Agassi's Departure Realigns SAP

The software giant's choice for CEO will be especially crucial, as it contends with slacking growth and intense rivalry from Oracle

by Aaron Ricadela

The departure Mar. 28 of SAP wunderkind Shai Agassi from the German software giant may clear up a contested line of succession to the CEO's office. But it also heaps more research and development responsibility on the outgoing chief executive and removes the company's top product guru as SAP grapples with customers' changing tech needs and competition with main rival Oracle reaches a fever pitch.

Agassi, a 37-year-old Israeli software whiz who was president of SAP's product and technology group and once a potential successor to CEO Henning Kagermann, will leave the company on Apr. 1 to start an environmental group that aims to promote the use of electric vehicles. Agassi didn't want to wait to be CEO and declined to make a decade-plus commitment to SAP, executives said.

Trouble Spots

Leo Apotheker, a German-born Parisian who was head of sales at SAP, becomes deputy CEO and heir apparent for the top job, while Kagermann, 59, inherits Agassi's responsibility for guiding SAP's technical direction. "It's a major point in history," Kagermann says in an interview. "Let's be honest—Shai had enormous influence on SAP, no doubt about it—and he helped us to change."

Change may be what's needed most at SAP. "It's a big blow to SAP," PeopleSoft founder David Duffield says of Agassi in an interview. "He was certainly a dramatic force."

SAP booked $9.4 billion in revenue in 2006 but disappointed investors in January when it reported that sales of new licenses for its software—used by large companies to manage manufacturing schedules, track inventory, and perform other operational tasks—grew just 7% in the fourth quarter, instead of the 9% it promised Wall Street (see BusinessWeek.com, 1/12/07, "SAP Sags on Slower Growth"). License sales are an indicator of future revenues, and weakness there underscores possible trouble spots in SAP's business.

New Battlegrounds

First, it needs to convince its core manufacturing customers to upgrade from '90s-era software, written in a proprietary programming language, to newer applications that use Internet technologies to talk more easily to one another and interact with software from other vendors. SAP has spent four years and hundreds of millions of dollars developing such technologies, called NetWeaver, under Agassi's stewardship.

Next, SAP has to tap into growing industry sectors such as retail and banking and emerging markets in India, China, and South America, where back-office software hasn't been widely used. Archrival Oracle has been acquiring small software companies to gain an edge in those areas.

Finally, SAP's growth prospects are tied to its ability to sell its complex software, which can cost tens of millions of dollars, to smaller companies. According to industry consultant AMR Research, sales of enterprise applications to companies with $250 million to $1 billion in annual sales will grow 10% between 2005 and 2010, vs. 5% growth in sales to large firms. "That's where the next-generation battlegrounds are," says AMR CEO Tony Friscia.