William “Bill” McDermott | Competitors can also be partners

Interview with William “Bill” McDermott, CEO and president of SAP America Inc.

Last December, when Oracle Corp. bought PeopleSoft, SAP AG of Walldorf, Germany, wasted no time in setting out to court PeopleSoft customers. As the database giant laid out plans to upgrade PeopleSoft software into Project Fusion, SAP aggressively ramped up a transition program it hopes will lure PeopleSoft customers to SAP’s own ERP software.

Leading this charge in the U.S. is William “Bill” McDermott, CEO and president of SAP America Inc. of Newtown Square, Pa. McDermott took the helm in late 2002, just as the company was ambitiously switching its ERP software to its new NetWeaver platform. SAP touts NetWeaver as a hub for integrating SAP’s software and other applications, using Web Services and other open standards.

Prior to joining SAP, McDermott worked in executive roles at Siebel Systems Inc. of San Mateo, Calif., and Xerox Corp. McDermott also served as president of Gartner Inc. of Stamford, Conn. He received a master’s in business administration from Northwestern University and has completed the executive development program at the University of Pennsylvania’s Wharton School.

GCN associate writer Joab Jackson interviewed McDermott at the FOSE trade show.

GCN: You’ve said that SAP is the biggest reseller of Oracle databases because your software uses theirs on the back end. How has your relationship with Oracle changed since the company bought PeopleSoft, which, if anything, is a competitor of yours?

MCDERMOTT: That part hasn’t changed. We’ll do whatever the customer wants us to do, even if it is Oracle.

GCN: So you are still getting the same reception from Oracle when discussing new software product development, either yours or Oracle’s?

MCDERMOTT: Absolutely. Wouldn’t you, if you were Oracle? If anything, I would want to cozy up to SAP more, because you wouldn’t want SAP cutting you out of the database sales, right? From Oracle’s standpoint, I think they would be very concerned if we were to choke out the channel.

GCN: You had said in your FOSE keynote speech that best-of-breed software is dead. Why do you think this?z

MCDERMOTT: Look at companies like I2 [Technologies Inc. of Dallas], Manugistics [Group Inc. of Rockville, Md.], Siebel Systems [Inc. of San Mateo, Calif.]. They were fast growers in the era where customers were looking to build upon their enterprise resource planning systems with more functionality and flexibility. But what customers learned is that instead of getting flexibility and functionality, they got complexity and cost. Therefore, as SAP developed better customer relationship management technology and better supply chain technology, our product has advanced. If you can get a better product, and it is fully integrated into a suite of applications, you have a home run.

Now, it is true that at some point, if they decide to plug into an SAP platform, we will work with them.

GCN: And these other application providers would create this plug-in functionality through SAP’s NetWeaver application server platform?

MCDERMOTT: Absolutely. That is the beauty of it. We’re open to all comers. Some would ask if offering an open business process platform opens competition. The answer is yes, because independent software vendors and original equipment manufacturers, customers and partners will develop on the platform. Early adopters will lead innovation. But after a year, an innovation will become a best practice, and then it will fold back into the business suite of applications, and then the cycle continues.

The bottom line is our suite will get more robust and stronger over time. We’re encouraging the innovation process. It fuels our model.

GCN: Consolidation in general is a big trend in government because standardization saves agencies money, but why would an organization save money by consolidating specifically on SAP?

MCDERMOTT: You may have one company that has an ERP solution that is strong in financials, but not in human resources. Or it doesn’t have the supply chain, so you have to go back to Manugistics to get a piece of that and stitch that together. So [we believe] there is no other ERP solution that truly consolidates all these systems, except SAP.

We also have NetWeaver, which is critical to tying in not only SAP but non-SAP applications. With NetWeaver, you don’t have to go through a rip-and-replace strategy.... You simply go through the next technical upgrade.

GCN: Oracle promises a pretty smooth transition from PeopleSoft as well.

MCDERMOTT: I think the future is an illusion. We don’t get any promises on the future; we have to create our own reality today. In my world, if I were to go to my management and say ‘In 2008, I will have some great ideas for you,’ then it would be my replacement who would be giving the transformation pitch in 2008, not me. And that is reality.

I believe that what you focus on expands. If 85 percent of your revenues are tied to databases, and only 15 percent are tied to applications, it should come as a surprise to no one that you would be a better database company than an application company.

[Editor’s note: Some government agencies have embraced Oracle’s road map for incorporating PeopleSoft products, while others have changed platforms. To read about Oracle’s plans for incorporating PeopleSoft technology, plus a look at ERP migration strategies, including other companies’ solutions.

GCN: SAP software has had the reputation of being cumbersome to deploy and manage. What is the company doing to alleviate that perception?

MCDERMOTT: Fifty-seven percent of all the installations that SAP does are for establishments with less than $500 million [in annual revenue]. Sixty-one percent of all SAP installations are done in less than nine months. In smaller establishments, they are done in less than four months. People don’t realize this, because they have this image that we have this huge, expansive complex system. The reality is that it is sized and scaled for the market segment or the size of the problem that we’re trying to solve.

With NetWeaver, everything is changed. NetWeaver is the silver bullet. Because you don’t have to think about changing everything. You only change those things that you extract the most economic value from.

GCN: Basketball seems to have played a major role in your life. Can you tell me a bit about your family’s hoops history?

MCDERMOTT: My grandfather [Robert McDermott] was a professional basketball player in the 1930s and 1940s. He played with the New York Celtics, the Fort Wayne Pistons, the Chicago Gears. My grandfather was a great shooter. He shot the two-handed set shot. He shot behind midcourt. You tell people stories, and they don’t believe you, but if you look it up, you’ll see. In 1950, he was picked [in Collier’s Magazine] as the greatest basketball player of all time, up to that era, by the players and coaches.

He died too young in an auto accident. He was 49 in 1963. He was inducted into the Basketball Hall of Fame in 1988. So that was quite an amazing moment in my life. I got to see my father tell my grandfather’s story. I also saw George Mikan, one of the great men of the game, standing side by side with my dad, [saying] how my grandfather was his first coach [at DePaul University in Chicago] and how everything he knows about competitiveness, toughness and leadership came from my grandfather.

GCN: Have these values filtered down through the family?

MCDERMOTT: Quite a bit. You didn’t eat a lot at the family barbecue if you couldn’t shoot hoops. Everybody played. My dad was and still is a great basketball player. I can play, my whole family can, and today I coach my sons. And they’re good; they can play. It’s amazing, genetics.

I loved the fact my grandfather was a competitor, he was fiery. And he was tough. He wanted to win more than anything and would do anything to win, as long as it was in the boundaries of good ethics. So, yes, it is in my DNA. Professionally speaking, there is nothing that I like to do more than win.

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