SAP Hits the Product Transition Wall - What Next?

What's Next for SAP?

The sudden departure of its CEO and other senior executives are symptoms of a larger problem at SAP - namely the lack of a clear strategic direction. In MGI's view, SAP is at a crossroads unlike anything it has faced in the recent past, and this crisis comes at a time when the company faces a deficit in an area that used to be its core strength - the depth of its management team. This research note explores SAP's challenges, risks, and opportunities, and outlines possible scenario outcomes and what they mean for investors, partners, competitors, and customers.

While the sudden departure of SAP AG (SAP) CEO Leo Apotheker and other senior SAP executives made headlines in February, in our view these events are just symptoms of the larger issue of a lack of a clear strategic direction at SAP. We believe that SAP is at a crossroads unlike anything it has faced in recent past. This crisis takes place at a time when the company faces a deficit in an area that used to be its core strength – the depth of its management.  SAP seems to have hit a wall in terms of its ability to manage a classic product transition from enterprise software to Software-as-a-Service (SaaS) and faces a number of key challenges in product development as well as sales and marketing. SAP’s operating efficiency, as measured by MGI Index, is low and has deteriorated in at least three years, whereas its key competitors have substantially improved. At the same time its core market for enterprise applications software is under attack from Oracle while a number of new entrants are chipping away at SAP with SaaS offerings.  The appointment of a co-CEO team to lead the company is a stop-gap measure and another management transition is likely within nine to twelve months. In the meantime, short of a compelling new strategy congruent with the level of the challenge and accompanied by measurable execution, SAP influence and share of the software market is unlikely to grow. This research note explores SAP’s challenges, risks and opportunities and outlines possible scenario outcomes and what they mean for its investors, partners, competitors and customers.

Report length: 7 pages