Special Report - Sapphire: Kagermann's safe pair of hands

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It's pretty difficult not to like Henning Kagermann. The SAP CEO doesn't sail the biggest yacht in the world like his Oracle rival; he doesn't revel in overturning software industry holy cows like his Salesforce.com counterpart; he doesn't declaim from the applications pulpit like the late lamented Tom Siebel used to do.

What he does do is make money. Lots and lots of it. In stark contrast to so many of his rivals, Kagermann is heading up an applications software firm that's making money hand over fist. Software revenues were euro 434 million for the first quarter, an increase of 17 per cent compared to the first quarter last year.

Physically he wanders on stage in front of his customers like some absent minded professor. There's not an Aramani suit or a hawaiian shirt to be seen. But the absent minded image vanishes when he speaks and launches into a logical, thought-out discussion of the software market. It might lack the colour and charisma of Ellison or the flair and sheer cheek of Benioff, but it makes sense to the audience. Customers are left in no doubt: this is a safe pair of hands speech. And in an unstable applications market, safe is a damn good thing to be.

Kagermann sees a change in the market, particularly in relation to how companies are spending their IT budgets. Whereas IT has been used in recent years to strip our cost and inefficiency, there is now a move towards using it once again to bring about competitive advantage in a tough market.

"Back in the 1990s, 90 per cent of IT budgets was spent on just running business operations and only 10 per cent was going on IT for innovation," he recalls. "Cost cutting is not enough anymore. IT is about growing and investing for growth. No-one ever saved himself to success. Cost cutting is good, but not in the long term."

But there is still work to be done. "Growth in Europe is still behind Asia and the US," he says mournfully. "I hate that! Five years ago politicians met in Lisbon and said they had a big ambition for Europe to be the most competitive region of the world by 2010. We're still waiting for something to happen to make us the most competitive. They told us we had to spend more instead of telling us to spend more smartly. It's time we in business started to manage the situation ourselves.

"The answer is obvious. Growth will come through IT. We have shown that IT can boost productivity significantly, but productivity is not enough in itself. It's also about being more competitive against your peer group. The future of IT is not just to be an enabler of productivity, but also to be a strategic tool to increase competitiveness. We can now deliver to you the enabler to do for yourself what the politicians hoped they could do."

But according to Kagermann, although growth is back on the agenda enterprises are still operating in a very uncertain business climate. "I said two years ago that uncertainty is here to stay," he notes. "Growth is back on the CEO agenda, but we do stil live in an age of discontinuity. You can't plan for growth as you did in the past, you can't come up with a five year plan and execute. You need to have a strategic vision, but you also need to have flexibility. It is all about strategic flexibility; you have to be able to adjust your strategy to meet the unexpected.".

Businesses therefore need an IT infrastructure that is equally flexible, argues Kagermann. Conveniently enough he happens to have just what the world needs in his view: SAP's Enterprise Services Architecture strategy roadmap. This was launched in 2003 and according to Kagermann the company is now about halfway through delivering on its promise.

“Flexibility and speed become design imperatives for promoting IT to a strategic weapon,” he asserts. "Software has to be a strategic lever for businesses by embedding it in their business processes rather than be something that is bought in separately."

As he wanders off stage, the audience at the Sapphire User Conference seems satisfied. They're not fired up like they would be after an Ellison barnstorming, there weren't as many laughs as they'd have gotten from Benioff. But what they did get was an intelligent, rational pitch about market realities. “There is a new awareness among business leaders about the strategic importance of IT," concludes Kagermann. "That has changed fundamentally changed in the past two years."

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