Bill McDermott '97
A Bill’s-eye view on a next-generation business: Using a customer-centric business model, Bill McDermott ’97 has transformed SAP into a thriving global software company
By Rachel Farrell
Sixteen-year-old Bill McDermott ’97, clad in a busboy uniform, was walking home from his job at an Italian restaurant when he spotted the sign: “Help Wanted,” it read, hanging in the window of his local delicatessen. One full-time job sure beat three part-time jobs, McDermott thought. He strolled into the shop, introduced himself to the owner, and was hired on the spot.
Within a year, McDermott purchased the shop for $7,000 in promissory notes. Then he “took it up a notch,” he says, and made changes to the business that made him look like a savvy executive 30 years his senior. For instance, McDermott created a delivery service after recognizing that many of his elderly customers didn’t like leaving their houses. To attract teenagers, he built a video game room and stocked it with Asteroids and Pac-Man machines — a stark contrast from the 7-Eleven down the street, which only permitted four teens at a time in the store. For his blue-collar customers, “who tended to be rich when they got paid on Friday and broke by Saturday night,” he created a credit system so they could shop freely. When McDermott sold the deli at age 21, he made enough money to pay off his loans from Dowling College in Long Island, N.Y., and buy his parents a beach house, where they still reside today.
Although nearly 30 years have passed since those earlier entrepreneurial experiences, McDermott, a graduate of the Kellogg School’s Executive MBA Program, says that he still relies on those same business principles. Today, the 46-year-old Pennsylvania resident is president and CEO of Global Field Operations for SAP, the world’s largest business software company that serves small-, mid- and large-size firms in more than 25 industries. Using a combination of technology, services and development resources, SAP provides businesses with solutions that reduce costs, improve performance and respond to changing business needs. “The key is, segment your markets, understand your customer requirements, build specifications that serve your customers better than anyone else, and add all kinds of passion and customer service on top,” he says. “Then realize that each and every day if you don’t take great care of your customers, you are one step closer to going out of business.”
McDermott knows what he’s talking about. Since taking the helm at SAP in 2002, he has helped the company deliver 24 consecutive quarters of significant market share gains, revenue growth and customer satisfaction improvements. SAP’s total revenue increased about 20 percent (accounting for inflation) between 2002 and 2007. SAP also earned a spot on BusinessWeek’s 2006 list of “Most Innovative Companies” and was ranked as one of the top three companies in the Computer Software category of FORTUNE magazine’s “America’s Most Admired Companies.”
That’s no small feat: When McDermott joined the company, he was the fifth CEO of SAP Americas (SAP’s North America and Latin America business units) in six years. The high turnover, it appears, stemmed from previous’ leaders emphasis on products instead of customers, which caused revenue to grow at less than half the rate of SAP’s European division. Rather than feel like he was being set up for failure, McDermott was “extremely excited,” he recalls. “I felt that SAP was one of the real treasures in the information technology industry.” What the company needed, he believed, was a total management overhaul and brand new vision. Within his first 100 days, he replaced 90 percent of his executive management team with people who were “curious, interested in changing and transforming the business and selfless in terms of dedicating themselves to the customer,” he says. McDermott also redirected SAP’s vision from being a product-driven company to a customer solutions and value-delivery company that is “absolutely, positively focused 100 percent on what the customer needs to win.”
To determine the needs of SAP’s more than 76,000 customers, McDermott first develops an intimate understanding of their industries and market segments and then proposes solutions that will help them meet their objectives quickly. A feature of his division, “SAP Custom Development,” helps tailor customers’ requirements, giving firms the option to implement new development solutions, leverage previous solutions or receive customer support from SAP technicians. Unlike some, McDermott isn’t afraid to collaborate with his top competitors — such as Microsoft and IBM — if the relationship will benefit his clients’ bottom line. These methods “take the customer someplace into their future that they didn’t think of themselves,” McDermott says. “You give them insight. And, in the end, that insight and the trust that you build with them is what they’re buying.”
To deal with the 2008 U.S. recession, which has left many SAP customers with tight budgets, McDermott has started offering financing options in lieu of cash payments. Also, rather than modify SAP products or services, he is guiding customers toward projects with a high net present value that offer faster returns on their investment. McDermott insists that a souring economy should not deter companies; on the contrary, they should use the downturn to their advantage. “My theory is, never waste a good crisis,” he says. “It’s a wonderful time for companies to build muscle mass, clean their operations, get more focused, get leaner and get more determined to do things that really make a difference for their customers.” As an example, he cites Nike, which used SAP products in 2000 to reengineer their customer experience around targeted customer sub-segments instead of products. By 2007, Nike had grown from $8 billion to $16 billion.
Like Nike, McDermott segments SAP’s global customers, dividing them into the categories of “strategic markets” (U.S., Europe, Japan), “BRIC countries” (Brazil, Russia, India, China), and “emerging markets” (Middle East, Africa, Turkey, Columbia, Chile). Then, “we try to measure everything in portfolio terms,” he says. “[We ask questions such as] how are we going to focus on strategic markets? How are we going to put some discretionary effort and discretionary investment into the BRIC countries? What will we do to innovate the business model and market plan in the fast, emerging markets? And how will we do this in multiple currencies, multiple languages, across large, medium and small customer segments in a way that is completely harmonized?” A client company’s location, however, doesn’t affect SAP’s fundamental service quality. McDermott says SAP solutions for a small company in Chile are equally as effective as solutions for a large firm in California.
Before joining SAP, McDermott was executive vice president of worldwide sales operations for Siebel Systems, a software company specializing in CRM applications, and president of Gartner, a Stamford, Conn.-based information technology research and advisory company. He also served 17 years at the Xerox Corp., where he held several sales, marketing and executive management positions and, at age 35, became the company’s youngest corporate officer and division president. While traveling extensively for Xerox and raising two children, he enrolled in the Kellogg School’s Executive MBA Program. Through his “great study group,” he learned about the importance of collaboration and teamwork, and how to approach business problems with an open mind. “People need a broad horizon,” McDermott says. “They need to get out of their comfort zone, out of their silo, and see the world through broader lenses. Kellogg helps you do that.”
Asked if he has any advice for today’s Kellogg students, McDermott doesn’t hesitate. “Never let the conditions of the moment supersede the size of your dreams,” he says, alluding to the economic downturn. “In the long run, these cycles tend to work themselves out. So have a vision for who you are, what you’re about and what your dreams and goals are in life. If you’re authentic every step of the way, it’ll rub off on the rest of the world — and you’ll be a much better person for it.”
Posted January 2009