SAP CEO Bill McDermott Unexpectedly Departs

The SAP partner ecosystem will remain a key priority for the company’s new co-CEOs Christian Klein and Jennifer Morgan, who today took the software giant’s helm in wake of Bill McDermott’s unexpected decision to step down as chief executive.

SAP’s Jennifer Morgan

SAP’s Christian Klein

On a conference call this morning with analysts to discuss the abruptly announced changing of the guard, Morgan, a 15-year company veteran and president of SAP’s cloud business, said partner growth and alignment are one of three top priorities.

“We have the most expansive partner ecosystem which we are excited to continue to build and evolve in new ways with new communities,” said Morgan, during prepared remarks on the call, alongside Klein and McDermott. “We have long-standing partners and new partners looking to go to market together for SAP.”

McDermott, who joined SAP back in 2002 at the bottom of the dotcom crash when the company’s future was in question, has served as CEO and previously co-CEO over the past nine years. As SAP’s TechEd Barcelona conference concluded yesterday, the company issued the surprise announcement of McDermott’s departure, effective immediately. McDermott will serve as an adviser through the end of the year, although he didn’t announce his future plans. “Even as I am retiring my SAP responsibilities, I am of course opening the door to a new chapter of my own journey,” he said.

SAP’s Bill McDermott

During this morning’s investor call, McDermott said that he had recently decided not to renew his contract with SAP and informed chairman and co-founder Hasso Plattner of his decision. As part of a succession plan created a year ago, SAP had already determined that Klein, who was chief controlling officer and has worked his entire career at SAP, and Morgan would take over as co-CEOs in the event of McDermott’s departure for any reason.

“Well, as some might say, what must be done eventually should be done immediately,” McDermott said on the call. Apparently looking to show that the transition isn’t tied to forthcoming negative financial news, SAP issued a preliminary Q3 2019 earnings report, which projected total revenue for the quarter rose 10% in constant currencies with cloud revenues up 33%. Cloud bookings were even higher, 38%, McDermott emphasized. “This is significantly faster than growth by many other stand-alone cloud companies,” he said.

SAP shares rallied after the announcement. Still, SAP’s profits and stock price have declined compared to the company’s peers in the industry. Earlier this year, hedge fund giant and activist investor Elliott Management acquired a $1.3 billion stake in SAP. Shortly thereafter, SAP announced a target of 2023 to improve operating margins by 5%. In yesterday’s preliminary Q3 release, the company reported a 1.5% (in constant currency) operating margin improvement.

“This is what you’ve all been waiting for and now it’s here,” said McDermott, insisting that Elliott Management had no role in his departure. “Elliott Management has been an excellent investor and an excellent adviser,” he told CNBC this morning. “We have many excellent investors and advisers and Elliott has been a total…

…positive. I’ve enjoyed my interactions with them very much. That might be contrary to what some people have experienced but that’s my experience.”

Moving forward, SAP faces some challenges. “Jennifer and Cristian will no doubt have far-reaching impacts on the traditional SAP partner community as they need to rapidly evolve their offers, marketing and route-to-market strategies to effectively engage the next generation of solution buyers who are primarily business buyers and millennials,” said channel industry analyst Janet Schijns, CEO of JS Group.  “SAP is long a bedrock with IT buyers and the IT channel faces a true challenge in making this evolution and become a relevant digital firm in a changing market.”

Kevin Gilroy, who led SAP’s global channel organization from 2010 to 2017, said the company has made the right moves in its partner organization this year. Notably, SAP earlier this year named Karl Fahrbach, as the company’s first chief partner officer. Gilroy noted that Morgan played a key role in the naming of Fahrbach as chief partner officer. “She went with the next-generation person,” Gilroy said. “That is just another telltale sign to me that she supports the channel and believes in the channel.”

During his tenure at SAP, Gilroy, who now leads channel advisory firm Gilroy Associates, said he had worked closely with Morgan. “There were deals that I worked together with her on and it was very clear to me that she really understands channel,” Gilroy said. “When we had some channel conflict back then, she sided with the channel because she understood the short-term win is not good for the long- term SAP channel relationship. She understood that concept.”