SAP CEO: We'll double our focus on Israel

Bill McDermott Photo: Kfir Ziv

Bill McDermott tells "Globes" that SAP wants to get back to the levels of investment in Israel that it had in the past.

The fact that SAP CEO William (Bill) McDermott heads the world's third largest software company does not make him in any way conventional or boring. He is a high-tech rock star. From his poor Irish background on Long Island (he delivered newspapers at age 11), he derives insights that he is delighted to share at any opportunity. He is a guru of believing in yourself and achieving dreams who hugs everyone he meets and writes a personal dedication in his book, "Winners Dream: A Journey from Corner Store to Corner Office" (meaning the CEO's office).

His unexpected appearance on the high-tech scene is enhanced by the thick eyeglasses he constantly wears – the result of a terrible accident two years ago, when he went down the stairs of his brother's home in the middle of the night carrying a glass of water and tripped. The glass penetrated his eye socket, and he lost his sight in one eye, and almost died. Shortly afterwards, he summarized the accident by saying, "I'm the luckiest person in the world," and then declared that he had thereby discovered a business niche begging for attention, medical treatment systems, and SAP entered this sector in full force.

"Globes": Why did your write the book? To show that anyone can?

McDermott: "I think that it's possible for everyone to have a dream, and there's no room for small dreams when there are so many big ones to realize. I don't think that my story inspires people because I once earned $2.65 an hour at the supermarket, and now I make a lot more money as CEO. If my story inspires people, it's because I have a lot more inspiration myself, from what I was then, because I play on a larger stage and can change the lives of more people.

"We can now advance from 86,000 women and men working at SAP to 100,000. We might have an effect on the world economy. Maybe we can change the medical system. Maybe we can make the world a better place. Maybe we can achieve cleaner air and cleaner water. Maybe we can reach somebody who can't use a bank, and give him banking services on his mobile phone in remote places in the world. Maybe we can take people who have been rejected by the modern economy and have lost their jobs and retrain them through online courses, and given them hope that they can be part of the digital world.

"Maybe we can overcome the fact that 50% of the blue collar labor force in the US earn their living from driving some kind of vehicle, while the world is rapidly advancing - and who knows this better than you Israelis - to a driverless vehicle."

The story in your book is like a classic capitalist narrative: if you are talented enough and determined enough, you will succeed. Does that express your philosophy?

"I think that everyone has the right to make a living competitively. If you want the best employees, they have to be paid accordingly. It's only fair for them to know that they'll have a bright and secure future. I think that it's nice for the shareholders to know that over 80% of my remuneration and that of the company leadership depends on the development of the share. The investors can choose to put their money wherever they want, and if they chose to put it on us, it's a covenant of trust, and we have to get them a return on their investment. So in order to get paid well at SAP, the value created for the shareholders has to be unusually good."

"Fertile ground for startups"

Just as there is no minor key in McDermott's scale, his management is dedicated and ambitious. He took the reins at SAP, which provides business management solutions (first as joint CEO, and then as sole CEO), in 2010, following the great 2008 financial crisis. He was also the first American CEO at SAP, whose headquarters are located in Germany. He has since made a series of acquisitions, and has developed SAP in cloud computing, data analysis and management, cellular, ecommerce, artificial intelligence, machine learning, Internet of Things, etc., etc.

Two weeks ago, SAP announced Leonardo – a platform that integrates all of SAP's innovation, is located in the cloud, and enables enterprises, startups, governments, and all the rest to use its elements. "If we play our cards right," McDermott declares, "10 years from now, Leonardo's part of SAP will be bigger than all of SAP today."

On a short visit to Israel, between lectures to SAP Israel employees and meetings with economic and government leaders, he finds time for an exclusive "Globes" interview, and to declare - no fewer than 16 years after SAP made its most recent major acquisition in Israel (TopTier, founded by Reuven and Shai Agassi, for $440 million) - "I want to get back to the levels of investment in Israel we had in the past, and it will happen. We have a strong brand and a stable presence in Israel, but in investment terms - we're coming. We'll double our focus here, and you'll see a lot more of me."

You have not made a big deal here for a long time already.

"You're right. I think that the market here, relative to the population size, is almost certainly the most exciting technology market in the world. The proportion of engineers and scientists in Israel is higher than anywhere else in the world, and the per capita investment in R&D is higher than anywhere else in the world. We have to double our focus here, and we'll do it."

SAP's most recent acquisition in Israel was enterprise software company OpTier for $10 million in 2014, but this followed a decade without any acquisitions at all, and only very small deals in the decade since the acquisition of TopTier for $440 million in 2001.

"The market share of SAP Israel," says SAP Israel managing director Stavit Navon, "is over 90% of the 100 largest enterprises in Israel. Our customers include Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), Amdocs Ltd. (Nasdaq: DOX), Check Point Software Technologies Ltd. (Nasdaq: CHKP), Zim Integrated Shipping Services Ltd., and the entire government – about 100 offices – are on SAP's platform, which allows a lot of transparency and modern processes. We're doing a groundbreaking project in Israel now at the global level, which SAP, our parent company, is adopting."

Navon has managed SAP Israel for five years. "It's very fertile ground for startups to connect with us," she says. "SAP gives them not only a technological platform, but also a business platform. This is something we have begun in the past two years, and there are already signs that Bill saw on his visit."

One of these startups that she cites is Loginno, which makes it possible to monitor containers in marine transportation, and track them when they have been lost, misplaced, or improperly handled. The solution was developed on SAP's system, and Loginno recently signed an agreement with Chinese company SITC, one of the 20 largest marine cargo companies in the world. There is also a development center in Israel that is part of SAP's global R&D, managed by Orna Kleinman.

Illumination for the medical field

The poverty in the home of McDermott's parents was one of the significant factors in shaping his personality. It taught him, as he wrote in his book, "hard work did not always pay off… anything earned or given could be taken away: a house, a job, a brother" (one of his brothers died in childhood). When he was six years old, his elementary school teacher described him to his father in his presence as "a good boy… but don't expect too much from him. He'll probably be a mechanic or a truck driver." When he was 12, his home burned down, and his late mother told her children that it wasn't a sad moment; it was a wonderful moment.

I find it hard to believe that some saw his home burn down and said that. It sounds like a memory that has been processed over the years.

"No, the truth is that it's a real and accurate memory. I can't tell you what I did last Tuesday, but I remember when the house burned down, and I stood outside with my mother and my brothers, and when my mother looked at the house and looked at us, and said that there was nothing in that house more important than what is standing outside of it."

How did that affect you?

"Deeply, because I saw her do it many times before. Her great talent was that in a crisis, and even in a tragedy, she had the strength and determination to recognize that this was a time to show leadership. She didn't call it that, but that's what it was. This is exactly the time to keep you from wallowing in difficulties and sorrow. She always saw light in every cloud, and I think that this definitely penetrated my DNA."

And this helped you cope with the accident?

"Yes. When I say that I'm the luckiest man in the world, I know that people wonder about it. But they weren't the ones lying there almost dead on the floor. What I learned from this accident was that there is a moment when every one of us can be struck by lightning, or fall victim to a bizarre accident, and then our brain goes into action and manages the pain and pleasure fairly well. The brain doesn't want you to experience pain; it realizes that you're in serious trouble. There was a moment when I thought, 'Wow, this is really serious. This isn't anything that ever happened to me before,' and my brain told me, 'Hey, man, lie down, take it easy. Go to sleep now, because if you decide to get up now, life will be much harder for you.' But at the same moment, my will entered the picture. I told myself that I had a family, a wife, two sons, and 86,000 women and men (SAP employees) I really cared about, that I had a lot of friends. All this flashed through my brain, and I said that my story didn't end that night. I had to get up and get through it, and continue.

"I'm not sure that I have the right terms to explain it, but I knew that I wasn't doing it alone, that there was something bigger that enters you, or that's already in you, that helps you get through this."

Are you describing a kind of religious experience?

"I definitely felt a strong feeling of belief. If I had to go through this path alone, I wouldn't be here."

In a very human and characteristic way, you saw almost immediately a business opportunity.

"In this case, they give me too much credit for seeing the business opportunity. My accident was in July, and I started flying again in October, and the first public appearance I had was a conference on the subject of technologies for medical treatment in Palo Alto, and I spoke from the heart. I didn't have slides or any ambition to develop software in this sector. I simply said that the system was pretty messed up, and one of the examples I gave was that on the one hand, you have very brilliant surgeons, and on the other hand, the basic communications system between them is SMS. That was the main tool for transferring information (about patients).

"It's not that I have anything against SMS messages, but as a patient, I don't want to repeat the same story every time there's a new person in the treatment chain – to fill out forms again with the same story, which could easily be retrieved from a digital file, with all the information and medical opinions cross-checked with the relevant database. The saving in time here is not just a matter of convenience: the critical time that it takes to transfer someone from one medical stage to another can be the difference between life and death, or the difference between a bad result for the patient and a much better result."

Does SAP now have a system in this field?

"Yes. At this point in HANA (SAP's flagship product – a database within the memory, with advanced analysis and information retrieval capabilities), I compare it to the mappers of the medical treatment genome, and in effect to connect the specific person's DNA to all the research in the world, and to provide thoughts about the course of treatment. Up until now, this was our great breakthrough.

"Keep in mind that many hospitals and medical institutions use our system to manage their institution. So this tool can serve the medical institutions, the insurance companies, and the people dealing in personalized medicine (like a considerable number of cancer treatments today), and I think it can also be used for preventative medicine.

"For example, take the pulsometer you run with. It is connected to your device (cellular, computer, or anything else), which monitors what's happening to you during the activity. Why not connect your medical file to it -your prescriptions and your doctors, and put everything on a private cloud that guards your information and allows access to it only to the people for whom you allow it?"

McDermott was an entrepreneurial child to his very fingertips. He put himself through high school and higher education. He started working on a paper route at age 11, and quickly used his route to offer customers a variety of other products. He then worked at three part-time jobs, and one day saw in a delicatessen window a sign saying "help wanted." At some stage, ownership of site on which the store was located changed, and the new owners offered to sell the store to McDermott, only 16, for $12,500, money he of course did not have.

McDermott asked the owners for a $5,500 loan, and promised that if he didn't make the monthly payments and did not repay the loan within a year, the store would revert to its owners. Since the store was wedged between two large supermarkets, 7-Eleven and Finest, young McDermott decided to sell milk at a lower price than his competitors. "I made a mistake," he laughs. "I thought that if I managed to outflank the market through milk, I would succeed. What actually happened was that the buyers came, bought the cheap milk, and left (without buying anything else). It quickly became clear to me that this wasn't a good strategy for small business owners - to overcome the big competitors through price. I had to offer better service."

What did you do?

"I divided the market into segments. I started making deliveries to senior citizens, giving credit to blue collar people, whom I knew were a little like my father - on Friday evening, they were rich for a moment, because they had just gotten their weekly pay, and by Sunday morning, they would already be without a penny. There were high school students I had to convince to go a little further, to pass by 7-Eleven, and come to me.

"I saw the children in the shopping mall get excited about video games, Asteroids and Pac-Man, and putting quarter after quarter into the machine. For me, that was the honey that could attract the bees. I think I was the first store to introduce video games. After a while, one of the children told me, 'If we want to get good food and be treated well and play video games, we come here, and when we want to steal things, we go to 7-Eleven.'

"That was a lesson for me in customer satisfaction: if you are small, and can give what your big competitors can't give - either because they're lazy or because they're incapable of doing it, because it's not in the corporation rulebook - you can get a share of the action, at a wider spread, and with greater value."

Is that how you put it to yourself at age 16?

"Of course not, but I still use it. In the modern world in which we live today, the customers buy trust. That's the ultimate coin. If I manage to provide them with the solution in their industry, with an individual nuance for their business, that's my way."

"Best salesman in the world"

After finishing college, he started looking for work, and was called for an interview at Xerox. The night before the interview, there was a storm, and as usually happened in the McDermott family, the first floor was flooded. So that his new $99 suit wouldn't get wet, his brother carried him on his shoulders to the car, and his father drove him to the interview. On the way, the enthusiastic youth promised his father that he would return with a company badge in his pocket.

After passing through several preliminary stages, he came to the decisive interview with the personnel manager, Emerson Fullwood. He sat on a bench next to another young man, and waited. Hours passed, and he was worried that the manager would go home through another exit. "I went to the secretary, and told her, 'Joan, I just want you to know that I'm in no hurry, I'll be glad to wait here all night, but please inform Mr. Fullwood that I'm here, and I'll wait as long as it takes.'

"I was invited into his office. I looked over his shoulder, and I saw Central Park through the window. I said to myself, 'Man, this isn't an interview, it’s the battle of your life. If you get this job, you can control your fate. I was so wrought up that it was hard for me to contain it. That's how it usually is with me, especially at age 21."

At the end of the conversation, Mr. Fullwood told him that he was an excellent young man and full of energy, and that the personnel department would contact him in the coming weeks. "I told him, 'Mr. Fullwood, I don’t think you completely understand the situation. I’m 21 years old. I’ve never broken a promise to my father, and I guaranteed him that I’m going to have my employee badge in my pocket tonight.' After pausing a little, he laughed and said, 'As long as you haven’t committed any crimes, you’re hired.' I went to him, hugged him, carried him around, and then I went to the elevator and called my parents. We drank cheap champagne the same night."

It sounds to me like you used emotional manipulation on him in order to make sure that he would hire you.

"But I didn't do that! I didn't have a smart line in my head. I just wore my heart on my sleeve, and said whatever came into my head. Years later, people thought, 'He's certainly the world's best salesman."

But in a certain sense, isn't that what you are>

"But I'm just myself, and everything I did that day, I'm still doing, which is being myself."

McDermott began at Xerox in marketing photocopiers going from office to office in New York, and climbed higher and higher, until he was the youngest member of management in the company. He left after 17 years.

Xerox is a company that should have gone through a tremendous change, from a company of photocopying machines to a company in advanced printing and document management services.

"That's true. The company was unusually innovative. The problem with Xerox was something that happens with many business models: sometimes, a way arrives of doing things more simply than you yourself do them, and it turns the business model upside down. My last division at Xerox before I left provided services for businesses; in other words, you don't have to buy my box. I give it to you, and you rent the rest of the things as a service. We had high-speed data centers, in which the customers could rent services on demand, and this division, which I managed, grew over four and a half years from $500 million a year to $3.4 billion.

"I saw the future, and I knew that this was the model that would prevail, but at every large company, there is always a struggle between what worked well in the past and what is going to be. There was an internal struggle. When you switch from a model of selling products to a renting model, the spreads are smaller for three or four years, and you need political courage to gamble on the future, because there's always a moment when the shareholders ask, 'What's going on here? Why are the spreads going down?' You have to explain to them that it's being done to facilitate a change in direction, because from the other side of the change, there's a much bigger wave. It happens in every company and every industry. So I left, because I knew that sitting in a meeting room, cutting expenses, and firing people wasn't as exciting as creating a growth company."

"You have to aim at a big target"

McDermott was recruited by SAP in 2002 as CEO of the company's US branch, which was in trouble. In 2010, when SAP had trouble recovering from the crisis, and the contract of the previous CEO, Leo Apotheker, was not renewed, he was asked to be joint CEO.

Why did SAP have trouble recovering?

"All of the companies were hit hard by the financial crisis, and recovery was modest in 2009. But we weren't innovative to the extent and at the pace that we are now. I understand that the spirit at that time was more conservative (in expenses) because of the crisis, but you can't emerge from a crisis, or prevent a crisis, without a lot of innovation."

How did you manage to create what you called a change in direction?

"Vision. You have to aim at a big target, because if the target is only business, it's not emotionally arousing enough to enlist people's hearts and minds. So our vision was to help the world be better run and to improve people's lives. We were in a market with a $110 billion potential - business apps and analytics, and we led this market, but it wasn't a market that was growing quickly.

"On the other hand, what was growing fast was the data sector. As soon as we finish this interview, before I leave Israel, within 24 hours, more data will be created in the world than was created in all of human history up until 2003.

"So we needed HANA and our system for managing enterprises will be built on this database. The competition had enterprise management systems with a database that was not within the memory, and this method tripped up many companies, because they had to get the information from there and transfer it to another place, and this is a bad strategy."

Why?

"It's both too slow and too expensive, but mainly, it's a security risk. People don't talk about it, but when you start transferring a massive quantity of information from the information base, to copy it, analyze it, and store it, it's liable to leak.

"The second thing we said was that we have to go to the cloud. In 2018, our cloud business, which we began only in 2010, will be bigger than the core business, software sales, and our company has already existed for 45 years.

"We're taking it further now in the direction of business networks. We have $1 trillion passing through our ecommerce management process. That's bigger than Alibaba, Amazon, and eBay combined – and people aren't talking about it. You have to realize that we have three million commercial partners trading through us."

Published by Globes [online], Israel Business News - www.globes-online.com - on June 4, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Bill McDermott Photo: Kfir Ziv
Bill McDermott Photo: Kfir Ziv
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