For the youngest chief executive on Germany’s blue-chip index Dax, the past week has proved to be an ageing experience.
Christian Klein, the 40-year-old boss of SAP, Europe’s largest software group, had the unenviable job of telling investors that profitability targets set by his predecessor would be scrapped, as the company ploughs money into making up ground it has lost to cloud-based competitors.
Shares in Germany’s most valuable public company tumbled on Monday, losing more than a fifth of their value and knocking tens of billions of euros off SAP’s market capitalisation. The stock has not recovered since.
By the time he had finished explaining the decision to analysts, Mr Klein, who typically works late into the night, postponed a debrief with his team and headed home, exhausted.
But the softly-spoken German — who was appointed co-CEO last October before becoming sole chief executive six months ago following a period of boardroom turbulence — knew this moment was coming.
The Walldorf-based company had been on a shopping spree under former boss, American Bill McDermott, who spent tens of billions of euros buying software companies including travel expenses firm Concur, HR tool SuccessFactors and feedback platform Qualtrics.
To the annoyance of many of SAP’s 440,000 customers, to whom Mr Klein talks regularly, these acquisitions — many of which are cloud-based — were only loosely integrated into the company’s existing suites, and many were marketed by separate sales teams.
To remedy this Mr Klein, who joined SAP while studying business administration in Mannheim in 1999, knew that large investments were going to have to be made, to harmonise its many disparate products and offer customers a single SAP experience.
“He realised very early on that if you are serious about integration, you cannot keep margin targets where they are, because there is very little breathing room,” said a person familiar with his thinking.
That realisation is, at least in part, what propelled an executive who grew up just 10km away from SAP’s south-west German headquarters to the top of the company within two decades.
“Some people plan to be a CEO of a company, but I don’t think he ever did,” said Andre Bechtold, a senior vice-president at SAP who has worked with Mr Klein for 13 years and watched him consistently outwork his colleagues.
In sharp contrast to his predecessor, who dazzled clients and capital markets with his charisma and salesmanship, Mr Klein is a “details guy” with a forensic focus on the minutiae of individual projects, who would petition those in the ranks above him to improve SAP products.
Such an approach can play to his disadvantage. Some colleagues find his micromanaging irritating, as well as his reliance on a close network of SAP lifers.
Nonetheless, many believe his qualities are well suited to SAP’s primary task. “It is not fair to compare him to Bill McDermott,” said Ingo Speich, a portfolio manager at German institutional investor Deka. “At this time, SAP needs someone with new skills — the challenges are rather internal. He is the right guy.”
After braving the wrath of the market this week by moving revenue targets to 2025, Mr Klein now has some breathing room. The new guidance, said Holger Schmidt, an analyst at German private bank Metzler, “gives him some potential to surprise on the upside in 2023”.
In the interim, a key concern for Klein is how to balance the demands of cloud-savvy customers in the US — where SAP makes roughly a third of its revenues — with many of the company’s oldest clients in Europe, who prefer on-premise packages and on-site support.
“He gave a commitment that he won’t leave anyone behind,” said Jens Hungershausen, head of SAP user group DSAG, which represents the interests of clients including Daimler, Siemens and Bosch. “We have confidence in Christian Klein.”
Satisfying American counterparts may prove harder, especially if Covid-19 continues to restrict travel. The departure in April of co-chief executive Jennifer Morgan, who disagreed with Mr Klein on the depth of integration needed at SAP, left the company without top level US leadership, as did a string of high-profile management changes.
Mr Klein will also have to keep one eye on Potsdam, where Hasso Plattner, SAP’s septuagenarian chairman and co-founder, resides.
Although it was Mr Klein and the management board who decided to “rip off the Band-Aid” and ditch the company’s midterm guidance, Mr Plattner, one of Germany’s richest men, still plays a central role in shaping SAP’s strategy, according to people familiar with the matter.
The billionaire’s continued backing of Mr Klein was made apparent on Tuesday, when he bought an additional €250m worth of SAP shares.
But if his protégé remains in post, he will probably have to steer the company beyond the era of its founding fathers, who set up SAP in 1972.
To do that, Mr Klein will need to have made a success of the company’s transformation into a modern cloud-based software business, said Deka’s Mr Speich.
“The biggest challenge for SAP,” he added, “is to reach the right point for the handover [to a new generation].”