Shai Agassi Out at SAP | AMR Research

Shai Agassi Out at SAP | AMR Research

The phone call came at 5:30 a.m. PST. Could I be available for an urgent call at 10:00 a.m. with Hasso Plattner, co-founder and former CEO of SAP AG? The only other question was “have you heard anything yet?” No other details were provided.

Needless to say, going back to sleep was not an option. My immediate thought was that SAP had either made a major acquisition or a management change. I discounted the acquisition figuring that SAP would make that announcement after the close of the market, not during the middle of the day. It also wouldn’t make sense to create any distractions during the last week of the quarter.

The fact that the call was with Dr. Plattner only added to the mystery. While his presence and influence still resonate throughout SAP offices worldwide, he had stepped down from active management four years ago. Why was the call with him and not with current CEO Henning Kagermann?

The irony was that Jim Shepherd and I had to leave a meeting at Oracle’s headquarters to take the call with Dr. Plattner. Shortly before excusing ourselves, I bet our hosts that the news would be that Shai Agassi, president of SAP’s Product and Technology Group, would be leaving the firm. Mr. Agassi had been Dr. Plattner’s protégé.

Plattner to Agassi: “You’re the heir apparent”

For the next 40 minutes or so, Jim Shepherd and I talked to Dr. Plattner about Mr. Agassi’s sudden departure. Mr. Agassi had joined SAP six years ago when the ERP giant acquired TopTier, a portal vendor, for $400M. At the time, the most amazing point of the acquisition was the price, 20 times trailing revenue. Since that time, Mr. Agassi had enjoyed a meteoric rise.

Dr. Plattner said he had told Mr. Agassi 15 months ago that he planned to make him co-CEO of SAP AG, and that he was the “heir apparent.” The plans went awry last month when SAP’s supervisory board extended Mr. Kagermann’s contract two more years to May 31, 2009.

Dr. Plattner talked to Mr. Agassi about the board’s decision and told him to think about his plans during a vacation. A few weeks later, Mr. Agassi told his very disappointed mentor that he wouldn’t wait for the top spot. Dr. Plattner then told us that they discussed Mr. Agassi’s resignation which was offered to and accepted by the supervisory board. The resignation is effective April 1. Noting the date, the co-founder assured us that “it’s not an April Fool’s joke.”

According to the press release, Mr. Agassi will remain as a “special consultant to the office of the Chairman of the Supervisory Board on technology, innovation, and competitive trends.” The release also said that he would be exploring new opportunities, including “alternative energy and environmental policy issues, as well as the future of Israel.” While I have not talked to Mr. Agassi since the news, I think there is a high likelihood that he ends up at a venture capital firm, at least in the near term. This would allow him to spend more time with his family. While at SAP, Mr. Agassi had maintained a grueling travel schedule.

Odd timing with 2.5 days left in the quarter

The phone call was on Wednesday—the middle of the last week of the first quarter. This is a crucial period for SAP, as it comes after Oracle had just posted strong growth in the applications business and claimed it was closing the gap with SAP.

Naturally, our first question was about the timing of the call. Dr. Plattner explained that the news was slowly leaking out and that SAP needed to make the announcement.

We followed that with a question about Mr. Agassi’s successor. Rather than name one person, Dr. Plattner said that the company was bringing back the Executive Council, which consists of five corporate officers reporting to Mr. Kagermann. The council will be responsible for synchronizing the branding, user interface, architecture and strategy, joint repository, and NetWeaver plans around SAP’s three product lines: SAP Business Suite (formerly mySAP), BusinessOne, and the much talked about A1S line that has not been officially launched.

Executive council members include Doug Merritt (responsible for the “development of software for the business user”), Klaus Kreplin (leads NetWeaver technology), Jim Hagemann Snabe (heads SAP Business Suite), Michael Kleinemeier (heads collaboration and takes over the industry development reins from Mr. Snabe), and Bob Stutz (leads CRM).

All of the members have extensive SAP and/or applications experience. While I don’t know Mr. Kleinemeier, he had been president of SAP EMEA Central and managing director of SAP Germany. Mr. Kreplin and Mr. Snabe have been with SAP for more than a decade. The others have been with SAP for less than two years. Mr. Merritt is a former PeopleSoft executive running the human capital management (HCM) business unit. Prior to joining SAP, Mr. Stutz’s responsibilities including managing Siebel’s 21 vertical product lines.

Who will take Shai’s place?

In terms of which council member succeeds Mr. Agassi, the answer seems to be all of them, and maybe Peter Zencke, too. If Mr. Snabe moved to the United States, it would be tempting to name him as the “new Shai.” Instead, the plans are for him to remain at SAP headquarters. Mr. Merritt appears to be the key executive in Palo Alto. He has a lot of the new application initiatives including the nascent GRC (governance, risk, and compliance) unit, the joint Duet effort with Microsoft, and analytics. He also heads all of the U.S. labs. In terms of head count, though, Mr. Kreplin runs the largest development group thanks to the continued expansion of the NetWeaver suite.

As for Dr. Zencke, he is a member of the executive board, a level above the executive council. I mention him because he is leading the A1S development team. Dr. Plattner noted that 2,500 of SAP’s engineers report in to Dr. Zencke, and that he has more than 50% of the NetWeaver team.

We asked Dr. Plattner if he would be taking a more active role at the company. He said that “I will talk at SAPPHIRE, but I won’t be designing the third generation,” a reference to the new A1S line. The first two generations were R/2 and the ever evolving R/3/mySAP/SAP Business Suite.

Leo Apotheker named Deputy CEO

In the same press release, SAP named Leo Apotheker as deputy CEO. While this is kind of an odd title for a high-tech company, it seems clear that he is now the No. 2 person at SAP. Mr. Apotheker had been president of customer solutions and operations, which encompasses all of SAP’s sales and marketing.

Bill McDermott also gains more responsibility. In addition to the Americas, he is now responsible for the Asia-Pacific and Japan regions. This news delighted at least one competitor who told us that Mr. McDermott was a formidable presence in U.S. deals. He figures that the SAP executive will be less of a threat now that he has added at least 12 more time zones to his territory.

What’s the impact of Shai’s departure on SAP?

On the flight back from California, Jim Shepherd and I talked about the implications of Mr. Agassi’s departure. While Mr. Agassi was SAP’s best public speaker and the face of its technology vision, the focus shifted too much from the applications.

Here’s Shep’s take:

“I think that Shai’s interest was always technology instead of applications. He never understood that SAP’s great strength has always been its focus on business problems and business processes. Shifting the debate from functionality to technical elegance was a critical error. It leveled the playing field and allowed Oracle and the infrastructure players back in the game.

SAP was always unique in its ability to talk to, and appeal to the senior executives in a company while everyone else was relegated to courting the IT department. Shai’s obsession with NetWeaver and service-oriented architectures (SOAs) was bound to alienate a development organization that had always been oriented to solving complex business and industry problems. Even Peter Zencke has always understood that the proper purpose of technology is to address a manufacturing scheduling dilemma or support a supply chain decision—not to create a cooler composite app development tool.

I think once it gets back to a situation where application development is king and technology development is a supporting role, the compatibility issues, both social and technical, will start to go away.”

Shep is being too kind. Reducing the politics and the internal tensions will take some time. As I write this, e-mails are coming in from customers and former SAP employees weighing in on the Mr. Agassi and his NetWeaver legacy. As one person described it, NetWeaver is a “collection of non-integrated technologies with separate release cycles and QA (quality assurance) processes.” The writer could have added that development is spread all over many of SAP’s 10 major labs, too, adding to the complexity of the release management and QA processes.

How did SAP do in Q1?

By the time you read this, SAP’s quarter will have ended. Will the news of the last two weeks have had any impact on deals that were expected to close? Or, do buyers not care? What do you think Shai Agassi’s legacy will be?

As always, I welcome your comments and ideas—brichardson@amrresearch.com.