What Drove McDermott’s Departure?

When news broke late yesterday of CEO Bill McDermott’s SAP departure, the earth moved a little.  The surprise came at an unexpected time, so one cannot help but ask why McDermott is leaving now.  All is seemingly rosy in his press announcements.  In typical McDermott fashion, he indicated that now is the “ideal time for the next generation of leaders to assume the mantle.”  But is it?

SAP is facing a myriad of challenges at this point in time.  There’s:

  • Executive turnover in the past year including the departure of the high-profile Rob Enslin to Google, following the exits of global services and support executive Bernd Leukert and CTO Bjoern Goerke
  • Competitive pressures from enterprise vendors Salesforce and Workday (we have recently seen Workday replace SuccessFactors in several high-profile accounts and the results of the evaluations were not even close)
  • The upcoming challenges from Google and Amazon that are right on the horizon
  • Lagging adoption of S/4HANA and the challenge SAP has given to its customers to migrate before ECC support reaches end-of-life in 2025
  • The continued organizational and technical integration of the many acquisitions SAP has made over the years.

McDermott is one of the most competitive executives – if not the most competitive – in the technology industry.  He is certainly not naïve to the challenges SAP is facing and surely knows he is ending his tenure prematurely.  My impression is that he’s not one to walk away from challenges.

In April, activist investor Elliott revealed a $1.3B stake in SAP.  SAP had escaped the attention of activist investors until then.  Buying 1% of SAP’s total outstanding stock may have meant more disruption than one might think.  Who can forget the turmoil Elliott caused at EMC a few years ago?

In an interview with TechCrunch, McDermott said:

“I’m not afraid to make decisions.  That’s one of the things I’m known for.  This one, I did a lot of deep soul searching.  I really did think about it very heavily — and I know that it’s the right time and that’s why I’m so happy.  When you can make decisions from a position of strength, you’re always happy.”

In reading these quotes a few times, I can’t help but think that this excessively cheerful departure is not all that it seems.  An upbeat happy McDermott could translate to a good negotiating position as he exits and he may be overstating SAP’s readiness for the transition, given their current state of affairs.  What’s hidden in between those words?  He may be saying that he’s not going to be beholden to the interests of an activist investor.  He’s not going to throw a hand grenade at SAP, though.  There’s just no point.

But what could possibly be the value to SAP customers right now?  With McDermott and Enslin’s departures coming back-to-back, there’s only so much an organization can sustain, especially with the challenges ahead.

With all the hype around McDermott’s announcement, I have to step back and congratulate SAP on their shrewd strategy of simultaneously preannouncing their good Q3 earnings to soften the blow.  Kudos to new co-CEO’s Jennifer Morgan and Christian Klein.

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