the announcement of his nomination as "Manager of the Year".

It is not yet clear whether the SAP share price fell at the end of last year due to a general economic slowdown or SAP's "expensive" purchase of the American family-owned company Qualtrics for around eight billion US dollars.

In fall 2018, SAP and Qualtrics announced the binding agreement for the intended acquisition of Qualtrics by SAP. Qualtrics is one of the global pioneers in Experience Management (XM) software, which enables companies to succeed in the increasingly experience-driven business world.

Qualtrics' XM platform collects feedback and data in the four critical business areas of customer, employee, product and brand, which increasingly determine whether companies succeed or fail in the future experience economy.

CRM visions and goals

Bill McDermott is firmly convinced that he cannot do without Qualtrics in his CRM vision C/4 in the battle against Salesforce. Shortly before a planned IPO, SAP "struck":

Financial experts assumed that Qualtrics could be worth around five billion dollars in an initial listing on the New York Stock Ex-change. SAP has thus accepted a significant premium, but Bill McDermott is firmly convinced that this investment as part of C/4 will quickly pay for itself.

Under the terms of the agreement, SAP will acquire all of the shares issued by Qualtrics for eight billion dollars in cash. SAP has secured financing totaling seven billion euros to cover the purchase price and acquisition-related costs.

The purchase price includes outstanding items from employee participation programs and cash assets on the balance sheet at the time of closing. Subject to customary closing conditions and receipt of regulatory approvals, the acquisition is expected to be completed in the first half of 2019.

The boards of SAP and Qualtrics have approved the transaction. The shareholders of Qualtrics have also approved the transaction.

"We are always open to new ideas - the announcement confirms this. Together, SAP and Qualtrics are defining a new standard, just as markets have changed through personalized operating systems, mobile devices and social networks"

said Bill McDermott.

"Already 77 percent of global transactions pass through SAP systems. By combining our operational data with Qualtrics' experience data, we immediately create a new XM category with an end-to-end solution with global reach.

With us, Qualtrics has a powerful new partner to bring the benefits of Experience Management to millions of customers worldwide."

Regardless of any technical, organizational and licensing challenges, the "empathy" of the brilliant salesman Bill McDermott is evident here. He wants to convince the market with a perfect CRM system - just as Xerox was once the technical measure of all things and later R/3 had an undisputed unique selling point.

But times have changed: Today, SAP does not have a product without competitors - quite the opposite: the global ERP market leader has to share all new SAP markets with other IT companies. The unique selling point of SAP's ERP still exists, but there are significant competitors in the areas of CRM, logistics, IoT, cloud, analytics and others.

Qualtrics hardly has a unique selling point either! Bill McDermott, however, sees the situation differently:

"The combination of Qualtrics and SAP confirms that experience management is pushing the boundaries in the technology industry. Both companies are driven by a shared spirit of innovation in terms of mission, strategy and culture.

We believe that every single human voice is valuable, every experience matters and that the most successful companies can make the world a better place. We can't wait to open the next chapters in the experience management story alongside Ryan and his colleagues. The best is yet to come for Qualtrics and SAP!"

Cultural change and competition

Has Bill McDermott seen the cultural change in the business world? With R/3, SAP was unrivaled and had many friends: the "complexity" of R/3 was a goldmine for hardware and software providers.

IBM, HP, Oracle, Microsoft, Fujitsu and many other IT companies and the large international consulting firms were able to earn very good money with existing SAP customers when customizing and operating R/3.

This market situation has changed fundamentally: Friends have become competitors, see SAP's Hana database against IBM DB2, Oracle and Microsoft SQL Server. The preferred hardware supplier HP is now fighting against a large number of competitors because SAP is very generous in certifying "Hana hardware" and thus also generates a nice additional income.

This new complex network of providers, consultants and users is complemented by the cloud hyperscalers, where Bill McDermott is also forging completely new partnerships.

Alibaba and "Cloud First"

"China has been SAP's second home for more than two decades"

explained McDermott.

"The expanded partnership between Alibaba and SAP gives us new opportunities by creating smart businesses to strengthen digital China. SAP looks forward to the Chinese dream as we expect substantial growth here in the coming years."

Alibaba and SAP are planning to offer S/4 Cloud and the SAP Cloud Platform on the "Alibaba Cloud Infrastructure as a Service" in China. This should make it easier for customers to migrate to the cloud.

Alibaba CEO Daniel Zhang and Bill McDermott explained the main features of the expanded partnership at the Alibaba Group's Computing Conference 2018 in Hangzhou, China: Alibaba and SAP have been jointly providing cloud solutions for companies via the Alibaba Cloud for two years to help customers in China keep pace with constantly changing market requirements.

Since last year, the two companies have been jointly developing strategies to make S/4 and Hana available in the cloud. Alibaba's cloud customers are also to use the SAP Cloud Platform to expand their existing business solutions, develop new applications and integrate technologies from third-party providers.

"We are pleased that our partnership with SAP has reached the next level today"

said Daniel Zhang.

"The availability of the world-renowned ERP software S/4 Cloud on Alibaba Cloud is another milestone in our globalization strategy and exemplifies our mission to make business easy everywhere. We have worked closely with SAP in the past and it is exciting for us to expand our partnership."

Founded in 2009, Alibaba Cloud is China's largest provider of public cloud services and one of the top three IaaS providers in the world according to Gartner. The partnership extends the global reach of S/4 and Hana in the cloud and the SAP Cloud Platform to all leading public clouds.

S/4 and Hana for everyone

As part of the agreement, SAP will continue to use Alibaba Cloud technology. In return, Alibaba will use the S/4 ERP software to drive its own innovations and support its new business model.

Alibaba and SAP will explore expanded collaboration in areas such as artificial intelligence, the Internet of Things, new retail and new manufacturing. The collaboration is expected to result in solutions that support companies in their digital transformation and help them to increase added value for customers.

"Entrepreneurs who believe in and embrace the future and who can utilize new thinking, new concepts and new technologies will be the future winners"

said Jack Ma, Executive Chairman of the Alibaba Group.

AWS, Google and Azure

Cooperation and acquisitions such as Qualtrics seem to be in line with Bill McDermott's understanding of empathy. Similar to Alibaba, McDermott has also entered into cooperation agreements with AWS, Google and Microsoft.

Last year, Microsoft and SAP announced their intention to use the partner's cloud solutions internally in future as a sign of more intensive collaboration. As part of this special partnership, Microsoft and SAP plan to jointly develop and market high-performance solutions and provide joint support services - for the best possible cloud experience for customers.

"With the new option of running SAP S/4 Hana on Microsoft Azure, we are entering a new phase of our partnership"

said McDermott.

"The world's most important companies rely on Microsoft and SAP. Together, we help customers set a course for success through growth."

Both SAP and Microsoft will use S/4 on Azure for their business processes. Microsoft is currently restructuring its internal systems and will implement S/4 Central Finance (ex-SAP Simple Finance) on Azure.

In addition to the partnerships and acquisitions as well as the "Cloud First" strategy, Bill McDermott's self-invented and self-imposed goal of C/4 will be the decisive test of success.

With C/4, he wants to become the CRM market leader against Salesforce and then occupy a similar position globally as SAP already has in the ERP market. The new CRM suite should help companies to better support their customers and increase customer loyalty.

SAP's aim is to redefine the market for customer relationship management. SAP C/4 is to become an "end-to-end" offering that is not just geared towards the requirements of sales like older CRM solutions.

After the acquisition of Hybris, Gigya, Callidus Cloud and Qualtrics is completed, SAP will then combine various solutions to support all areas of the front office such as consumer data protection, marketing, commerce, sales and customer service.

"SAP has never accepted the status quo in CRM and is now changing it before anyone else"

explained Bill McDermott.

"Legacy CRM systems only cover sales. SAP C/4 Hana, on the other hand, is all about the consumer. However, every part of a company needs a unified view of the end customer. When we connect all SAP applications in an intelligent cloud suite, demand has a direct impact on the supply chain."

This brings us full circle: in his book "The Road to SAP", we learn in a very likeable way that Bill McDermott has never been satisfied with the status quo or been able to accept it.

He was always interested in pushing the boundaries a little further in every part of his work. He has been very successful at SAP for a number of years in his pursuit of excellence. Whether the SAP community appreciates, needs and accepts it will become clear by 2025.