I had a great conversation with Henning, and while it’s not directly search-related, it was fun, and I thought you all might enjoy it too…
TITANS OF TECH
The No-People Person
SAP’s Henning Kagermann says you’ll soon run your business by remote control. Then you’ll have no one to blame but yourself.
By John Battelle, July 2004 Issue
Henning Kagermann isn’t an avid jet pilot and sailor like Oracle’s (ORCL) Larry Ellison, or a showman and provocateur like Salesforce.com’s Marc Benioff. Now the chairman and CEO of Germany’s SAP (SAP), the world’s second-largest software firm, Kagermann, 57, used to be a physics professor. And from the way he talks, it’s as if there were still chalk dust on his shoulders. But ask him about his competitors and he becomes hyperaggressive, dismissing his peers as preening chest thumpers who have lost touch with their customers. He may have something there: In the market for software that runs business operations, SAP is larger than the next two firms put together. That’s not a theoretical equation, since one of the two, Oracle, has been trying to acquire the other, PeopleSoft (PSFT) — a deal that’s been blocked by the U.S. Department of Justice on antitrust grounds. As archrival Oracle prepared for a trial contesting the ruling, Kagermann reflected on SAP’s role in the business-software market, the company’s recent flirtations with Microsoft (MSFT), and why robots will replace offshore labor.
Oracle’s lawsuit seems unprecedented. It’s rare for a company to dispute an antitrust finding in court. What’s your view?
On the one hand, even if Oracle and PeopleSoft were combined, they would be less than half our size. So we still wouldn’t have a competitor that’s close to us. But we don’t like artificial definitions of markets. It’s not a good precedent.
So there’s a part of you that agrees with Larry Ellison.
Why focus on finance and HR applications, as they did in this case? Why not enterprise resource planning, for example?
During the trial some things came out regarding merger discussions that SAP had with Microsoft. Can you tell us more about that?
Microsoft approached us, we were listening, and then they discontinued the talks. I believe they felt it was a little too complex. That’s it, that’s all. Not a story.
Hypothetically, then, is there some logic to the idea?
[Laughter] I can sit here and say nothing for 30 minutes if I have to!
The American tech industry seems to thrive on bravado. PeopleSoft’s Craig Conway, for example, has taken you on personally, accusing you of cribbing his speech material.
Why do people even listen to this stuff?
Maybe it’s more interesting to watch rich guys take potshots at each other than to talk about software.
But enterprise software is sold on trustworthiness, not glamour. All this chest pounding, it’s only for the press; it’s not for the customer, believe me.
It seems that Tom Siebel, Marc Benioff, and Larry Ellison would disagree with you. These men are well known for being flamboyant …
Yes, but what is their success in this market? Larry claims that he will overtake SAP. But just look at the facts. Who’s gaining market share? It’s all bullshit. Just look at the figures.
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Perhaps they believe customers want to go with whoever looks like a winner. Is this just an American thing?
If a person can execute on his promises, then he’s a winner. It’s a good thing that these guys very often can’t execute on their promises. When I tell somebody personally that something will work, it works.
But the general rap on enterprise software is that it doesn’t work — it’s late, it’s over budget, and it doesn’t deliver.
Look, running an enterprise is extremely frustrating. Everywhere you look, you see things you can improve. So now you buy software that helps you run the enterprise better. Will you ever be happy with the software? I wouldn’t be, any more than you’re ever happy with the enterprise.
So, do customers blame the software when they should just blame themselves?
That’s it. Because, look, software doesn’t perform miracles. Success is a combination of the software, how people are using it, and the enterprise itself. A CEO once said to me, “That’s not good; you’re blaming me back,” and he was right. If you’re the CEO of a company, you — not the software — run the company.
SAP has a reputation for being inflexible. What’s your response to that charge?
We get that a lot. And the reason is that our software is highly integrated into critical enterprise functions. And by definition, integration and flexibility are a contradiction. We once had a competitor called Baan that introduced its financial software by saying, “Our system is flexible. You can do whatever you want with it.” And I said, that is all bullshit. If your books are not right, you’re in trouble. It has to be so tightly integrated that people can sleep at night.
In other words, being inflexible forces companies to get their books in order?
That’s where I’m coming from. If your accounting is not OK, you’re out of business. For us a nightmare would be a newspaper story that said SAP’s accounting was not right. And has that happened? Never, ever, ever.
Most would agree that “flexible accounting” isn’t such a great idea, but I think your critics are referring to the process of decision-making that comes from the gut rather than rules.
People say the best decisions come from the gut, and therefore it might be difficult to automate business processes. But business is not about the complete flexibility and freedom of the individual. There are business rules: The company is first, and the individual comes second.
What’s your view of Salesforce.com’s pitch — the supposed “death of software” in favor of Web-based applications?
I don’t want to rush out and do it just to do it. I do believe there will be services or bundles of services that you can offer to clients over the Web. But these offerings will never become the backbone — the mission-critical, value-generating piece of your business.
What’s the most important trend in information technology these days?
One important trend has to do with software taking over in the real world. Software will become more and more important to coordinate various components of a business. It will be important to integrate the software that’s running the enterprise — the business — with the software that manages the real, physical stuff.
You’re talking about a new layer of software that lives outside the traditional enterprise applications that SAP produces?
Right. We don’t want to build this layer, but we want our software to talk to it. If you see what’s happening with flexible manufacturing, with robots on the factory floor, for example, we have started to connect our software directly to the software in the robots. If you think about that, it means your customer-relationship management applications talk to your enterprise-resource planning applications, and then ERP talks to the robot on the actual assembly line. So when a customer calls and orders a red car instead of a blue car …
Now wait a minute. Microsoft has an ad here in the United States showing something like that happening, and claiming it has the software to do it.
Yes, Microsoft has that ad. But its software can’t do it.
What impact would this software have on the manufacturing world?
I predicted some time ago that there would be nearly peopleless factories. I still believe we will have virtually no people in plants, yet the plants will still react in real time. I see what’s happening as we export manufacturing to China, and I ask myself, Is this the only option we have? First the Americans went to Mexico, now they go to China. What’s next — Thailand or the Philippines? It’s all because of the cost of labor. If we could have a lower percentage of labor and the rest in technology, wouldn’t we keep these plants locally and keep the investments and the infrastructure and the jobs here?
What do you think most people say your management style is?
Too much brain. Not emotional enough.
Tell me how you ended up at SAP.
I applied for a job in 1981. I liked being a physics professor, but there was no impact. [Laughter] I think, at the time, there were maybe 50 people worldwide working on the same thing as me.
Which was?
Statistical mechanics around plasma physics.
I have no idea what that means.
Exactly.
So today, would you, as CEO of SAP, hire a theoretical-physics professor to run development?
No. But they did.
Eyes on the Enterprise (Source: IDC)
CompanySAPPeopleSoftOracleEnterprise software sales, 2003$5.0B$1.7B$1.4BMarket share, 200320%7%6%Sales growth,
2002-200317%-8%8%StrengthsAccounting, manufacturingHuman resources, supply chain, retailDefense, government
John Battelle is a visiting professor at the University of California at Berkeley and author of “The Search” (Portfolio, late 2004).
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Maybe it’s more interesting to watch rich guys take potshots at each other than to talk about software.
indeed it is