Monday, July 17, 2006

SAP's quiet achiever makes a big noise (FT)

Henning Kagermann talks softly and talks well. He can deftly translate the forest of acronyms that makes SAP's business of making and selling business software such an impenetrable affair for those who can't tell their CRM from their ERP.

"We are the engine, if you like. You need a strong engine to power everything else," he says, describing new software - ESA (enterprise systems architecture) to those in the know - that allows accounts, inventory or customer management programs made by SAP or its rivals to communicate with each other.

Without fanfare Mr Kagermann has spent the past three years steering the world's biggest business software maker through the wreckage of the technology boom. He pumped money into research, making a push to come up with more user-friendly, web browser-based software.

"Organic growth" has been his clarion call. He believes it will allow him to put more distance between SAP and its arch-rival Oracle, whose market share is still less than half thatof the German company.

With the launch of the new ESA, the software supplier to many of the world's biggest corporations hopes to win new customers in small and medium-sized companies. The target is for sales of €8.5bn (£5.9bn)to double by 2010. This represents a genuine departure.

Instead of striving to offer a computer program for every niche of business life, Mr Kagermann wants to make SAP the platform for other providers.

"There are some important companies that are strong in [sections of] the market - and we want to earn a bit of money with them," he says, pointing to deals with Microsoft (to hook "Office" into SAP software) or IBM (to do the same for databases).

This flow of clear and quiet logic is interrupted if he is asked anything personal. His crisp blue gaze lowers, as if to avoid the embarrassment of any trivial personal revelation.

Mr Kagermann does talk about the fact that he joined the company in 1982 as "something like the 86th employee" and that "everybody played some kind of ball game", in the spirit of the sports-mad founding trio, Hasso Plattner, Klaus Tschira and Dietmar Hopp. But he interrupts the reverie. "I organised a volleyball team, but it didn't last long," he says, before switching back to business: "In sporting terms, I'm not going to leave SAP a great legacy."

Is he looking ahead to life at Europe's largest software company after Henning Kagermann? For months he has refused to say whether he will renew his contract before it runs out next year.

"It's not a question that will affect our success or our strategy," he says. "A decision hasn't been made yet. The time isn't ripe."

Investors might disagree on both counts. Since taking over as sole chief executive of the world's number three software house in 2003, thecerebral Mr Kagermann has more than filled the mantle of his brilliant and sometimes rowdy predecessor, Mr Plattner.

Since Mr Plattner ceded control to his co-chief, Mr Kagermann has increased SAP's share of the market for enterprise resource planning (ERP) programs with more than one function from 35 per cent to 43 per cent, according to AMR Research.

Even though the US group spent about $19bn buying up rivals, Oracle has 19 per cent of the ERP market. In 2003, it and Peoplesoft, now part of Oracle, held 25 per cent.

Double-digit growth in annual sales and profits has become the hallmark of the Kagermann era - and hints of less-than-stellar performance rattle investors. Last week, SAP said sales of software licences grew only 8 per cent in the second quarter as big orders were held up, and its shares dropped 5 per cent. But even quarterly blips cannot hide Mr Kagermann's success.
Operating profit margin rose from 22 per cent in 2002 to almost 28 per cent last year, raising group valuation by half to €70bn. In Germany, only Deutsche Telekom and Eon are worth more.

Of course, Mr Kagermann stresses this isn't only his doing. "We're a team," he says. "That means someone can always take over when someone else goes . . . It gets really dangerous when things . . . get attached too much to one individual."

The former Brunswick University professor of physics appears to place more trust in systems than in personalities. After all, he abandoned that career to become a developer for a company that was committed to banishing the unreliable, human aspect from business.

In SAP Mr Kagermann seems to have found a company in which good organisation is more important than the one leading light. Alluding to his own career, he says it is "statistically proven" that new bosses from within a company do better than those drafted in.

This suggests his choice of successor would, if one were needed, fall on one of his six board colleagues. The wily marketing head Léo Apotheker and the enthusiastic, young development boss Shai Agassi are seen as front-runners.

But Mr Kagermann's love of systems glosses over how important his personality has become to a company that is suffering as much as it is celebrating. German workers have become restive about the pace of jobs growth overseas; union influence has risen.

The majority of the 5,000 people SAP took on last year joined foreign operations. Only 40 per cent of the 34,000 employees are now based in Germany, a quotient that will drop further as more research and development goes to the US or India.

With swept-back grey hair and raked eyebrows, Mr Kagermann carries a hint of the mad professor. But to many German employees, he is a consoling figure - more so than Mr Apotheker, a German based in Paris, or Mr Agassi, an Israeli based in Palo Alto.

That is quite a feat. Mr Plattner had for decades been a gregarious and out-spoken ambassador for the company. He was famous for public spats about strategy with Oracle's founder Larry Ellison and for playing the guitar at SAP's big customer schmoozes.

His chosen successor, by contrast, was the quiet man nobody really knew. Many industry observers wondered whether Mr Kagermann, who started at SAP as a developer for cost-control software, was the right man for a big job in a sector full of big egos.

Mr Kagermann's refusal to join the dotcom personality parade was based on the conviction that actions speak louder than words. "You influence people less by talking to them," he says of running SAP, "than through what you do."

His approach had an effect. Andrew Nelson, founder of Tomorrow Now, a small support firm SAP bought last year, says of Mr Kagermann: "He keeps it simple. He keeps the client in mind. Way too often in this industry, egos and vanity get in the way."

Ironically, the resulting anti-persona has become Mr Kagermann's distinguishing feature. He has spread a quiet confidence that has even helped calm the worst fears of German staff. The public discussion about foreign influence on SAP has died down.

Clients like this assurance - though it can exasperate. Mr Kagermann tells of a visit to a sceptical Japanese executive, who listed his needs to explain why he was not running SAP. Mr Kagermann recalls interrupting: "But we can do that . . . and we can do that . . . and we can do that."

He smiles. "I've only once seen a Japanese person get angry. They're usually such a polite people," he adds with a glimmer of mischief.

No wonder he has been able to rile Oracle executives just as effectively as the more vociferous Mr Plattner once did.
Copyright The Financial Times Limited 2006

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