SAP Severance

The Limits of Efficiency

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SAP is changing as a company.

 

Bill McDermott is doing at SAP what he does best – selling. And his talent is being put to the test as part of a major technology shift at the Walldorf-based business software company.

Mr. McDermott, the telegenic, fast-talking American who became SAP’s sole chief executive last year, is selling the rank and file that the company’s future is in the cloud, not figuratively but technically. And he’s telling those who don’t want to learn new skill sets to look for another job.

Mr. McDermott announced plans to trim another 2,200 jobs this year, or about 3 percent of SAP’s 74,000 workforce, after axing about the same number last year from a team of about 68,000.

The severance packages are the first in its 43-year history, a sign that the company’s world-market leading business has reached perhaps a new stage as it moves its software to the cloud.

“SAP faces a very difficult situation as new developments in the cloud market and in technology have accelerated,” Robert LoBue, a professor at Reutlingen University, told Handelsblatt Global Edition. “Either area is a major challenge in itself, but both together call for courageous business-model and organizational-structure changes requiring investment and time to execute for success in the long-term.”

SAP is still in the early stages of a disruptive technology shift. The company is moving away from its highly lucrative business model of developing software that companies install on their own computers to one where they rent software via the Internet, known as cloud computing.

“I don’t see cloud computing necessarily leading to fewer jobs at SAP but to different jobs.”

Martin Kuppinger, founder and principal analyst at KuppingerCole

The traditional business model has generated a steady flow of per-seat, upfront revenue, which is further boosted through maintaining that software.

Whether the new cloud computing model will create as much revenue and profit – and even more – remains to be seen, however. Although the company’s cloud sales are growing, they remain relatively small compared to the total.

In a sign of the challenges that lie ahead, the company in January pushed back by two years its target to achieve a 35-percent operating margin to 2017.

The new cloud computing model isn’t something SAP has rushed into – the idea has been on the table for more than a decade – but it’s something customers increasingly want and the company now needs to deliver, the sooner, the better. They see the technology giving them new and better functions faster and with greater flexibility to use.

For SAP, the push to cloud computing marks a big change, as the technology demands faster development cycles, more investment in data centers, recoding software, building scale and establishing new web-based sales and support operations.

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“I don’t see cloud computing necessarily leading to fewer jobs at SAP but to different jobs,” Martin Kuppinger, founder and principal analyst at KuppingerCole, told Handelsblatt Global Edition. “New skills will be required.”

That’s also how Tobias Ortwein, an analyst with the consulting firm PAC, views the situation. “I would be very surprised to see the number of employees at SAP shrink in total,” Mr. Ortwein told Handelsblatt Global Edition. “With its Hana database, for instance, SAP has entered a new market and is creating new jobs.”

SAP is hardly the only big tech company to cut jobs amid a shift in technology. IBM, Cisco and Microsoft have been releasing thousands of employees and redeploying many more. And closer to home, Siemens announced plans last month to cut about 2 percent of its global workforce.

 


Video: An explanation of using a SAP software program.

 

 

John  Blau is a senior editor with Handelsblatt Global Edition in Berlin. He has covered the telecommuniations and IT industries for nearly 20 years. blau@handelsblatt.com

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