Henning Kagermann: SAP rising as Europe's answer to Bill Gates builds a software giant

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The Independent Online

"I never eat lunch. It slows you down, it makes you tired in the afternoon," says Henning Kagermann, the chief executive of SAP, Europe's answer to Microsoft and Oracle. "It took me a few years to adapt. You do it gradually, eating fruit."

"I never eat lunch. It slows you down, it makes you tired in the afternoon," says Henning Kagermann, the chief executive of SAP, Europe's answer to Microsoft and Oracle. "It took me a few years to adapt. You do it gradually, eating fruit."

Mr Kagermann's thin frame and lupine appearance certainly suggest he is serious about this. He is also serious about putting SAP on the map.

He may not be Europe's answer to Bill Gates in terms of wealth and fame but he is probably on a par with the Microsoft chairman when it comes to power and influence.

SAP is now the world's third largest software company. Many of the world's biggest companies rely on its products to make sure their businesses start every morning and finish every evening without collapsing in on themselves in the meantime.

"Without IT there is no progress," says Mr Kagermann. "You have to keep this in mind. It depends on how you measure productivity as well. Productivity per hour worked has gone up - that is due to technology spending - but it means people can afford to work less."

Since he took the chief executive's title six years ago, Mr Kagermann, 56, has helped to build SAP into one of the most recognisable if least understood business names in the world. Formed by five IBM defectors in 1972, its advertisements are now everywhere: in newspapers, billboards and airport lounges. "The best-run businesses run SAP," they chime.

He is also on the board of Deutsche Bank, Germany's biggest, as well as DaimlerChrysler, the motor giant. Add a board seat at Munich Re, one of the world's most important insurers, and his curriculum vitae makes him a polymath to rival any.

Last Wednesday he hit the headlines by sharing a platform with Mr Gates to unveil a new deal, forged between their two companies, relating to a piece of SAP kit called NetWeaver, of which more later.

SAP writes software for companies that allows them to track, record and organise their dealings with customers and suppliers, and make sense of what their own internal operations are doing.

It is about capturing data from all these sources, making sense of it and then, crucially, making it available through computer networks to the relevant people inside and outside an organisation.

Companies want to know their sales figures and profit-or-loss position on a daily basis. They want to know inventory levels, they want to know where in the world, and in which warehouses their stocks are held so they can manage their businesses on a micro scale to squeeze every last drop of competitive zeal from their organisations. They want to crunch these numbers, they want to swap them and they also want to know, when presented with invoices for instance, that they are real. SAP software does all this.

A quick look at its figures shows that the SAP story has plenty of subscribers. Although revenues fell in 2003 for the first time in a long time - €7bn (£4.7bn) instead of €7.4bn - the previous four years saw strong double-digit growth in sales, the company taking its full share of the technology boom.

Even last year's sales dip didn't stop Mr Kagermann delivering improved profits of nearly €1.9bn, up 11 per cent, thanks to a diet of cost cuts and efficiency drives.

So it is big and appears well managed but there are troubling questions surrounding SAP and every other big technology company for that matter, including Microsoft.

It is a question akin to asking the emperor about his new clothes. What is all this technology spending actually achieving? Where are the step changes in productivity that all these wonderful new systems and applications and networks should be delivering?

Is technology really giving companies competitive advantages or is it merely a cost of doing business, driven more by a fear of not being disadvantaged against the competition rather than trying to outstrip it?

And is technology actually making companies more profitable places or are they pawns in a processing-power arms race that no one can win?

"It's both. You start out, you buy technology to have a competitive advantage. The others catch up if it is available to everyone. They reach the same level of competitiveness , which they have to do. It's not to do with being more competitive it's about [the danger of] being more disadvantaged," Mr Kagermann says. "Then you have early adopters again who try and go to that next level. So you have this race."

Advantages that technology can bring these days are not just about lowering unit costs of production. There are other, more intangible benefits, Mr Kagermann adds.

More data, better presented and published faster by a company, thanks to its clever software systems, can drive confidence among investors and achieve a better stockmarket valuation against the competition.

"You can't measure this value in terms of savings in staff costs and so on. Another example is being able to bring a product to market faster thanks to IT systems. How do you measure this? It is getting more revenue but it's not about cost savings."

A year ago the Harvard Business Review published an article by Nicholas Carr, called IT Doesn't Matter. It made a lot of people who run technology companies very cross. His thesis challenges the assumption that because IT has become more powerful and ubiquitous, its strategic value must also therefore have increased.

On the contrary, argues Mr Carr. IT's ubiquity as a resource makes it less valuable. Scarcity is what makes a resource more valuable.

Allied to this is the problem that software is getting cheaper, as is hardware, making it even more of a challenge for companies such as SAP and Microsoft to stay relevant and increase profits.

So what is Mr Kagermann going to do about it? Well, its back to NetWeaver and his friend Mr Gates. In this new, post-bubble round of technology spending that has emerged this year, the sales pitch has changed.

Now the idea is to make all that technology you bought last time round work more efficiently. It's about integrating systems that companies already have and making sure they can talk to the systems you've bought from rival technology companies. That's what NetWeaver does.

And to make sure customers buy into this new idea of integration, the likes of SAP and Microsoft have to co-operate more intimately themselves.

So that's why Mr Kagermann was on stage with Mr Gates on Wednesday to unveil "a road map for deeper integration" so that SAP software will talk more meaningfully to the Microsoft Office system.

This, reckons Mr Kagermann, is the next level for those companies willing to be early adopters to gain that extra competitive edge.

The trouble is, no one can know how long that advantage will last.

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