The Crocodile in the Room

February 12, 2010

Several years ago, the top, top people at SAP were offered a gigantic bonus if they could “double the stock price by 2010.” Not too soon after, a friend of mine who was in line for the bonus left the company for a start-up. “Why,” I asked, incredulous.

The answer was pretty simple. “It’s not possible,” my friend said.

Not possible, one might have wondered at the time. Then why are all these intelligent people pretending that it is possible. Don’t they see the crocodile in the room?

Somewhat later, I talked to another friend, who had gotten a REALLY good deal if he signed an SAP contract now, before the end of what looked to be a tight quarter. “But all they’re doing is pulling revenue forward,” I said. “That’s right,” said my friend. “They’re taking a huge hit and for no particular reason.” So, I wondered, why are all these intelligent people trying so hard to hit that quarter. Don’t they see the crocodile in the room?

Still later, I talked to an investor who was pretty pleased about SAP’s new margin targets. Henning, you’ll remember, had told the investor community that they’d finished a long, expensive project to upgrade the product, and now they could afford to put the money back into margin. “But the investment didn’t produce the results they wanted,” I said. “So now, if they increase margin by reducing R&D, they’ll be taking away from investment they have to make.” Didn’t the people at SAP see that? Didn’t they see the crocodile in the room?

It seems to me that with this week’s changes at SAP, it’s possible that somebody (Hasso?) actually sees the crocodile. You can be the most forceful, sensible, and astute manager in the world, but if you try to make a technology company more valuable without generating value, eventually, that crocodile will get hungry. You can’t do it by giving out bonuses and hoping. You can’t do it by pulling revenue forward. You can’t do it by saving when you need to invest.

The only way you can do it is to bite the bullet and start using the maintenance that people pay you to make modern products that work well, products that will actually justify the maintenance they spend AND appeal to many other people who don’t yet have relationships with SAP. And if that takes a while, it takes a while. You can’t just say 2010 or else. You have to figure out how to do it, first. And sometimes it takes a while.

Now I’m not saying that the new management can find crocodiles any better than the old management. We’ll see. But if they do see the same crocodiles that I do, and they want a recommendation from little old me, here it is. Come clean. Right now, most investors are disappointed, because they think that SAP is backing off the old CEOs promises, and they don’t know why. If you tell them about the crocodile, admittedly, many of them will run away. But others will realize that it’s a crocodile that can be tamed, and since you trusted them, they will trust you to do the right thing.

PS. If this post makes it sound as if I’m blaming Léo for lack of realism, I apologize, to you and to him. Léo was using all the levers at his disposal to do what he was being asked to do, and he was using them in an insightful way. SAP did need to reduce its workforce, improve its support, and improve its operations, and under Léo, all these things were addressed. My only point is that what Léo was doing could not address the underlying problem. But that’s not what he was charged to do.