To understand what SAP and CEO Christian Klein have achieved in 2023, we need to look at not only the stellar results from this year but also the undeniably precarious position the company was in just 3-1/2 years ago.
In April of 2020, as the full impact of the COVID-19 pandemic rocked the global economy, SAP’s business was disrupted so severely that Klein, who at the time was 39 years old and leading his first quarterly earnings call as CEO, was unable to offer guidance on the company’s future prospects.
Get the full story behind SAP CEO Christian Klein being named Cloud Wars CEO of the Year from Acceleration Economy Co-Founder Bob Evans in this exclusive FREE report, available for a limited time.
A few months later, Klein had to convince cofounder and chairman Hasso Plattner that SAP needed to fully commit to a cloud-first strategy and also, in parallel, revise its financial guidance significantly downward to account for the different revenue-recognition models in the cloud. Plattner agreed in spite of his full awareness that his sizeable holdings in SAP shares were likely to get battered.
“We need to have our value story right for the customers.”
SAP CEO Christian Klein, speaking to financial analysts in the depths of the COVID-19 pandemic.
And after Klein disclosed that new cloud-centric financial guidance during the Q3 earnings call in October 2020, SAP’s market cap did indeed plummet, falling overnight by more than $50 billion, with Plattner himself suffering an overnight on-paper loss of about $2.4 billion.
As a consequence, packs of ankle-biting hyenas with no real understanding of the situation began howling for Klein’s scalp as short-sighted and uninformed doomsday scenarios began to swirl for both the then 40-year-old CEO and the iconic software company.
But Klein persevered, refusing to compromise for calls to postpone or slow down or dilute his aggressive plans for SAP to commit wholly and unconditionally to the cloud. Klein’s resolve was surely buttressed by Plattner — not only the SAP chairman but also Klein’s mentor during his 24 years at SAP — who, in the wake of the collapse in SAP’s share price, promptly purchased $300 million of the bargain-priced stock and publicly reaffirmed his confidence in Klein.
(You can check out my exclusive 25-minute video interview with Klein here.)
In recognition of Klein being named Cloud Wars CEO of the Year, Plattner shared this comment with me via email about the man Plattner brought into SAP 24 years ago as a 19-year-old intern.
“Christian is exactly the CEO SAP needs at this critical watershed moment, as AI fundamentally reshapes the technology and business landscapes,” Plattner said. “His vision, courage, and decisiveness are evident in the many successes we’ve celebrated during his tenure as CEO, most notably in SAP’s cloud leadership. This will ensure the company capitalizes on the strong foundation of the past 50 years.”
In my video conversation with Klein, he shares a couple of priceless anecdotes about Plattner — one outlining a tough-love lesson, and one describing the ultimate expression of trust. You can see both of those in the full video interview.
“Klein’s vision, courage, and decisiveness are evident in the many successes we’ve celebrated during his tenure as CEO, most notably in SAP’s cloud leadership.
SAP Chairman Hasso Plattner
I recall that I got my first sense of that “courage and decisiveness” back in mid-2020 when, during the company’s Q2 earnings call and three months before he publicly revised SAP’s financial outlook downward to account for the move to the cloud, Klein responded to a financial analyst’s question by suggesting the analyst should “Be real.” Here’s the exchange as recounted in my July 28, 2020, analysis headlined “In Dangerous Times, SAP CEO Christian Klein Makes Clear: I’m in Charge” — and bear in mind that external factors such as “infection rates” were ravaging the global business marketplace:
Analyst’s question: “I mean, your unchanged guidance for 2020 essentially assumes no meaningful acceleration in the second half. Now, I know you had said that you anticipated the environment to sort of progressively improve. So, is it just you being conservative?”
Klein’s reply: “But on the guidance, let’s be real here. I think we are very confident now based on how we have ended the first half year, but this is not yet the time to frolic or break any champagne bottles or anything like that. Let’s not forget, while the guidance assumes a continued improvement of further demand environment, we cannot take this for granted necessarily. There is still substantial uncertainty in the system. What about the development of infection rates? Is there a risk of a second lockdown? I think nobody can rule this out at this present time, even though everybody is hoping, of course, that it will not occur.
“And let’s also not forget that the seasonality for software licenses is becoming much larger in the second half year with the Q4, in particular, that has a much higher weight on software licenses. And given that uncertainty, I think it is absolutely understandable that we don’t want to get ahead of ourselves.
“We are glad that we did well in Q2, better than we expected ourselves. But that is not a guarantee for success in the second half year. We need to have our value story right for the customers.”
That, I believe, was a defining moment for Klein, when in the face or intense and relentless pressure to talk about big growth that SAP customers at the time were simply unwilling to deliver, the SAP CEO instead stayed fully committed to his top priority: “We need to have our value story right for the customers.”
And clearly, SAP’s 440,000 customers are embracing the innovation and cloud and AI story that Klein and SAP have fashioned. I reached out to a couple of SAP customers for their perspectives on what Klein has meant to their companies:
“At Hanesbrands, technology is a competitive differentiator,” said CIO Subra Goparaju. “SAP’s transformation under Christian Klein has led to a number of new offerings, including RISE with SAP. For us, this has been a catalyst to productivity, removing barriers to innovation and helping us strategically position our business investments for the future. SAP is helping our fashion brand realize its full potential and stand apart from competitors.”
And this from Cintas CIO Matt Hough: “SAP is the partner of choice for Cintas. They support our growth so we can meet our commitment to our customers. Under Christian Klein’s leadership, SAP continues to accelerate our business with its technology and strategic advice, helping us anticipate the needs of our customers.”
(You can my exclusive 25-minute video interview with Klein here.)
In addition to winning legions of supporters among SAP’s vast customer base, Klein has also significantly expanded SAP’s strategic relationships with leading cloud vendors including Microsoft, Google Cloud, and AWS.
Google Cloud CEO Thomas Kurian offered this gracious assessment of Klein for this article: “As organizations of every kind are looking to harness the value of data, AI, and the cloud, we at Google Cloud have been excited to expand our strategic relationship with SAP to meet those customer expectations. Christian Klein is a passionate advocate for helping customers, and I look forward to working even more closely with him to help those organizations innovate and thrive.”
And Now, The Payoff
Today, Klein and SAP are wrapping up a highly impressive 2023 that will see its cloud business finish the year with cloud revenue up about 23% to somewhere in the range of $14 billion and strength on multiple fronts:
- its flagship ERP business, now led by S/4HANA Cloud, has grown at well over 70% for the past several quarters;
- its Business Technology Platform, which has brought enormous value and enhanced capabilities to customers by unifying SAP and third-party apps and solutions on a single platform, is approaching $2 billion in annual revenue and growing at more than 40%;
- its RISE “business transformation as a service” program has greatly simplified and accelerated customer journeys to the cloud and given customers much more choice and control in mapping that journey;
- its ecosystem business is stronger than ever and has become a force-multiplier in helping SAP’s 25,000 on-prem customers move to the cloud;
- its aggressive leap into the generative artificial intelligence (GenAI) Revolution with its Business AI portfolio, capped by its recent introduction of the Joule copilot, should spark additional growth;
- its relentless drive to make not just low-code but no-code development a reality is pulling in new cohorts of users; and
- its expansive industry-solutions business is leveraging SAP’s vast ecosystem and is fully embracing co-creation across customers and partners as well.
Speaking of that powerful ecosystem, here’s what the chairman of PwC Network, a major SI partner, had to say about SAP under Klein’s leadership: “Digital transformation remains pivotal to the long-term success of organizations in an increasingly interconnected marketplace,” said Bob Moritz. “SAP has been instrumental in helping joint clients of PwC and SAP around the world achieve their transformation, efficiency, and innovation goals in areas including customer experience, digital operations, finance, and HR transformation.”
A Few Highlights from My Interview with Klein
I recently sat down with Klein in SAP’s Washington, D.C., office and we discussed everything from a lesson Klein said he’s learned from a TV show — “be curious, not judgmental” —to a tough-love lesson from Plattner to the mindset he had to develop a few years ago when he had to lead his way through a truly tumultuous situation.
Klein also disclosed, in a very understated way, an extraordinary detail that reveals a great deal about our CEO of the Year: Back in late April 2020, when he was 39 years old and had just been appointed as SAP’s sole CEO, Klein had to prepare for not only his first earnings call amid worldwide turmoil brought on by the pandemic.
He also was dealing with an ever more-important development: the birth of his daughter, Emma, on the same day as that momentous earnings call. Talk about gaining some perspective!
Back on the business front: As SAP’s cloud story has unfolded, the buying public’s confidence in the company’s future growth prospects has soared, with SAP’s market cap more than doubling in the last 14 months from $79.12 in late September 2022 to $160.36 on Dec. 1 as shown in the graphic below. SAP’s market cap of over $187 billion is right on the verge of its all-time high, and I sure would love to hear from those know-nothings who just a few years ago were screeching for Klein’s scalp!
So from that troubled time for SAP almost four years ago, Klein has engineered what I believe will be recognized as an all-time classic business turnaround, and has reshaped SAP’s cloud business into one of the fastest-growing players in the greatest growth market the world has ever known.
Congratulations, Christian, on a job very well done, and for being the Cloud Wars CEO of the Year for 2023!
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