SAP Executive Shakeup Puts Focus on Building Midmarket Business

The latest executive promotions and departures show that SAP is bringing younger executives into leadership positions and that the enterprise applications company sees midmarket and cloud computing software products as essential to its future growth.

The management shakeup continued at SAP on Feb. 11, with the enterprise business software company named a new chief operating officer and elevating the executive overseeing the small and midsize enterprise product lines to the Executive Board.

Gerhard Oswald, the executive board member who managed SAP's Global Service and Support business, was appointed COO to replace Erwin Gunst, who resigned on Feb. 7 due to health reasons. Peter Lorenz, executive vice president of SME (Small and Midsize Enterprises), has been named a corporate officer.

Lorenz's promotion is a sign of the importance SAP is placing on the small and midsize business sector as the source of future sales growth, and he has some major challenges on his plate. Lorenz has been supervising the development of key SMB products, including Business ByDesign, SAP Business One and SAP Business All-in-One. He will continue to report to Jim Hagemann Snabe, who was named co-CEO on Feb. 8 along with Bill McDermott.

SAP has worked through long development cycles for these SMB products and the company is counting on them to drive sales profit growth in 2010.

SAP also reported that the Supervisory Board had accepted the resignation of John Schwarz, a 38-year IT industry veteran, who was the Executive Board member responsible for SAP BusinessObjects, the Global Ecosystem and Partner Group, and Corporate Development. "We regret that John Schwarz has decided to leave the company. He has been instrumental in achieving the successful integration of BusinessObjects in record time and helping to build SAP's market leadership in business intelligence," SAP said in a statement.

While most of the changes are predictable, the departure of Schwarz was something of a surprise, because he was seen as instrumental in the successful integration of SAP's $6.8 billion acquisition of BusinessObjects into the larger parent company, said Paul Hamerman, a Forrester Research analyst.

"The obvious implication is that he was passed over for a CEO or co-CEO position. But I think the reasons were probably a little more complex than that," Hamerman said, adding that it may have been a move to get younger executives into leadership positions. Snabe and McDermott are in their mid-40s, while Schwarz is 59 and was approaching the SAP mandatory retirement age, he pointed out.

However, there is an also an alternative view that SAP "was sort of overzealous in pushing BusinessObjects products on all of the customers" and that this added to a general feeling of discontent among many customers, Hamerman said.

Customers were already upset by hefty increases in software maintenance and support and "some felt that SAP was pushing a lot of products on them that they didn't necessarily need right now," he said.

Indeed, in announcing the appointment of Snabe and McDermott as co-CEOs, SAP Chairman Hasso Plattner said one of the top goals of the new management would be to restore trust with SAP employees, partners and customers and to "make SAP a happy company again."

The management restructuring became known when SAP announced on Feb. 7 the resignation of CEO Leo Apotheker, little more than a week after the company reported a 12 percent drop in operating income and a 9 percent drop in revenue for 2009.

Peter Lorenz's appointment as a corporate officer is recognition that he is managing an important part of SAP's business, Hamerman said.

"They have invested a huge amount of capital [in] Business ByDesign, which hasn't been successful to date," Hamerman said. Business ByDesign is a suite of SAAS (software as a service) business applications. "They have done a lot of work on it and it looks like they are going to relaunch it this year," and try to sell the suite to more midmarket customers, he said.

Business ByDesign and the two other midmarket products, Business One and Business All-in-One, all have to be successful because the best prospects for future sales growth are in this sector, Hamerman said.

Plattner has identified SAAS, cloud computing, parallel application processing, large in-memory database and the use of phones as major computer access terminals as the trends that SAP will emphasis in its future product development and marketing efforts.