Snabe is to leave SAP – does it matter?

Well, the obvious answer is yes. Any (co-)CEO that drives a company positively through a difficult period and helps build the next generation of portfolio will be missed. His leadership and experience has helped keep SAP moving in the right direction, especially in a time that others have been moving in the wrong direction. Snabe has been instrumental in pushing SAP into the Cloud, despite the detriment this may have on long-term revenues. So what next for SAP?

In terms of leadership and direction, McDermott will not deviate the course unless necessary. But he may not continue in charge for much longer; his muted future direction is away from running a company like SAP and he will not want to damage a fine tenure if SAP approach is rocky waters. He sees the vision of the future SAP, but must be well aware that a future in the Cloud will not bring the revenues that he is responsible for bringing. On the other hand, transformation into a fully blown technology company would keep SAP moving in the right direction financially, particularly if HANA’s acceleration and replacement of Oracle databases gets into full swing. But in the long-term are even Snabe or McDermott the right people to make this transformation?

In his piece SAP’s Snabe out, but not yet, Dennis Howlett states his firm belief that Sikka will be the next CEO of SAP and I see no signs of why this won’t or wouldn’t be the case. Although short in leadership experience, Sikka’s new role in charge of development across SAP will be the springboard to plug the gap and prove he has what it takes to lead SAP in its entirety. This, in particular, should be part of the succession plan that Hasso has. In the long-term, Sikka’s vision, passion, and technical background should make him ideal. If he successfully transforms the development organization within SAP then his skillset should be complete. After all, Sikka understands the technology that will underpin SAP’s strategy and how this ties into big business.

Fundamentally, Snabe’s departure is a continuation of SAP transforming and evolving itself to become the leader in new technologies. It’s innovation with HANA and in the Cloud will drive this and, ultimately, changes are needed at various levels to make this happen. SAP are in safe hands with McDermott at the helm, but once he decides that it is time to move on SAP must be careful not to make the same mistakes as with previous appointments. And if all goes to plan, it is likely that it will be more of a reshuffle than a potentially disruptive move.

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Belgium: An example of Cloud changing the SAP HCM consulting market

I live in Belgium, but rarely work there. However, I have many friends in the consulting space and have been following the market closely over the last 3 years. We’re beginning to see a slowdown in the market; rates are dropping by half, the market is crowded with SIs and is saturated with contractors, and many of the big projects have all been completed. And now Cloud has gained a growing foothold within Belgium and many consultancies cannot compete with pocket size implementation rates that competition is bringing to the market.

So, is this a trend that we can expect to see in other markets in the future?

I believe it is. I believe that Belgium is an example of how the SAP HCM consulting space is going to change in other markets. The biggest factors are the shorter projects with lower costs. There is a need to bill consultants, but with SuccessFactors it will be a matter of 1 FTE – or less – on a project. The days of 20+ FTEs on a project for 150+ days will soon be over.

There is going to be a contraction in the consulting market. With less business to go around, it is inevitable that there will be SIs going under. I don’t think we’re going to see many large casualties – the likes of Accenture and Deloitte have other successful and profitable lines of business – but there are some that will simply be unable to be profitable in the Cloud. One tactic I have already seen by some SIs is using junior consultants on SuccessFactors projects to ensure profitability. However, as a long-term plan that is a flawed strategy. The value of Cloud is not in the technology, but rather in what it offers to the business. Do juniors really understand how to offer this value when they are still learning the technology?

And that leads to another fundamental mistake some SIs are making: they are treating SuccessFactors like just another niche technology, as if it was Nakisa or OpenText. By sidelining it, being reactive, and using juniors then SIs are making a recipe for their downfall. While on-premise is where the money is, the future is all about the Cloud. Not being able to proactively build a business, create relationships with the vendor and their sales executives, and not being able to provide true value will make it very hard for SIs to transition.

Having seen what is happening in Belgium and understanding the revenues that SIs need to make, I find it hard to see how many of the SIs are going to survive as Cloud becomes bigger and bigger in the SAP HCM market. With diminishing project revenues and stagnant costs, is there going to be consolidation of the markets? I can only see it going that way.