By N Madhavan| May 18, 2016
Bill McDermott, CEO and executive board member of software services firm SAP AG, says companies that capture Asia will be the ones to run the world
The fact that he was raised in the working class neighbourhood of New York’s Long Island and, as a teen, began working in a corner deli for hourly wages (he acquired the deli later) did not deter Bill McDermott from dreaming big. He wanted to become the CEO of a company. He sold his deli and pursued a corporate career. His dream came true when he was made co-CEO of SAP in 2010 and, four years later, the German firm’s sole and first non-European CEO. Under him, the world’s largest software services company (with revenues of 20 billion euros) has got its mojo back by re-focusing on customers, and embracing innovation to deliver value. His thrust on OnPremise (SAP’s core enterprise software), OnDemand (cloud-based offering) and OnDevice (mobile strategy) has put the company firmly in line to achieve its revenue target of 26-28 billion euros by 2020. A freak accident last year cost McDermott, 54, his vision in the left eye, but that has not slowed him down. During a recent visit to India, he spoke to Forbes India about his plans for SAP and the critical role India has in its growth. Edited excerpts:
Q. Almost 87 percent of the Forbes Global 2000 companies, 98 percent of the most valued brands and 100 percent of Dow Jones top scoring sustainability companies are your customers. Where will your future growth come from?
A lot of our growth will come from growth in the same-account revenue [existing customer base] as our product portfolio is a lot broader than it used to be. If you look closely at our same-account revenue growth, based on the innovation that we have put into the portfolio over the last six years, 80 percent of our revenues are coming from businesses we were not there in five years ago. We are having an amazing up-sell and cross-sell within our existing customer base.
Q. You have been focusing on small and medium enterprises (SMEs) as well...
Yes. SMEs are an important part of our business strategy around the world. India, for instance, is the third largest startup ecosystem in the world for SAP and we have only just begun. I am personally taking the leadership role in spearheading the SME marketplace. We have to use cloud computing to enable them to grow faster. It is a big, big opportunity in India.
Q. How has the global slowdown impacted your business? Does a downturn help you?
Well, whether you are growing or you are just trying to make your business efficient and simple, SAP is very relevant. All the CEOs you talk to, in India or outside, will tell you, ‘I have to have a digital boardroom so I know what is going on in my business all the way from my supply chain to my customer relationships’. That’s why we have grown much faster than all the other large-scale enterprise technology companies. We made a bold move in the cloud [business] and have now achieved about 100 million users. The cloud is growing faster than, I think, anybody realised it would. Finally, what is really growing fast is the business network—this idea of a global economy with fragmented supply chains forcing companies to realise that they have to be digital not only within their company but also with their trading partners.__PAGEBREAK__Q. You plan to raise the share of cloud business from 11 percent to 29 percent by 2020?
Yes. Cloud business is exceptionally good. Companies can now run their entire core business in the cloud. SAP offers HANA Enterprise Cloud, which runs on a twelve-and-a-half times less hardware than other cloud-based technology and is a thousand times faster than any other data platform, so you are enabling a real-time, live system strategy. Our lines of business [various industry verticals] clouds continue to grow extremely fast because they are easy to consume, faster to value, and are the best. The most recent development is the HANA Cloud Platform as a service where you can take our data platform and bring it into your enterprise or we will run it on our cloud for you. That is going to be a super-fast growth model.
Q. Analysts tracking your company have warned of the need to balance your margins with the growth of the cloud business...
I have always believed that the market should get what the customer wants because, in the end, the customer has to win. If you look at recent earnings announcements of other companies in our space, they have announced a sharp decline in margins and operating income. In fact, they have abandoned their operating income and their core business is negative in double digits. That is because they chose to hype their growth in the cloud business at the expense of operating income. I think the more relevant way to look at is to keep your core business strong, grow your cloud business in addition to your core, and show progress on the operating income side.
Q. How open are companies to give up control over their data and move their core operations to the cloud?
They are. What is happening now is acceleration to the cloud. Customers who were, till a year ago, saying, ‘I will move something or nothing to the cloud’ are now saying ‘how can I move almost everything to the cloud’. We are heading to a strong hybrid cloud environment where customers are trying to move much of their operations to the cloud, apart from managing some legacy assets in their own data centres with perhaps a road map to move that too to the cloud. The reasons for that are simple: They are tired of buying hardware. You need a lot of people to support the hardware and recurring expenses are high. It is not very sustainable [environmentally] if you do not manage it right. Cloud offers economies of scale and scope apart from protection from technological obsolescence. Why will you not opt for it?
Q. SAP is almost unchallenged in the market. What gives you sleepless nights: Technological disruption, competition or fear of complacency?
Successful companies will always have to fight complacency. When we announced our strategy in 2010, we basically said we will help the world run better and improve people’s lives. It is about keeping the spark of innovation alive where people are in service not just to their customers but also to customers of the customers. That is why our software has to be beautiful to use, easy to consume and make their day better. The sophistication of a company like SAP to keep that promise is really not simple. It is challenging because you have to get 77,000 people to move as one.
Q. How do you keep your ears to the ground, pick up emerging trends and be ahead of the curve?
What companies like us have to be constantly aware of is the idea of a new idea, and the fact that new ideas are coming from every place. Breakthrough ideas generally do not come from within a company’s planning process. So we are looking around corners. We look at universities with young brilliant minds. We invest in startups. We are spotting new ideas that we can offer as new categories combined with existing businesses. We have put a billion dollars aside for this. It is making us relevant. For a company like SAP, which is present in 190 countries, a small idea can become a multi-billion dollar business pretty quickly. That is why I am constantly looking for the next multi-billion dollar business opportunity.
Q. SAP has been in India for 20 years. How has it been?
We continue to do very well in India and it is time to hit the accelerator. We are at an inflection point. Digital India is real and Prime Minister [Narendra] Modi has a big vision. I met with the leaders of some of the biggest and most important companies and they totally understand it [Digital India] and are behind it. I strongly believe that Digital India is only possible with an amazing collaboration and partnership between the public, private sector and the best technology companies. With the trust India has in SAP, we are uniquely positioned to do that.
Q. But India is yet to break into the top five markets for SAP...
India is one of the fastest growing businesses for SAP. It is in the top 10 in the revenue stack rank, but I keep reminding people in SAP that the curse of a business person is to compare himself to what has happened historically. There is a new world to be won and that world is Asia. Within that, there is no market more important than India. So what we have to do is redouble our focus, investment, leadership, management talent and everything we have on India. When I look back at the era between the early 21st century and the early third of the 21st century, the companies that capture Asia will be the ones that will run the world and those that miss it will be ‘also-rans’. In the next five years, India and China will be among the top five countries globally for SAP.