Only four years after joining the senior management team at SAP (NYSE, LSE: SAP; XETRA: SAPG), Israeli Shai Agassi is proving that the company was absolutely right to take a gamble on him. This success is evinced by the company’s quarterly report, which shows consistent growth in profit and market share, and by the strategic alliances that SAP initiated with innumerable high-tech giants, including Microsoft (Nasdaq: MSFT).
The meteoric rise of Agassi, a former entrepreneur (TopTier Systems) and outsider in the upper crust of the software industry is not the sole cause for this impression. Another factor is the responsibility placed on him as president of the SAP product and technology group, and the fact that he is the youngest (36) member of the executive board of SAP, the world’s third largest software corporation, which dominates the enterprise software market.
Agassi’s status in the company and importance assigned to his position are shown by the constant presence of a public relations person near him, who is careful to emphasize his exact title in the company. In addition, a battery of superlatives is used to describe him, such as “the prodigy of the Israeli high-tech industry” and one of the top 20 "Global Influentials” (according to “TIME Magazine” and CNN).
Agassi learned the rules of the game very quickly. He isn’t dazzled by compliments, and expertly evades overly intrusive questions. His English is polished and unaccented, and his remarks reflect the mood prevailing in the company, although when he has something important to say, he does so categorically.
"Globes": How did you adjust so quickly from entrepreneurship and management of a small company to a responsible and major position in the management and board of directors of a huge corporation, where the average age is over 50?
Agassi: ”The easiest thing is to remember that it’s not a question of politics, ego, or honor. It’s not what I do, or what they say about me, either. What’s important is to do the right thing, which is to develop the best products, and serve the customers. If you remember that, and stay in touch with reality, with both feet on the ground, everything will be all right.”
Agassi vs. Ellison
Agassi is not only SAP’s human killer ap, he’s also the German software giant’s answer to the big mouth on its leading competitor - Oracle (Nasdaq: ORCL) chairman and CEO Lawrence (Larry) Ellison. Ellison, 61, and Agassi have already exchanged indirect stingers, but it hasn’t yet reached the point of David vs. Goliath, or Ellison vs. (Bill) Gates.
For example, technology news website CNET quoted Ellison as calling SAP “sap” (without pronouncing each letter). Not to be outdone, Agassi responded to the wave of acquisitions by Oracle by saying, “If you eat more, you don’t get stronger; you get more bloated.”
This verbal duel escalated somewhat, when SAP filed a complaint about an $88.5 million contract granted by the US Air Force to Oracle. SAP said that Oracle’s bid did not reflect the best solution for the task, and demanded reconsideration of the criteria for accepting the bid. The bone of contention, of course, is intensifying competition for market share.
The two companies have completely different business philosophies. Oracle believes in mergers and acquisitions. With co-president Safra Catz, a former investment banker, conducting the orchestra, Oracle has displayed an appetite of elephant proportions: PeopleSoft -- $10.3 billion, Retek (for which SAP also competed) -- $600 million, and now Siebel Systems - $5.8 billion.
The focus of SAP and Agassi’s strategy can be found in NetWeaver, a platform that spreads its wings invitingly to the global high-tech community (with the exception of Oracle), and makes it possible to integrate all applications in a single development environment. Agassi says, “We believe that there is room for an awakening of the creative spirit in companies, which will enable them to develop innovations compatible with SAP’s software. What we’re doing at the moment is to motivate more and more companies to work with us. Over a thousand companies have joined in order to develop their products in the NetWeaver environment. We provide them with openness, tools, and platforms for developing innovative products for SAP, which serves over 30,000 customers.”
Ellison has already said that this new initiative has not yielded any market share so far, but Agassi believes that it is the right way. As evidence, he presents the list of NetWeaver’s participants, which already includes Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC), IMB (NYSE: IBM), Cisco Systems (Nasdaq: CSCO), Symantec (Nasdaq: SYMC), Mercury Interactive Corporation (Nasdaq: MERQE), and Computer Associates (NYSE: CA).
”We also have a different approach to market visibility than that of Oracle,” Agassi states. “We believe that the market is in its early stages right now, while Oracle believes that we’ve reached the end of the era of innovation. We believe in collective innovations, while Oracle believes in their own circle of innovations, without any need for collective partners. We believe in growth through building business and customer service, while Oracle believes in acquiring customers. I think our strategy works better.”
A merger with Microsoft?
Agassi is convinced that SAP’s market share, which currently stands at 60%, will continue growing, and even reach 70-75%. “That’s a market share relative to three large players: Microsoft, SAP, and Oracle. We’re increasing our market share by 1-2% per quarter, and in another few years, we’ll reach 70%,” he says.
It can be assumed that Oracle will find it difficult to make inroads in SAP’s domain of enterprise resource planning (ERP). An acquisition or hostile takeover of SAP is not a realistic possibility, if only because of its $53 billion market value. A merger with Microsoft could perhaps be a more realistic scenario for SAP, but is liable to encounter opposition from the regulator. Meanwhile, the two companies have committed themselves to strategic cooperation.
Even without the rivalry with Oracle, the professional press in the US, mainly CNET, has already created a certain myth about Agassi, not only as a competitive leader, but as a magnet for talented people in the industry. Only a few months ago, it was reported that Agassi had brilliantly engineered the capture of top brains for SAP by luring them away from its competitors, and had recruited senior executives from them. These competitors included Sun Microsystems (Nasdaq: SUNW), Siebel, and, of course, Oracle.
”We’re always looking for the best talents to be found,” Agassi says diplomatically. “Recently, they’ve been finding SAP a much better place to work. If you read our advertisements in the newspapers, you saw that we didn’t explain how we were recruiting, but how these talents came to SAP. I think that we chose the industry’s leading talents, other than those already working for us. We believe that excellent products make the industry go, and excellent products encourage a movement of excellent employees. We have a record of 33 years of success, and, as can be seen, success breeds more success, and many talented employees want to work here. If they’re good and they like their work, we’ll be glad to take them on.”
Joining SAP has become an important issue for the Israeli high-tech market, which has seen seven acquisitions by the German corporation to date. The biggest was the $400 million acquisition of TopTier. Other than that deal, all the acquisitions were for less than $10 million.
”The acquisitions were due to a strategic need,” Agassi explains. “We don’t acquire a company just to increase our customer base and revenue. We acquire companies because we find them strategically suitable. We usually leave most of the company, while the people fit in at SAP, because the biggest assets you get in mergers are the people and the technology.”
What are SAP’s exact criteria for acquiring an Israeli company?
”The criteria for Israel are the same as in the rest of the world. In practice, in Israel, we’re looking for a combination of strong leadership and technology, which will add to what we already have. The condition is that the values of the company being acquired are suitable for SAP, and the people can find a good home there. It has to be a company that can be quickly integrated in our range of products, or which will provide value, beyond what we can do ourselves.”
What companies are you looking at?
”Hundreds of companies are offered to us every year, and we’re looking for all the innovations we can find, not just in a specific field or problem. Our business extends over a wide field, mostly enterprise applications, but also technologies and a variety of innovative ideas. We’re at the meeting point between business and technology, so many companies can be suitable for us.”
Israel’s entrepreneurial spirit
Do you get calls from Israelis you don’t know?
”Every day, and I’m glad to help.”
Can you really afford to treat calls from people you don’t know with the same seriousness as calls that come through the switchboard?
”I can’t mention names without permission, but everyone who calls me gets an answer the same day. If it’s from a local company, the callers get a meeting with local management within a week. I don’t want to invite people to call me, but if there’s compatibility, we’re pretty quick about moving things along.”
Agassi is convinced that SAP’s activity in Israel has important consequences, beyond its status as another large employer with deep pockets looking, like everyone else, for business opportunities.
”If you look at Israel as a market, it’s an interesting combination of entrepreneurial start-up spirit and some stable international companies. Israel needs this combination, and a strong multinational presence, which can bring development methodology and a better understanding of the needs of the global market. What SAP has done with great success, and continues to do, is to find the entrepreneurs in Israel and all over the world, put them together in a kind of technological and business crucible, and distribute it in hundreds of countries around the world, and to companies of all sizes, from the smallest to the largest. In Israel, SAP has created a global feeling, and provided widespread access to markets, which not many companies can offer.
”It can be maintained that we’re already becoming the world’s second largest software company, bringing innovation and value to all the companies that work with us, whether they’re partners or acquisitions,” Agassi claims.
How personally involved are you in development in Israel?
”My connection with Israel and my personal interest in it have not waned. I studied at the Technion, and I understand Israeli entrepreneurs. I also visit Israel three times a year, and we have a research laboratory there with 700 employees. We believe that Israel is an important source of innovation, and I oversee the products that we’re developing in Israel, but also products that we’re developing in India, Germany, China, Silicon Valley, and everywhere else in the world.”
A need to import employees
This past week, Agassi took part in the annual conference of the Israel Venture Association (IVA) in Silicon Valley, and on the very same day, caught a plane to Europe on his way to Israel. He takes care to emphasize again and again his commitment to Israel and the local high-tech industry, but when he talks about his father, Reuven Agassi, with whom he founded TopTier, he finally leaves his corporate cool behind, and speaks warmly about the man who had the greatest influence on his career. “He was my first mentor. He’s a wonderful man whose basic values I’m trying to learn and emulate as much as possible to this day. He has respect, honesty, and understanding that you won’t find in other people, and I think I was blessed by having him as my teacher, at least for the first years, not just in a father-son relationship, but also as a business partner. He has his own company now, and I wish him great success.”
You have claimed in the past that the Israeli engineering mind is closer to the German engineering mind than to the American engineering mind. What did you mean?
”To a degree, German and Israeli engineering are similar. We tend to design the product from scratch, with reference to its architecture, before marketing, while the US concept rests on looking at the market, regardless of the architectural completeness of the product in initial distribution, while relying on improvements in later versions.
”The Israel concept,” he says, “developed from the history of the Technion,” which was founded in the German tradition. Apropos the Technion, in a lecture he gave there, Agassi did not hesitate to criticize the policy against hiring foreigners in the Israeli high-tech industry. In an interview, he again focused on the need for a change in policy. “While Israel has reached the limit of its homegrown talent, they decided not to open the market in Israel to foreign workers. In the US, especially in Silicon Valley, the market is open, and has embraced Indians, Chinese, and even Israelis, and enabled them to join through the H-1B visa program. Today, you can see that the people leading the return of US companies to penetrating China and India are those who came to Silicon Valley from China and India. When I look at Israel, it’s clear to me how much growth depends on high tech. We can’t sustain economic growth with just talented people in Israel.”
What are you proposing?
”Importing talents should be reconsidered, instead of exporting companies. It’s a question of national priority, and India should be considered as a source of labor. They forget that in another 10-15 years, India and China will become the largest economies in the world. If we choose to isolate ourselves from India and China, we’ll find ourselves shut out of those markets. The first way to enter these markets is not by sending sales representatives to them, but by creating work and cultural connections with them.”
Won’t outsourcing solve the problem?
”No. I prefer insourcing opening the Israeli market. Perhaps a policy of restricted visas, instead of forcing companies to transfer the work out of Israel.”
Published by Globes [online] - www.globes.co.il - on November 10, 2005