CNBC Transcript: Bill McDermott, CEO, SAP
Below is the transcript of an interview with SAP CEO Bill McDermott. The interview will play out in CNBC's latest episode of Managing Asia on 28 September 2018, 5.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan: So Bill, your partnership with Alibaba started two years ago. How significant is this latest deal with Alibaba?
Bill McDermott: Massive. Couple reasons for that. One is, we have moved SAP to the cloud. Fundamentally, the cloud is the best way to scale in technology and China is our second home. This is a massively important market to us and AliCloud gives us the infrastructure as a service to put the best, most modern, ERP system in the world on top to serve customers. So they can serve their customers and create an immense value.
Christine Tan: Is there a value you can give me to the deal? How much do you think it's worth? Billions?
Bill McDermott: Well I think the most important value I can put on it, is what will it do for the customers, their customers, and ultimately, the China dream. If you really think about our technology, today, a nine trillion US dollar equivalent value is running on the SAP platform in China. So, we have lots of large state-owned enterprises running SAP, lots of substantial brands running SAP, but with Alibaba and their leadership in small-medium sized enterprises, we can take our brand into the mid-sized company and the small company so they too can be a big company. You know, Christine, I've never met a small company yet that wanted to stay small. What a chance! Get on the SAP journey, through the AliCloud, and be big. It's exciting.
Christine Tan: So, it could essentially mean billions of dollars for you, this latest deal?
Bill McDermott: Absolutely. We don't do things if they're gonna be small. And I spent, you know, the whole day, really thinking about the possibilities with Jack Ma and Daniel Zhang, and we just see enormous possibilities.
Christine Tan: Well you're here in China. This is a big market for you, just how fast do you see China growing for you in terms of business software?
Bill McDermott: We're in a market here that is growing fast already. So our core business is growing in steep triple digits in the cloud. Now, if you add the AliCloud onto that and think about the reach that that can give us, and how quickly we can move into new markets and new relationships and new friendships built on trust, it's no telling. Maybe we grow a thousand percent a year. Why not? And beyond. That's what's possible in China. And the China dream is alive because we are going to quintuple the number of partners that we have in China in the next couple of years. We're going to double our workforce. We've already pledged to increase our revenues 10 times in China in the next few years, so this is an outstanding market and we have an executives here that are very smart, we have people in the public sector - very smart, very dilligent about what they do, and we think that we have a brand here that can really play.
Christine Tan: These numbers that you talk about are huge. Could China be your number 1 market one day?
Bill McDermott: It will be. It's hard to imagine it not being. I think it could easily happen coterminous with the China 2025 plan. So if I think about the China 2025 plan, what I really like about it is, not only is China interested in growing, but they're also interested in improving the human condition. Whether that's the environmental condition, the social condition, the economic condition. There are many many things that will need advanced software. There are many industries that will be reinvented, manufacturing will be reinvented. Retail has already been reinvented and it's going to continue to change. Healthcare, personalized healthcare. And SAP has the software to be in the front of all of those breakthrough changes, and we intend to be.
Christine Tan: There are concerns these day, especially coming from the US about Chinese tech giants posing a security threat, a security risk. Is this something you're worried about?
Bill McDermott: Not at all. In fact, one of the things I just did with Daniel, the CEO, a great friend and a really smart businessman, is we went through their process for security, intellectual property rights, and how those are protected and they have a really world class procedure. They have probably the best process I've seen for actually digitally validating IP rights, and processing things in a highly secure fashion. In fact, their error rates are the best. Their credit risks are the best because they track every step in the process digitally. So they're really a fine company.
Christine Tan: So now you've tied up with Alibaba in the enterprise space. So what's next? CRM?
Bill McDermott: Well, that's a really good idea.
Christine Tan: You've thought about it?
Bill McDermott: Oh absolutely. I think the Infrastructure as a Service (IaaS) is a key component, of the hyperscale motion in the cloud. And that's the essence of this partnership. But we intend to reinvent CRM. Today, the CRM business is thought of as: I take care of my contacts, my forecasts, my pipelines, I'm out to sell stuff, I'm out to get the money, that is today's CRM system. And that's what today's CRM market leaders think about. We think very differently. We think about the seven and a half billion consumers that are out there, that are mobile, that are social, that are on the move, that expect a personalized experience no matter where they are geographically located in any one time, in any one corner of the world. So yes, could Alibaba, for example in China, team up with SAP to deal more with the front-end demand system, whilst at the same time dealing with the back-end of supply? Absolutely. And I'm encouraged by what I saw today and I think that's likely to happen.
Christine Tan: When is it likely to happen? How soon?
Bill McDermott: For us, it could happen as soon as they're ready.
Christine Tan: These days you're expanding into China at a time when there's an escalating trade war between the US and China. President Trump has just slapped tariffs on some 200 billion dollars worth of Chinese imports. China has retaliated in return. Are you worried that this is something that could hurt your business here in China?
Bill McDermott: CEOs are very accustomed to these political challenges. Real serious issues that real serious public sector leaders, I'm sure are working day and night to solve. We understand that and we understand that the leaders of countries should always do what's in their people's best interest and business has for many years learned to work around these dislocations when they take place. So we've already worked around the possibility of this going on for a protracted amount of time...
Christine Tan: When you say protracted, how long?
Bill McDermott: It's not for me to predict. But I wouldn't necessarily predict today that it's going to be over quickly. This could take some time. And if it does take some time, we have a lot of customers that are counting on us to help them augment their supply chains, build products in certain countries at the most efficient price possible so they can achieve their shareholder value objectives while still satisfying their customers. We call this the digital boardroom where literally, you can have a purview of everything that's going on in your business, from the supply chain all the way through the manner in which you're caring for your customer in real-time. And I have entire countries now, presidents and prime ministers of countries, that are working with us, using this format. So what's interesting about our business is, the more challenging things are sometimes, the better we do, because they need software to overcome the challenge. And similarly, when economies are downtrodden a little bit, they're going to need software to take cost out of the equation. So we have a very resilient business for that reason.
Christine Tan: In terms of impact, how much do you think this trade war could hurt the cloud and software industry?
Bill McDermott: Well I don't think it's going to hurt the cloud and software industry very much. I think the issue is, would it inhibit the growth ambitions of customers that the cloud and software industry serve. And some are going to have more difficulty because they're more commodity offerings. If you have a commodity offering in technology, and the market goes down, you'll be hit harder. If you have a high value offering, with the software itself, is the solution to bail you out of the difficult situation, or to capitalize on a big market opportunity, we tend to see SAP do very well in tough as well as high-growth periods. So we're not concerned. The global economy right now is very strong, I mean I have lots of friends that are CEOs and everybody's talking about the strength of the global economy. Whether you're in America, you're in Europe or you're in Asia, everyone's talking about a strong global economy and I'm very confident that over time, the two world superpowers and the largest economies in the world will come to the table and find common interests and that's what business people want. Everyone wants the economy to continue to prosper and move forward.
Christine Tan: You're here in Hangzhou, obviously you've had discussions with Alibaba's Jack Ma and Daniel Zhang. Has trade become a big discussion topic for you? When you guys come together? What are the conversations like?
Bill McDermott: Well the conversation with Jack and I is just what it was with you. Governments are going to do what governments are going do. And business has to do what business has to do to work around that. And I think that both are working in good faith. We understand that. But in the mean time, we have to run our businesses and our businesses have to succeed. And you can't use excuses when you're in business, you know, the reality is you're paid to find ways to get around short-term challenges and that's really what we talked about. And then we got into the context of our partnership and how we can create a bigger pie. You see, in business, we always talk about how can we get a bigger pie and have more people share in the joy of a bigger pie, and that's how CEOs think. And that was what we were talking about.
Christine Tan: As the world leader in back-office enterprise software, you're now making a big push into CRM. And you've launched C/4HANA in June. It's only been a couple of months. What's the response like so far?
Bill McDermott: It's been enormous. The reality is, everybody understands the power of integration. The idea that you can connect seamlessly with your consumer and you can truly manage that consumer relationship whether a company has a direct salesforce, a call center, they use wholesalers to sell their products, they have a primary retail channel, somebody is on the mobile and doing direct to consumer purchasing. All of those channels are best served when they are, first of all, adhering to the rules and regulations of the global economy like protecting the privacy rights of the consumer and all those channels, which we were the first company to be certified as a GDPR leader. And then, now we have a transaction, we need to know the history of that customer, their likes, their social likes, their preferences, the things that they've done with us historically, their likely needs based on what they've done already. So you have smart people caring for that customer relationship and all the information is in realtime. And that's why the breathtaking HANA data platform from SAP has changed everything. Because HANA can look at all these sources, understand the data, read the data without moving it, which is a tremendous security benefit not to mention a speed benefit, and then transact the sale. Ultimately, anywhere the consumer is in the world, because geospacially, HANA knows what's going on, then you fulfill. That is the holy grail of the end-to-end customer relationship. What will that do? I think it will totally disrupt the status quo, and I live to disrupt the status quo.
Christine Tan: You've got a lot of catching up to do, because there's Salesforce, which is the number 1 CRM player, well ahead of you in terms of market share, do you think you now have what it takes to overtake Salesforce to be number 1 in the CRM space?
Bill McDermott: I love being the underdog. And you know there was once a time when Salesforce was the underdog in the space you remember? And they had a better idea. And the better idea won. And the reason we're going to be number 1 is because we've got a better idea and the better idea always has to win. And the thing I love about customers is that they're so smart. And the other thing about intelligent customers, is that they're always supported by an intelligent eco-system. So once the customers start swinging enmass to SAP, the eco-system then moves with them. And then what happens is, the old idea is stranded on a deserted island and the party left them. Look out, here we come.
Christine Tan: You're very ambitious, but there are some analysts out there who feel that C/4HANA, your CRM, was a little bit late, still yet to prove itself in a very tough market, not to mention there's this whole issue of the cost of migration and whether you might have to offer C/4HANA free just to take in, just to bring in the numbers. How do you respond to these issues? What are you doing to speed up adoption and migration?
Bill McDermott: Well a few things. One is, we're not trying to replace the status quo. We're leapfrogging and going into a whole new category. So we don't have to see another company lose for us to win. We're redefining the category, that's what's fun about what we're doing. So on the contrary of us having to give away to actually be heard, the opposite is true. The one that has the commodity and is charging too much for it, is the one that's going to get tremendous price pressure. The one that has the better idea, is innovating business models and creating massive business value that can be measured, is the one that can afford to take a piece of the value they create in earnest and customers are happy to sign on. So just the opposite is going to happen. The pressure is going to be put on the incumbent leader where the price could be a little bit too high, and the value could be a little bit too low. And that's why the better idea always wins.
Christine Tan: So you think C/4HANA is your secret weapon? In the CRM space?
Bill McDermott: It's probably not much of a secret if we're talking about it on TV. But I think yeah, it's the secret weapon.
Christine Tan: You're 57 years old. you're the first American CEO to head SAP, you're heading some 94,000 employees. How would you describe your leadership and your management style?
Bill McDermott: Humble. You have to really stay humble and not forget where you came from. You know I started out in that corner store at 16 years old as a teenage entrepreneur and I worked for great companies like Xerox and worked my way up the ladder and dealt with very large organizations at scale. And the one thing I learned is that every relationship matters, every person matters, and you win hearts and minds and you win the crowd -- one relationship, one conversation at a time. So, be humble. And then, be hungry. We have a vision to help the world run better and improve people's lives. It's a bold vision. And at the same time, we have tremendous revenue goals for the company. But they're only relevant if we're helping the world. Are we reinventing industries? Are we improving people's lives? Are we doing good things when we do well? For example yesterday, I was at a little school in China that has an autistic student base, it's called Stars and Rain and I was with the kids on the playground and we were going through projects that they were doing, and we have an autism-at-work focus at SAP and we're now doing that in 12 countries and you know, you have to have a heart. So, it's humble, it's hungry and it's ever-determined to keep changing.
Christine Tan: I want to get a little bit personal. Because a couple of years ago, you lost your left eye in an accident. But that didn't stop you from getting back on your feet and doing your job. How exactly do you recover from something like that? And what lessons have you learnt along the way?
Bill McDermott: Well, first of all, I never had a single moment where I was not intending to be back in the action. That never entered my mind. And the other thing, you know, about these kinds of setbacks, it's like compared to so many other people, who have gone through so many things that's so much worse than that, I'm the luckiest guy I know. And the way I look at it, you know, a lot of people think it's a tough break, you know, but you know eyesight and seeing is not just about vision and what you can see. It's how you feel. How you make other people feel. And I've entered into conversations with people now and maybe this imperfection of having withstood something like this, makes you more approachable. Because every person in the world has some kind of thunder bolt that hit them, some kind of setback, some kind of disappointment. And somehow, I became a figure that receives lots of letters, lots of calls, lots of conversations that would have never taken place. So I think that God has a plan for everybody, he certainly has a plan for me, and I'm living the dream because I get to give a little piece of what I learned to anybody who wants it.
Christine Tan: Do you think you've become a better leader as a result?
Bill McDermott: Without a doubt. Without a doubt, because I see things now that I didn't see. I could look at a forest and I knew there was a stream with a snow-capped mountain on the other side but I could see a lot of trees. Now I see the snow-capped mountain with the running stream first and I look right past the trees.
Christine Tan: Co-founder Hasso Plattner founded SAP some 46 years ago, still sits as chairman. How influential has he been helping you drive the company's strategy?
Bill McDermott: Hasso's a giant. You know when you think about Hasso Plattner, you're talking Bill Gates, Steve Jobs, I mean these are legends. He's a legend. I stand on the shoulders of a giant. I really mean that. He's a great friend. He supported me 17 years ago when I got hired at the company. He trusted me to be his co-CEO in 2010, his sole CEO in 2014, I would call Hasso and Bill genuinely good, good friends. Why? Because we trust each other. Not because we always agree, not because we were born of the same style, but because we have trust and it's the ultimate human currency. And Hasso has been extremely influential. HANA is basically Hasso's invention and he has done so many great things for SAP when you think about R3 being the ERP standard for the world and the reinvention of that and supporting us in the move to the cloud and all the other bold changes that we made, we could have never done it without Hasso.
Christine Tan: Do you talk to Hasso often?
Bill McDermott: I do!
Christine Tan: What do you guys talk about?
Bill McDermott: Well we talk about the business mostly. But he's just a fun guy you know. I'll give you an example, you know, when I was hurt, the guy who called me the most was Hasso and the guy that was the most empathetic was Hasso. So, we can go to that dimension of the relationship, or we can go into the strategy, what I'm discussing with you here today. Or we can have a technology problem in the company and I really like getting his critical thinking and his wisdom because he knows things that I don't know. In fact, he knows things that nobody else knows and I want to hear that. And I want to activate that so we can drive change. Because the most important thing is, that we win. And Hasso is a catalyst for helping us win. It's been a great friendship.
Christine Tan: You know these days, your adoption and innovation cycles are happening so quickly. How much time do you spend instilling that sense of urgency within SAP so it doesn't get left behind?
Bill McDermott: Daily. You know the most important thing a leader can do with a successful company is beat back the complacency disease on a daily basis.
Christine Tan: You think SAP is complacent?
Bill McDermott: I think any company, including SAP, can become complacent. Success is an anesthetic. You know, it gets people a little laid back. We can relax now, we made it. No you can't, because if you decide to sit back, somebody's going to take your lunch away from you. So you constantly have to be moving forward. That doesn't mean you can't celebrate. We celebrate the victories. We formalize the best recognition awards in the company. We have the Hasso Platner founder award for the great innovators. We do a lot of things to celebrate. What we try to keep in our culture, is the celebrations brief, because there's work to do and if you need a rest, take a vacation. But when we're working, we're going. And fortunately, I love to run. And most of the people I know in this company...
Christine Tan: Can your people keep up with you? Are you demanding?
Bill McDermott: I am demanding. But I'm fair. You know, and I'll be the first one to say, you know, if I'm pushing too hard, give me a better idea, or you can give me some critique on what I'm not doing well. Because no one's perfect and of course I have my off days too and make some dumb decisions and someone should tell me, that looks dumb, give me a better deal than that, let's do that. So I try to keep it really real, highly collaborative and very on-the-move.
Christine Tan: You wrote this book, Winner's Dream . Whether it's buying your own deli, working at Xerox, or SAP, are you always relentless in pursuing that dream of yours? Have you always been that way?
Bill McDermott: Yeah. I mean I think I've always been a person that worked hard. You know I like work. You know before I bought the deli at 16, I had three part-time jobs. I talk about that in the book. When I went through college and sold the deli, I went into Xerox corporation New York City and I knocked on cold doors for a living at 21. I worked my way up in the company and was very proud to be a division president at Xerox, it was an honor to be a corporate officer there. That was a big thing then. So how did you get that? You got that by going back to the office to get ready for the next day, when everybody else was going home. You know none of it comes easy and I never wanted it to come easy. And I think I'm really the lucky one that it didn't come easy because all the fights, all the things that you've done to get better and keep getting better, that just makes you who you are.
Christine Tan: Any advice you can give others on how to come out winning?
Bill McDermott: Yeah be you. I mean the greatest gift that we all get in our lives is the ability to be ourselves. And when you're yourself, and you're comfortable in your own skin, just being you and being the best you that you can be, you're a winner. The people that lose are the people that aren't on the right side of doing good and doing the right thing, having high moral character and integrity and living by a high standard, or the people that are just trying to be something they're not. So they're never quite comfortable, they're in an act, they're in a play, but it's not theirs and they're not very good at being somebody else. I figure I'll just be me, everyone else is taken you know?
Christine Tan: And finally, what's your ultimate dream for SAP under your tenure as CEO?
Bill McDermott: I would love SAP not only to be regarded as the world's greatest business software company and market leader. But also a company that has a tremendous character. Like it's just a great company. The people there, they just care. They are just so committed to the customer. And as much as, you know, we want it to get big, I think the most important thing, is to act like it's small. And keep it personal, run it like it's a start-up in the sense of personal interaction and relationships. That's what I'd love to see.
Christine Tan: Bill thank you so much for talking to me.
Bill McDermott: Thank you very much. Appreciate it, Christine.
ENDS
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