Rebooting the machine Featured

9:09am EDT November 29, 2005
Three years ago, SAP America was the kid sister of its global parent, Walldorf, Germany-based SAP AG. The American unit was sturdy but still developing — a strong competitor in the integrated business software space but falling behind SAP AG in earnings growth.

“We needed a turnaround,” says Bill McDermott, who joined SAP America in 2002 as its president and CEO. “SAP America was a fledgling operation.”

The U.S. division, headquartered in Newtown Square, Pa., was founded in 1988 and was an under-performing arm until McDermott took over.

McDermott made sweeping changes in his first 100 days: He recruited a fresh executive team, ignited a customer-driven culture and emphasized SAP’s ability to customize software solutions to help grow clients’ businesses.

Today, SAP America is the world’s largest inter-enterprise software company, has double-digit revenue growth and has posted 12 consecutive quarters of revenue increases.

“With experience, repetition, focus on our core business and constantly reinventing our product through research and development, we have built what has been regarded as the world’s best business software,” McDermott says. “I believe that people want to win. My job is to get our team focused on the right opportunities, create an environment to get them excited and to be on the front line helping them win and creating an inspired, happy culture.”

Getting great leaders
When McDermott joined the company three years ago, he knew he needed a team of people who knew what to do and were ready to execute at full-speed.

“In the first days, we decided we would go for it all — go for the win,” he says. “We had to decide who had the knowledge, skills, temperament and action to put on the best performance of their lives.”

Only one of 14 members of the executive team fit this profile, so McDermott immediately launched a search for fresh, energetic leaders.

“In the first 100 days, I spent time in airports and diners and restaurants. I met candidates on Saturdays and Sundays and I started building that team,” he says. “We put attention to detail in that human capital part of the business.”

The interview process went both ways. While McDermott sought strong, passionate leaders, candidates wanted a connection with a flexible, employee-centric organization.

“People are tremendous judges of commitment,” McDermott says. “First, they ask, ‘Are you committed to me as a person?’ I think we passed that test. Then they say, ‘Are you committed to excellence — are you a winner?’”

Then McDermott asked each of them, “Are you committed to our customers?”

“Quality, customer focus and execution on behalf of the customer was built into my DNA very early,” says McDermott. “If you have the humility to serve the customer and you realize you have a job because they decide you have a job, you will become a strong force. I really focused on the customer and I built teams that focus on the customers.”

He did this by seeking out employees who believed in SAP’s client-centric vision. SAP’s culture was one more focused on technology than on providing compelling customer solutions, and McDermott reversed this by constantly communicating the importance of relating to customers and providing them value.

After a few months, a new SAP America executive team was in place and McDermott had recruited a tireless leadership squad personally committed to SAP.

“Everyone is aligned around one strategic impetus: To enable customers to be best-run businesses,” he says.

He established a people-first, high-performance culture that thrives because he pairs people with their strengths.

“We have put our people first in an industry that, I think, is immature when it comes to people,” he says. “We brought a level of professionalism and class to the way we treat our management and people.”

Rather than motivating employees through fear and greed, a common practice in the tech industry, SAP America focused on nurturing strengths so that each person can win.

“People do great things when they operate in an environment built on trust and empowerment,” he says.

By opting to build a cross-functional organization rather than a typical, corporate silo, McDermott made management accessible. He encourages all employees to bring ideas to the table — ideas focused on SAP’s customers.

“There are so many opportunities to be insular and internally focused,” he says. “But when you are extremely focused and you are worried about where that customer is going and how you’ll make them successful, everyone has something virtuous to align around.”

Getting direction
McDermott realized when he took over at SAP three years ago that a strong mission would help reposition the company for growth in its 29 markets, which range from pharmaceutical and life sciences to financial services and retail.

“I’ve seen organizations that lack mission,” he says. “People don’t know what to do. We know exactly what to do. We build solutions by industry and deliver value so our customers can better compete in the markets they serve.”

But to boost sales and position SAP as a solution provider, McDermott knew he needed to know everything about his customers. So he listened carefully during meetings with CEOs. He reached out to board chairmen and constructed SAP’s mission and vision around their needs.

“The most important thing you can do is listen to customers,” he says.

The company has built a 41 percent market share and the No. 1 position in its space through organic growth and earns customers by building relationships and listening to their needs. Sales representatives learn every nook and cranny of their customers’ businesses and become more than a point of contact.

“In this world, it is more about impact on the industry and acceleration of specialization so you can focus on your core; you own your channel and you can move new products and services through that channel,” says McDermott. “We have to help customers do that. Whether through co-innovation with our partners or organic growth with new products, we are helping our customers consolidate business around a platform that helps them integrate processes, save money on total IT costs and get their ROI leverage out of their IT investment.”

The CEOs McDermott talked to also emphasized the importance of impeccable values and admirable leaders. This is precisely how McDermott started rebuilding SAP from the top down.

“I know that leadership matters,” McDermott says. “Vision matters. Great organizations have values.”

Consulting vs. selling
With a team in place and a mission outlined, McDermott needed a strong sales pitch. He needed to build relationships that aligned SAP not just as a software provider but a trusted consultant.

“We must understand [every CEO’s] market, business and employees,” McDermott says. “What is really driving the business model? You become relevant when you know customers’ industries.”

Each member of the SAP team specializes in an industry and learns its sweet spots, problem areas, trends and growth forecast.

“If I can talk to any CEO in any industry about how we will help him or her grow revenues, improve operating margins, manage assets more efficiently and realize their potential in terms of performance management, then I become a very strategic partner.”

Executive team members understand how to scale a business and have deep technical expertise. They train employees on SAP’s important vertical markets and expect them to be fast thinkers. The rest — the details on each industry SAP serves — the staff learns by asking clients questions about their weak points and goals, and analyzing their needs so they can prescribe the right SAP solution.

“When you can teach the CEO and the board how to increase their strategic investments, you become their trusted innovator,” he says. “You can rewire their business processes, establish a fast and flexible IT business platform and help them grow again. That is our secret sauce.”

Being the master of so many different industries requires a commitment to resources.

“The company has to be on a large enough scale [to serve 29 different industries],” McDermott says. “We have been able to invest in processes, people and R&D to create the company we have today.”

The processes McDermott speaks of are built into a philosophy called value engineering — a lifecycle SAP walks through with each employee. It starts with discovery, with learning about each business. Then comes design — customizing SAP systems will provide a viable solution for the client. Next comes delivery, or implementing technology, and finally, feedback. Did the software work? Are there opportunities for improvement?

“We understand that customer’s business at the architectural level, from how they construct their IT to how they align and wire their business processes,” he says. “We know the key performance indicators that drive their business. And it’s really more about how [our salespeople] move the needle to help the customer be a best-run business.”

SAP is taking its consultative approach out beyond big business and moving toward middle-market customers. Attracting these customers is important to continuing the annual double-digit growth SAP has realized since 2002.

“We have built an entire middle-market business unit to focus on these opportunities in the U.S.,” he says.

Already, clients in this sector make up one-third of SAP’s customer base, but SAP will devote more resources and reorganizing sales units to target this market.

“We have taken our brand and down-marketed and are adding several hundred mid-market customers a quarter,” he says.

Through it all, McDermott wants to make sure he is leading by example as the company continues to grow.

“It’s important to recognize when you are a leader that this is no dress rehearsal,” he says, voicing a philosophy that encompasses his roles in both the boardroom and community. “This is the ball game, and I believe it is my responsibility to lead, set an example and show the way.”

McDermott will apply this same philosophy to seeing that SAP maintains its dominant position in the marketplace. Next year, rather than operating as a “safe, stable player,” as some media have described his organization, he wants SAP to be called a company of sustenance.

“I hope they say this is a company that has been consistent for years, and that we have continued to outpace the competition, gain market share, run a profitable organization and maintain high levels of customer service,” he says.

To do this, McDermott will make sure, just as he has in the past, that not an ounce of the organization becomes complacent.

“That is not possible under my leadership,” he says. “We will not tire. We will not tire. We will be relentless.”

After this turn-around at SAP America, McDermott will not permit a slow-down.

“We must take what we’ve done now and maintain that same hunger and same intensity and focus, so winning feels every bit as good for the next steps,” he says.

How to reach: SAP America,