SPIEGEL Interview with SAP CEO Leo Apotheker 'We Have to Measure Ourselves Against Microsoft and Oracle'

Leo Apotheker, the new CEO of Germany's SAP, discusses software in times of crisis, his opposition to government bailouts and charges his company has an arrogant corporate culture.

SPIEGEL: Mr. Apotheker, you are taking the helm of Europe's biggest software company in the midst of an economic crisis. Software sales declined by a third in the first quarter. Did you imagine getting started in your new position this way?

Apotheker: The timing for taking office under perfect circumstances certainly could have been better. No one predicted an economic crisis of this magnitude. But I have been with SAP for a long time, and we have also weathered earlier crises.

SPIEGEL: In later January, your company decided to cut jobs for the first time in its history. About 3,000 of the 51,500 employees will be let go. Travel budgets are being cut and expenses trimmed. What does this mean for a company so accustomed to success?

Apotheker: These are indeed extremely difficult decisions. Job cuts simply did not fit into SAP's worldview. As a result of our strong growth in the past, we have always hired new employees slightly ahead of schedule. This meant that new employees were always very well trained and thus able to carry forward our course for growth.

SPIEGEL: And this generous planning became a problem as a result of the crisis?

Apotheker: The downtown last fall came so quickly that we were forced to react immediately. We spent many a night discussing the situation. In the end, the board agreed that it would be better, and more equitable for employees, to pull the emergency brake in time, so as not to jeopardize the whole company.

SPIEGEL: That seems a bit exaggerated for a company that boasts roughly a 25 percent return on sales. You can hardly claim that the company is on the verge of going under.

Apotheker: Everything is relative. The question is: With whom are you comparing yourself?

SPIEGEL: Very few companies are as profitable as SAP. Deutsche Bank CEO Josef Ackermann, for example, was sharply criticized for his plan to achieve a 25 percent return on equity.

Apotheker: We have to measure ourselves against the competition. Those companies are called Microsoft and Oracle, and they make significantly more money than we do. If we don't want to become a takeover candidate, we have to be able to play in that league. It's also what our customers demand. Only a strong SAP gives them the confidence that the software they have installed within their companies will continue to be developed in the long term.

SPIEGEL: Is the cost-cutting plan that has now been approved enough to keep SAP strong?

Apotheker: Who can provide guarantees nowadays? All I can say is this: No further cost-cutting plans are in the works at this point.

SPIEGEL: And the headquarters in Walldorf, Germany are not -- as some employees fear -- up for negotiation?

Apotheker: Of course not. However, Walldorf cannot and may not be the fixed star around which everything has to revolve. We are a global corporation with customers around the world. We achieve about 80 percent of our sales outside Germany. But our roots are in Walldorf, and we don't want to cut them off. Otherwise we'll lose our identity.

SPIEGEL: You describe yourself as cosmopolitan. How does it feel, working in a town in southwestern Germany?

Apotheker: I have been living in Heidelberg for some time now, and it's a very nice small city. But sometimes, when I sit on my balcony in the evening and look down at the Neckar River, I think to myself: Where is the rest of the city?

SPIEGEL: Life is a little different in Paris, where you have your main residence.

Apotheker: Of course, but Paris is ultimately just a conglomerate of many villages.

SPIEGEL: Almost simultaneously with your predecessor, the physicist Henning Kagermann, other senior members of the SAP board are leaving the company. Your roots are in sales. Is the era of dominance by engineers over?

Apotheker: We are taking control of the company at a time when several important changes force us to seek new answers. We are experiencing the global economic crisis and are rushing headlong toward an environmental crisis. At the same time, a generational shift of sorts is happening in society. For the first time, we have a generation entering positions of leadership that grew up with computers and the Internet, and for which the virtual world is the real world. SAP must also adjust to all of these developments. In this regard, a new era is beginning.

SPIEGEL: Will the sale of products under salesman Apotheker be more important than the development of software, a concern recently voiced by SAP co-founder Klaus Tschira?

Apotheker: The enthusiasm for innovative technologies and software possibilities remains unchanged in the executive board. However, the market has changed. In the past, there were relatively long product cycles for software. These cycles have accelerated rapidly and, at the same time, customer demands have risen considerably. That's why we have to become even faster -- and better.

SPIEGEL: You had planned a particularly speedy market launch of Business ByDesign, or ByD, a small and mid-sized business software that was announced with great fanfare almost two years ago. About €400 million ($296 million) was invested in the project, and yet the software is still not ready for the market.

Apotheker: We did indeed invest a lot of money, as we still are, because ByD is not just a new product. In fact, it provides us with a completely new business model as a service provider ...

SPIEGEL: ... which is intended to pave the way for SAP's necessary expansion from large companies to small and mid-sized businesses. Why has this been so difficult?

Apotheker: ByD is software that will also allow smaller companies to perform virtually all of their business-related tasks. But this software will not run on mainframe computers, as in the past, but will simply be installed and maintained via the Internet, and it will be available on every office PC. To be able to offer this service around the clock, 365 days a year, at reasonable prices, we had to do more than completely reorganize sales. We had to provide the necessary storage capacity in our own computer centers and those of our partners, as well as create the necessary network structures.

SPIEGEL: But that's something you could have known two years ago.

Apotheker: And we did know it. But we did not expect that we would have to fine-tune the model so much to make it profitable, not just for our customers, but also for us.

SPIEGEL: How can a company that sells its customers planning software, among other products, miscalculate so glaringly in its own business?

Apotheker: As the executive responsible for sales at the time, I sought to convince the executive board that we had to bring the product to market quickly. That was a mistake, but we learned from it and rolled up our sleeves.

SPIEGEL: So far, the program has only been in trial operation with about 100 customers.

Apotheker: We have made a lot of progress in recent months. We are a lot further along today than at the beginning of the year. We now have a realistic timetable to resolve the remaining problems during the course of the year. For this reason, I assume that we will bring ByD onto the market in the first half of 2010.

SPIEGEL: You have just taken 800 of a total of 2,600 developers off the project. Isn't that more indicative of a slow exit?

Apotheker: That's the wrong interpretation. The fact is that we simply had too many people working on the project, which made everything even more complex. Now the project is organized more effectively. And the 800 developers, armed with a wealth of knowledge about ByD, can work more productively elsewhere.

SPIEGEL: To be able to adhere to your growth objectives, you recently announced plans to significantly increase support fees, triggering a wave of indignation. Were you taken aback by the outrage coming from prominent SAP customers in Germany, like Miele, Bahlsen and Jenoptik?

Apotheker: The timing may have been a little unfortunate, in retrospect. If we had anticipated that the global economic crisis would erupt right afterwards, we might have taken a different approach. The fact is, however, that we drew attention to the issue because we are convinced that support should be tied much more closely to the creation of value by customers. That's why we developed this fundamentally new support model, for which we will adjust fees to standard market prices in the course of the next seven years.

SPIEGEL: In other words, those who make a lot of money with SAP software should pay more for support?

Apotheker: When you consider the amount of influence software has in companies today, the old support models are completely outdated. It's as if we were doing maintenance on a steam locomotive, even though it became an aircraft long ago. That's why the model had to be changed.

'We Are the only Player in the Industry to Tie Maintenance Costs to the Creation of Value by the Customer'

SPIEGEL: It isn't exactly a subtle approach, unilaterally terminating contracts. Wasn't the uprising a foregone conclusion?

Apotheker: Uprising is a big word. I can easily understand that a customer would find it offensive or even arrogant when contracts are terminated for legal reasons. We corrected that. But this discussion with our customers allowed us to achieve something revolutionary: We are now the only player in the industry to tie our maintenance costs to the creation of value by the customer. So far, no other company in the world has taken this step.

SPIEGEL: Weren't you forced to take it?

Apotheker: We were not forced. We had a good discussion ...

SPIEGEL: ... and a painful one.

Apotheker: I don't see it that way. The upshot is that for the first time in the history of this industry, there is an agreement between the worldwide community of users and a software manufacturer, an agreement that stipulates clearly defined criteria that must be achieved before support prices can be increased. We are proud of this, but we also have our customers to thank. We would only have exposed ourselves to charges of arrogance if we had gone forward with the plan without making any compromises.

SPIEGEL: Arrogance is a word that is often mentioned in the same breath with SAP. In surveys, IT managers consistently complain about the arrogance of SAP employees.

Apotheker: I don't believe that SAP is arrogant. The customer is the be-all and end-all for us. The fact is that SAP plays an enormous role in the economy. We are aware of this responsibility and we believe in our success. But this should never lead to our coming across as overbearing.

SPIEGEL: What is the importance of software in the crisis?

Apotheker: It is becoming many times more important than before, hopefully boosting SAP's role as the world market leader. The crisis has made it strikingly clear just how tightly interconnected the world is.

SPIEGEL: There are those who believe that that is precisely the problem ...

Apotheker: Naturally, interconnectedness has its drawbacks. But it can be used in positive ways. It can help us come to grips with our problems. We are all talking about environmental protection and thinking for the long term. Take, for example, the energy supply or the consumption of natural resources. All of these things can be managed more effectively by using software. It will take time before we discover a new source of energy. In the meantime, we should optimize our consumption. Software can do this.

SPIEGEL: But who will do the programming in the future? For years, there has been a dearth of qualified computer scientists in Germany.

Apotheker: We try to get kids excited about the industry by sponsoring, for example, intelligent games for talented young people. And we also have to do something to get more women interested in our business. For mysterious reasons, computer science isn't very popular among female students. I don't really understand why.

SPIEGEL: Perhaps the IT world is still too much of a macho environment.

Apotheker: That's something we happen to be studying at the moment. Besides, we also hope that the crisis will benefit us in terms of staffing. In the past, anyone who knew anything about mathematics was lured to London or New York. The big banks were our biggest competitors in the struggle to attract young engineers. That is likely to change gradually.

SPIEGEL: You are constantly asking politicians to improve the basic conditions for your industry, in the form of tax breaks for research and development, for example. Now you are forced to look on as the government pumps a lot of money into ailing, aging sectors. Should IT be subsidized by the government?

Apotheker: SAP and our entire industry are not in favor of subsidies. I, too, would consider it preposterous. But I do think that it's absolutely necessary to establish improved fiscal conditions for innovation. And it is possible to target support for cutting-edge research. The annual IT summits are a good example of successful cooperation between industry and politics.

SPIEGEL: We would like to conclude with a highly personal question. The Nazis murdered the majority of your Jewish family. How do you feel today, as the CEO of one Germany's largest companies?

Apotheker: Of course, I cannot completely ignore what happened. But my parents raised me to believe that we cannot transfer the guilt of fathers to their children. We cannot forget, and yet we can make amends. That is how I live my life, and it's why the subject has no effect on my work -- especially not with a cosmopolitan company like SAP.

SPIEGEL: Mr. Apotheker, we thank you for this interview.

Interview conducted by Klaus-Peter Kerbusk and Michaela Schiessl.
Die Wiedergabe wurde unterbrochen.