What do SAP leadership changes signify for company strategy?

Big changes are afoot at SAP, and the leadership team simplification is one of the most telling signs of what's to come.

When Bill McDermott departed as CEO of SAP in October 2019, the company reverted to its co-leadership structure, promoting both COO Christian Klein and regional president Jennifer Morgan to the role of co-CEO. Just six months later, the company again shifted gears, doing away with the co-leadership model and appointing Klein to the sole leadership role at SAP. At a time when the world is full of uncertainty, SAP has certainly been no exception.

What does all of this mean for SAP customers? To most observers, it suggests that SAP is going back to its roots -- returning to its heritage as a German engineering company with deep expertise in business processes. If that is true, it will likely mean a renewed commitment to the applications side of the business, with a potential for some shift away from platform infrastructure. It could also portend a move away from co-innovation with partners, and a return to SAP's historical approach of building feature-rich applications in-house.

Historically, SAP has been the clear leader in business applications for large enterprises. Over the past decade, the company has made efforts to establish itself more firmly in the platform market. McDermott's tenure at the company was characterized by big, bold initiatives, including the launch of SAP's HANA in-memory database and an aggressive push toward the cloud.

SAP's emphasis on cloud has fallen short of expectations, though. SAP is encountering resistance as it pressures customers to migrate to cloud applications. The company has also retreated from its efforts to compete with Amazon, Google and Microsoft in the cloud platform market.

All of this suggests a return to the things that made SAP successful in the first place: business applications. In a recent interview, Klein affirmed that SAP "must own the application layer." He was quick to note that SAP must also be a leader in platform. Nevertheless, there is a clear indication that Klein intends to play on SAP's historical strengths.

Over the past two decades, SAP has also become considerably more partner-friendly. In the past, the company was plagued with an internally focused mentality that many observers felt held the company back. As SAP gained a foothold among smaller customers and as it made multiple acquisitions, the company developed a competency for managing partner channels and relationships. In turn, the company developed a more open posture with regard to non-SAP technology.

That could change.

Many industry watchers have predicted that the company will again turn inward. It will likely become less open to partnership and co-innovation, less aggressive in its acquisition strategy and more likely to develop new products in-house. Indeed, Klein has indicated that SAP must take the lead role in customer relationships, suggesting that the role of partners must be secondary.

Existing customers should continue to watch carefully as SAP clarifies its direction. If the company chooses to dial back its partnering strategy, customers may feel some negative effects as fewer resources are allocated to support those partners. Customers should also exercise caution around new SAP products or initiatives. The company has a rich history of innovation, but abrupt changes in direction can lead to stalled projects and dead-end implementations.

As the business environment stabilizes, and as SAP's new leadership has time to roll out changes, the road ahead should become clearer for SAP customers.