SAP’s co-CEO structure is over

After US stock markets closed on Monday, SAP (NYSE: SAP) announced, via press release, that it was parting ways with co-CEO Jennifer Morgan and giving the leadership role solely to her counterpart Christian Klein. The company announces its earnings later today.

The news came as a big surprise to the enterprise software vendor’s customer, investor and analyst communities who had been bullish on the two executives. They were charged with reenergizing the 48-year-old firm and helping its more than 12 million worldwide users at over 41,200 customer sites realize the promise of digital transformation. As of today, Klein will have to do that without Morgan, who has been at SAP for 16 years.

Without taking anything away from Klein or judging the wisdom of SAP’s decision, “It’s a sad day, as the tenure of the first woman at the helm of a DAX company, was only a little over six months,” says Holger Mueller, vice president and principal analyst at Constellation Research. “Morgan is extremely capable of handling the responsibilities,” says Josh Greenbaum, industry analyst and principal analyst at Enterprise Applications Consulting.

Perhaps, at any other time, there would have been time to wait and see how things worked out. But with the oil industry tanking and the coronavirus crisis hurting industries like fashion, retail, tourism and travel, all of whom (among many others) SAP caters to, SAP chooses to put its future solely in the hands of Klein, according to Greenbaum.

“More than ever, the current environment requires companies to take swift, determined action which is best supported by a very clear leadership structure. Therefore, the decision to transfer from co-CEO to sole CEO model was taken earlier than planned to ensure strong, unambiguous steering in times of an unprecedented crisis,” SAP explained in a statement.

Thc conclusion makes sense, according to Greenbaum. “SAP is about to face some very serious headwinds , they need a very cohesive strategy,” he says, noting that Klein, SAP, and its supervisory board are all based in Germany.

Mueller notes that SAP’s approach, at this point, is pretty straightforward and more suited to Klein. “They need to get S/4HANA in an attractive enough shape for the install base and the market. Move the “6 Sisters” (SAP Ariba, SAP Concur, SAP Fieldglass, SAP CX, SAP SuccessFactors, and Qualtrics) to more or less to the same technology platform with HANA and SAP Cloud Platform. Infuse AI to make the suite intelligent and deliver on the marriage of x and o data. So now it’s all about execution and one CEO, Klein needs it done,” he explains.

Ray Wang, founder and CEO of Constellation Research, believes that other factors might be involved including that Elliott Management, which owns about one percent of SAP, could be putting pressure on SAP founder and major stockholder Hasso Plattner to improve margins. When doesn’t happen to their satisfaction, someone’s head has to roll.

Wang also surmises that it’s possible that Morgan was former CEO Bill McDermott’s pick as his replacement and that Plattner wants McDermott’s favorites gone and for the company to be led solely from Germany. “Hasso is wiping out all folks related to Bill. Abdul Reznak is the last man standing because he’s neutral,” he illuminates.

The two co-CEOs could have had differences of opinion about consolidating SAP products, according to experts, but Wang believes that leadership is blaming Morgan for missing sales goals. “Morgan may not have been pulling in the numbers for SAP, but that’s mainly because of the product’s quality, not because of Morgan.” says Wang.

He adds that, “the Germans (SAP headquarters is in Walldorf, Germany) think they can fix the problem, but the problem is their development. They are slow and not meeting customer needs. The non-Germans and cloud business group have been driving most of the revenue and have been slowed down by the Germans and thus a catch 22. Right now SAP needs better products for better sales. A co-CEO model would be better,” he adds. “ It’s a shame to take Jen out after 6 months.”

Here, Wang is not alone in his thinking. Every analyst we spoke to is sorry to see Morgan go, but that doesn’t mean they don’t have confidence in Klein. “He’s the right choice to hunker down and build fortification for what could be a rough period ahead,” says Greenbaum.

As for the decision to part with Morgan, there aren’t any applause.

“Dual leadership structures have more resilience and usually higher decision quality than single CEO teams. But there is a coordination tax, and it looks like the SAP Board wasn’t willing to pay that in the current challenging times,” says Mueller.

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