THE SOFT EDGE: WHERE GREAT COMPANIES FIND LASTING SUCCESS
AUTHOR: Rich Karlgaard
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Not that long ago, the rap on SAP, the German-headquartered software giant, was that it had fail-safe software, but you had to reengineer your entire company to use it. Perhaps that thinking had some basis, but the SAP of today is a profoundly different company than it was just five years ago. And the most striking change has occurred in the use of product development teams.
Of SAP's 65,000-person worldwide workforce, some 20,000 are product developers. These are the people who design, develop, code, and package enterprise-level software products and services. And those 20,000 people are spread around the globe. They work across borders, cultures, and beliefs. But to stay ahead of today's ever-present competition and disruption, particularly of the cheaper software-as-a-service (SaaS) kind, SAP leaders knew they needed to cut their product development time from 14.8 months to approximately 6 months. And do it within three years. Think about that: cut the product development time by almost 60 percent in a company with a lot of legacy to protect - 65,000 employees, 20,000 developers, $16 billion in revenue, and a $90 billion market cap. No easy feat.
"When I thought about where SAP needed to go," Jim Snabe (then co-CEO of SAP) explained to me in 2013, "I didn't look at our main competitors who were our size or bigger. Instead, I looked at the small companies out in Silicon Valley. We visited a number of them, including gaming software companies, where we saw the agile development methodology, which is basically prototyping and fast integration with customers."
Snabe realized that the real challenge, the lethal disruption, to SAP would come from below and not from peers like Oracle and IBM. So he looked at those small, nimble companies and asked himself, "How do we match their speed? How do we get to six months?"
Snabe went radical. He took his management team and all of SAP's heads of development on what he called a "leader's quest." During this time, they visited other large companies in different industries in order to gather new ideas and gain inspiration. "We visited Intel," Snabe said. "We visited Cisco. And we also visited Porsche." Porsche was particularly helpful because it had increased its production volume fourfold and improved profitability by 19 percent. How? "They did it by creating mini-teams that were empowered to constantly improve the way the company was run," Snabe explained.
Subsequently, the SAP leadership combined these two methodologies: Methodology number one: Look at small, nimble software start-ups - their (and your) true disruptive competitors - as a way of seeing where they needed to go.
Methodology number two: Look at other large companies that had transformed themselves as a means of seeing how to get there.
"We came back," Snabe explained, "and said, okay, let's trust our people. We created a strategy which radically changed the way we innovate in order to become much more agile and much, much faster. A lot of that was putting aside our pride as managers and letting people loose. We had to trust that they would be able to find a faster and better way alone than when headquarters tried to help them."
That was the key idea - small teams empowered to make their own decisions. "It's not important whether it's exactly eight or ten or twelve people," Snabe said. "It's a group of roughly ten people who had the competence to make the decisions necessary to complete the entire cycle, including the quality of the software, the functionality, and architectural blueprint. It's that team of ten. By acting like this, we're basically a bunch of start-ups, but we work under one master plan."
That gave SAP two powerful benefits: the speed of an entrepreneur multiplied by enormous scale in the market. "I've always said," Snabe remarked, "innovation is not turning money into ideas. Innovation is turning ideas into money. That means you have do more than just build a product. You have to get it to market at scale. You need the scale to have something that's a true innovation. Otherwise it's just an invention." The result: SAP cut product development time from 14.8 months to 7.8 months. "Cut nearly in half in three years," said Snabe. "And the quality of software is significantly up. Now SAP's goal is to get development time to six months."
SAP's transformation was extraordinary. In many ways, it's a fundamental corporate model change. Just take a moment to think about some of Snabe's phrasing: "radically changed the way we innovate"; "more agile and much, much faster"; "trusting people"; and "letting people loose."