SAP co-CEO Morgan departs, leaving Klein to fly solo

Enabling decisive decision-making

Morgan's departure, which was announced just prior to SAP's first quarter earnings call, may be a case of the company streamlining the top level management ranks as the economic waters get choppy because of the COVID-19 pandemic.

Christian Klein

"The official line, which has a good degree of plausibility, is that there are going to be tough times ahead, so having one clear executive responsible makes sense," said Andrew Bartels, vice president and principal analyst at Forrester Research. "The track record of co-leadership of companies has not been terribly good, hence it may not be terribly successful in times of stress because it's hard for two smart, high-powered, capable people to agree on everything."

The co-CEO model can work if a company can balance different sets of issues during a growth period, Bartels said, but it may not work if a company faces stress and needs to be decisive.

Indeed, SAP has relied on the co-CEO model in the past. In 2010, McDermott and Jim Hagemann Snabe were appointed co-CEOs and were often seen as having distinct responsibilities -- sales and product development, respectively -- not unlike Morgan and Klein. Four years later, McDermott took on the sole CEO role and Snabe joined the supervisory board. One noticeable difference is the breakneck speed at which the transition to a sole CEO is playing out: Snabe's departure was announced 10 months in advance, whereas Morgan will exit by end of month.

The move was likely made in the midst of the COVID-19 crisis to remove friction in decision-making, said Andrew MacMillen, research analyst at Nucleus Research.

"Customers now are valuing agility and the ability to respond quickly to changing business scenarios, and the ability to do that is entirely precluded by having two different CEOs who probably both need to sign off on whatever decision the company makes," MacMillen said. "Moving back to the solo CEO model is very much a product of adapting to what the environment is calling for."

Decisive management style needed

SAP has a deep bench of capable executives, exemplified by both Morgan and Klein, but the company's board structure makes it hard to move forward, said Joshua Greenbaum, principal with Enterprise Applications Consulting.

SAP challenges play to Klein's strengths.

"Crisis or no crisis, sometimes it takes a little longer to make decisions than anyone wants and, in particular, when you contrast with the American management style where you have strong CEOs -- for better or worse -- who are able to move forward much more quickly without having to build consensus," Greenbaum said. "You want to be able to pivot a little more quickly and, to the extent that having a single CEO allows that to happen, that's definitely a good idea."

Although why Klein was chosen to lead as sole CEO over Morgan is unclear, his background in products may be an underlying reason, said Jon Reed, analyst at enterprise computing research and news site Diginomica.com.

"Klein is more of a product guy and a lot of SAP's problems right now are, in my opinion, product-related," Reed said. "He has honed in on a lot of those things, like about a unified data platform. He's made some vows there to clean that up and get all these applications on the same platform. SAP challenges play to Klein's strengths."