July 22 (Bloomberg) -- SAP AG will end its dual chief executive officer structure next year, with Bill McDermott becoming sole leader as the largest maker of business-management software battles intensifying competition amid a shift in demand to Internet-based applications.
Co-CEO Jim Hagemann Snabe, 47, will join the supervisory board after a shareholder vote in May 2014, leaving the 51-year-old American McDermott at the helm, Walldorf, Germany-based SAP said after a board meeting yesterday.
Snabe and McDermott took over in February 2010 from Leo Apotheker, who was removed after failing to boost revenue amid customer and employee discontent. Over 3 1/2 years, the co-CEOs spent more than $14 billion on acquisitions to add mobile and cloud-computing technologies and accelerated a push in SAP’s homegrown database product, boosting the stock about 70 percent and giving it a brief run as Germany’s most valuable company.
“After more than 20 years with SAP, I have decided that it is time for me to begin the next phase of my career, closer to my family,” Danish-born Snabe said in a statement. “Bill is probably the best CEO in the industry. Period. It makes me proud to see him take the company to the next level, which I am sure he can,” he said today on a call with journalists.
The distribution of Snabe’s responsibilities will be discussed in the coming months, said Daniel Reinhardt, a company spokesman.
The shares fell 0.9 percent to 55.25 euros in Frankfurt, taking their losses this year to 9 percent. Germany’s DAX Index has gained about 9 percent in the same period.
SAP and Oracle Corp. have for years dominated the market for software used by companies to manage tasks ranging from payroll to customer billing. A recent shift from fixed software installations on company premises to applications that can be rented online and run on mobile devices has given rise to rivals and put pressure on SAP’s legacy software business.
Salesforce.com Inc., a cloud specialist, last year displaced SAP as the top vendor of software to manage customer relationships, according to researcher Gartner Inc.
Last week, SAP cited a slowdown in Asian demand for a second consecutive quarter as it missed analysts’ estimates for license sales, a key indicator of future income.
SAP announced the leadership plan after the supervisory board meeting at Snabe’s request, according to Reinhardt, the company spokesman. The change is subject to approval by at least 25 percent of shareholders. Co-founder Hasso Plattner, who chairs the supervisory board, has a stake of about 10 percent as SAP’s largest investor.
“I can’t find another Jim and match him up with Bill,” Plattner said on the call. “Co-CEO situations only work in certain situations with certain people.”
The move will probably strengthen the U.S. as a base for SAP’s management at the expense of the German headquarters, said Heinz Steffen, an analyst at Fairesearch GmbH in Kronberg, Germany. McDermott is based in Pennsylvania, while Vishal Sikka, the board member responsible for technology and innovation, is based in Palo Alto, California.
“Snabe was a good counterweight to McDermott, who is a pure marketing machine,” said Steffen. “Their leadership seems to be a constant upheaval.”
Ray Wang, CEO of Constellation Research Inc., said the change may not necessarily mean an end to the dual-CEO system and could presage the elevation of Sikka as SAP realizes that innovation is happening faster outside Germany.
“We wouldn’t be surprised if Vishal is named to co-CEO in six to nine months as he’s a good counterweight to Bill McDermott’s sales and business acumen,” Wang wrote in an e-mail. “Snabe has done a great job refocusing the company to verticals and industries. He’s also been seen as the diplomat within SAP. However, there is a need for faster pace of innovation and also a greater alignment with the needs of the customer base.”
McDermott joined SAP in 2002 and has led operations in the Americas and Asia before joining the executive board in 2008. Previously he worked for Siebel Systems Inc., Gartner Inc. and spent 17 years at Xerox Corp. McDermott said on the call he will spend more time in Germany and improve his German.
“I’m very committed to Germany, and I know a little about its heritage and culture and the brilliant engineers we have in Germany and the great workforce,” McDermott said, adding he doesn’t “have to make it home every weekend.”
Sanjay Poonen, SAP’s head of mobile, will leave the company at the end of this month. In May, SAP announced the departure of cloud chief Lars Dalgaard and head of personnel Luisa Delgado. At the same time, the company unified all development work under Sikka.
In October last year, John Chen, the long-time CEO of SAP’s Sybase mobile-software unit, stepped down.
Chief Financial Officer Werner Brandt, who has announced he’ll step down next year, will be replaced by Luka Mucic, the head of finances for Germany, Plattner said on the call.
SAP acquired Sybase for $5.8 billion in 2010. In 2012, it added SuccessFactors Inc., a maker of Web-based personnel management software for $3.4 billion and Ariba Inc., an online marketplace for companies, for $4.3 billion.
Last month SAP agreed to buy Zug, Switzerland-based Hybris AG to expand in e-commerce software and benefit from increasing consumption in markets such as China.
Dealmaking has become important for SAP, whose license sales fell last quarter for the first time since 2009.
SAP got its start in 1972, when five International Business Machines Corp. employees -- including Plattner -- began programming payroll and accounting software to replace traditional punch cards for Imperial Chemical Industries Plc. Plattner still wields great influence and is involved in all big decisions as well as many smaller ones.
“It’s always easier when things are going smoothly,” said Thomas Becker, a Frankfurt-based analyst at Commerzbank AG. “The market is going to view it negatively, but I don’t believe this will result in a massive strategy change.”
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