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Case #3 Leadership Transition
March.26th/13
Leadership Transition
Liddy Pay 201518760
Ashley Nelson 201544926
Barrett Martineau 201181344
MGMT 2130
Mount Royal University
March 26th, 2013
Heather Faas
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Section I – Internal and External Analyses (10%)
SAP is the worlds leading provider of business software including enterprise resource
planning and related applications like supply chain management, customer relationship
management, product lifecycle management and supplier relationship management (Seth,
Tadamalla, & Gollapalli, 2009/2013, p. 1). SAP was founded in 1972 by five former IBM
employees to develop standard application software for real-time business processing (Seth,
Tadamalla, & Gollapalli, 2009/2013, p. 1). As the company grew they had more than 82,000
customers in over 120 countries and offered applications and services to companies of all shapes
and sizes to become the best-run business in more than 25 industries (Seth, Tadamalla, &
Gollapalli, 2009/2013, p. 1). In 2009 Leo Apotheker, board member and deputy chief executive,
was promoted to co-CEO as current CEO of SAP Henning Kagermann’s contract was soon to
become expired (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 1). Leo was to work together with
Henning from early April 2008 till mid 2009 learning how to run the company to provide a
smooth transition. In this case we will analyse Leo and the strengths and weaknesses he will face
in becoming the new CEO of SAP.
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In order to adequately analyze SAP, an internal and external analysis must be done. This
will be done in two forms. First, a SWOT analysis will analyze the internal strengths and
weaknesses as well as the external opportunities and threats. Secondly, a G-STEP will be used to
analyze the global, social, technological, economic, and political influences on the company. The
information gained from these analyses will be used to determine how SAP should proceed in
trying to outperform their competitor Oracle.
SWOT
A strength that SAP has is having smooth leadership transitions in the past (Seth,
Tadamalla, & Gollapalli, 2009/2013, p. 1). With continuously having effective and systematic
transitions, it would appear that SAP has a good transition method in place. As current SAP CEO,
Henning Kagermann, is thinking about retirement, SAP took initiative and appointed Leo
Apotheker as a new co-CEO in early April of 2008 so he could prepare for Kagermann’s
departure in mid 2009 (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 5). Leo has many attributes
that will give SAP an advantage including the fact that he is multilingual allowing fluent
communication with individuals from many different locations (Seth, Tadamalla, & Gollapalli,
2009/2013, p. 5,7). He also has a more aggressive managerial style than Kagermann which could
be helpful in dealing with the pressure from their competitors (Seth, Tadamalla, & Gollapalli,
2009/2013, p. 7). Leo is striving to make SAP more efficient by implementing lean management,
which is essentially trying to provide the customer with the most value possible (Seth, Tadamalla,
& Gollapalli, 2009/2013, p. 9). Although SAP has multiple strengths, they also have weaknesses
to be concerned with.
With the announcement of Kagermann’s contract being extended, the young and vibrant
president of the product and technology group within SAP, Shai Agassi, resigned (Seth,
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Tadamalla, & Gollapalli, 2009/2013, p. 2). The loss of Agassi is a major weakness for SAP as he
was not only the next in line for CEO but he was credited with spearheading SAP’s NetWeaver
and several on-demand initiatives. The Two things that were absolutely critical to SAP’s success.
(Seth, Tadamalla, & Gollapalli, 2009/2013, p. 2,3). This caused many organizational changes
within the company including the appointment of an executive council, comprised of corporate
officers who would supervise customer communication and product strategies (Seth, Tadamalla,
& Gollapalli, 2009/2013, p. 3).SAP has employees who belong to more than 100 nations, who
work together under the same roof causing conflict between many of the employees. This often
resulted in slow work efficiency and dysfunction within the company . (Seth, Tadamalla, &
Gollapalli, 2009/2013, p. 4).
Looking at the external environment, SAP is convinced that they are flexible and can
adapt to any changes that occur in the economy (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 6).
SAP states that they have dealt with harsh times before and are prepared to withstand it again
(Seth, Tadamalla, & Gollapalli, 2009/2013, p. 6). They also have cost containment measures
which allow them to adapt more readily to different market conditions and ensure that the
company is equipped for the long term (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 6). These
are all opportunities that SAP can take advantage of.
On the other hand, they have to be aware of the threat of their competitor Oracle. In the
past, Oracle has filed lawsuits against SAP involving the stealing of corporate information (Seth,
Tadamalla, & Gollapalli, 2009/2013, p. 3). Through the innovation and visionary leadership of
Larry Ellison, CEO of Oracle, Oracle has built itself as a strong competitor in multiple industries,
including the enterprise space and CRM industry (Seth, Tadamalla, & Gollapalli, 2009/2013, p.
7).
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G-STEP
Global - SAP has the potential to become a well-known company. Since the new co-CEO
Leo Apotheker speaks many languages, including English, German, Hebrew, and French, SAP
could easily work in multiple countries with little conflict (Seth, Tadamalla, & Gollapalli,
2009/2013, p. 5). This is proved by the fact that SAP currently has locations in more than 130
countries (SAP, 2013).
Social – There is an increase in the use of technology in the world so SAP has an
advantage by being a software company. People are always upgrading their technology to the
newest devices and newest software products. This ensures that there will be a market for SAP’s
software products for a long time to come.
Technological – In the past, SAP has always had an IT management approach (Seth,
Tadamalla, & Gollapalli, 2009/2013, p. 6). This is a huge change because the new co-CEO has
no IT skills. SAP will need to either adapt to work around Leo’s lack of IT knowledge, or work
with a new kind of management approach (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 6).
Economic – SAP has been able to maneuver their way through hard economic times in
the past and feels like they are well prepared to do the same in the future (Seth, Tadamalla, &
Gollapalli, 2009/2013, p. 6). Their cost containment measure allows them to be more flexible
and adapt to different conditions in the market (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 6).
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This flexibility ensures that they will be a long term competitor in this industry (Seth, Tadamalla,
& Gollapalli, 2009/2013, p. 6).
Political – During the transition of CEO’s, SAP had a lawsuit filed against them by
Oracle regarding the stealing of corporate information (Seth, Tadamalla, & Gollapalli,
2009/2013, p. 3). SAP agreed to pay Oracle $306 million due to this lawsuit (Kanaracus, 2012).
This is extremely costly for SAP and should be avoided in the future.
Section II – Statement of the Problem (10%)
As SAP invests heavily into creating trend setting innovations in the areas of service-oriented
architecture, new solutions, and business models for the mid market it remains to be seen
whether Leo Apotheker will be able to steer the company ahead of its formidable competitor,
Oracle.
Section III – Causes of the Problem (20%)
We are addressing the causes of SAP’s current problem, which is whether Leo Apotheker
will be able to steer the company ahead of its formidable competitor. There are several reasons
why the company needs a change of management and why they have their doubts as to whether
or not Leo Apotheker is the right fit for the company. These reasons include: the President
decided to leave the company, there are legal conflicts with the competition, Leo was hired
internally, Leo is a transactional leader, and there are controversies regarding Leo’s business
ethics when dealing with the company and their competition.
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Possibly the biggest cause of the problem as to if Leo will be an effective leader is rooted
in the original problem of Shai Agassi leaving the company. Shai Agassi was President of the
Product and Technology group (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 12). Shai made the
decision to leave the company upon receiving information that Henning’s tenure had been
extended (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 12). The fact that Shai left, shows there
is turmoil among the employees involved with the direction of the company’s leadership. Shai
was one of the younger executives and was expected to become a new co-CEO of the company
(Seth, Tadamalla, & Gollapalli, 2009/2013, p. 12). Shai was one of the company’s younger
employees and he was viewed to bring new and innovative ideas to the company. It was his
vibrant leadership and experience that brought about the expectations that he would change the
direction of the market and set SAP on the right track (Seth, Tadamalla, & Gollapalli, 2009/2013,
p. 12). Shai was credited with spearheading SAP’s netweaver and several on-demand initiatives
that were critical to SAP’s success (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 12). Without
Shai, it will be more difficult for the company to continue to thrive. The loss of Shai led to the
internal employee selection and hire of Leo Apotheker.
The selection of Leo has triggered many doubts as to if he is the right man for the job.
Leo has been a part of SAP top level management since 2002 (Seth, Tadamalla, & Gollapalli,
2009/2013, p. 14). Leo was a board member and deputy chief executive and had experience with
taking on the responsibilities of Customer Operations, Sales and Marketing (Seth, Tadamalla, &
Gollapalli, 2009/2013, p. 11). SAP hired Leo internally. Internal selection is the process where
the Human Resources department of a company selects an employee to fill a position within an
organization by selecting an employee who is currently working in the organization (Anyim,
Ikemefuna & Shadare, 2011). Internal employee selection is beneficial to the company because it
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is both cost and time efficient when it comes to the employee selection process (Anyim,
Ikemefuna & Shadare, 2011). Yet internal selection burdens the employee from bringing new
skills, competencies and fresh blood into the organization (Anyim, Ikemefuna & Shadare, 2011).
Leo is faced with the key managerial challenge of taking SAP into the world of cloud computing
without killing profit margins (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 16). Yet Leo comes
from more of a sales background, and the fact that he does not have a computing background and
experience with writing codes raises a concern as to how effective he will be as a co-CEO
because he lacks a computer science background (Seth, Tadamalla, & Gollapalli, 2009/2013, p.
16). In most situations, changes in leadership within big companies are done in order to bring in
fresh perspectives (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 13). The bringing in of fresh
blood employees into an organization is the process of external employee selection (Anyim,
Ikemefuna & Shadare, 2011). This allows the organization to bring in an employee who fits the
job requirements, regardless of where they come from (Anyim, Ikemefuna & Shadare, 2011).
The fact that Leo was selected internally, and lacks a computer science background, raises the
concern as to if Leo is the best person for the job of co-CEO, or if a new employee should have
been hired externally who would be better suited to the organization’s demands.
Another big concern regarding Leo becoming the new co-CEO is his managerial
leadership skills. It is the job of the co-CEO to be able to steer the company ahead of its nearest
competitor, Oracle (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 11). In order for SAP to thrive
and overtake their competition, there must be a change in company direction. For this to happen,
the top-level management must become transformational leaders. “Transformational leadership
is a form of leadership in which relationships are organized around a collective purpose in ways
that transform, motivate, and enhance the actions and ethical aspirations of followers” (Simola,
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Barling & Turner, 2012). In executing transformational leadership, four dimensions are put into
practice: idealized influence, inspirational motivation, intellectual stimulation, and
individualized consideration (Simola, Barling & Turner, 2012). Transformational leadership is
effective when an organization needs to grow which is the current aim for SAP in order to take
over their competition, Oracal (Madoyan). Yet Leo is considered to be a transactional leader.
“Transactional leadership involves reciprocity between autonomous agents such that each might
benefit through an exchange process” (Simola, Barling & Turner, 2012). This type of leadership
involves leading with contingent reward and management by exception (Simola, Barling &
Turner, 2012). This kind of leadership is valued in markets with low competition and when the
organization is in good shape (Madoyan). Given that SAP is faced with the challenge of
becoming more innovative in order to overtake their competition, a transformational leadership
is ideal. The fact that Leo is a transactional leader raises concern as to whether he is going to be
able to set SAP in the right direction.
Lastly, a field that brings about concern with Leo being a co-CEO is his different views
on corporate social responsibility and ethical behavior when it comes to managing the company
and dealing with their competition. During the shift in leadership at SAP, their main competition
- Oracle - filed a lawsuit against SAP for the theft of corporate information (Seth, Tadamalla, &
Gollapalli, 2009/2013, p. 13). SAP continues to fall further behind Oracle (Seth, Tadamalla, &
Gollapalli, 2009/2013, p. 17). In order for Leo to be able to boost sales at SAP, SAP is going to
need every ounce of insight and knowledge (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 17).
Leo grew up in Antwerp, studied in Jerusalem, lived in Paris, and worked in the United States
(Seth, Tadamalla, & Gollapalli, 2009/2013, p. 14). Although his cultural diversity may be seen as
a benefit, from a business standpoint, it can be harmful. Due to his many cultural perspectives, he
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may not have developed a solid set of ethics that are relative to the current national norm. The
business ethics of how to run business in Paris for example, could be completely different in
comparison to how business is run in the United States. With SAP having employees who belong
to more than 100 nations (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 14), it is important that
Leo adopts the cultural relativism ethics that are used in the United States so that he can lead by
example. When looking at factors and forces that drive forward a company’s competitive
positioning, culture and the role of behavioral characteristics play an important role (Brown &
Forster, 2013). The culture formed within society and the economy are important factors to
consider when it comes to keeping your company relative and competitive in the marketplace
(Brown & Forster, 2013). Having a strong sense of the culture and proper business ethics in the
geographic a business corporation is operating in, is helpful in determining the development of
the industry’s attractiveness (Brown & Forster, 2013). Leo admits that his traits towards dealing
with the competition are more emotional and impatient than Henning (Seth, Tadamalla, &
Gollapalli, 2009/2013, p. 16). Given that Leo does not have experience at this high level of
management, it is a concern that he does not have the right skills to enable him to execute proper
corporate social responsibility, adopt proper business ethics, and deal with the competition in a
mutualistic way. It is important that Leo is able to lead SAP into the right direction, while also
being able to appropriately deal with the competition.
Section IV – Possible Alternatives (20%)
There are two different kinds of leaders that can run a company. One that obtains a
transactional leadership style and one that obtains a transformational leadership style. Both of
these leadership styles have advantages that allow companies to succeed although they also
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contain disadvantages that can destroy the company. There are also 2 different kinds of
behavioural styles that can be portrayed by a leader, people-oriented behaviour as well as taskoriented behaviour. Based on the comparison of the two different leadership styles and
behaviours we will decide which style of leadership would be best portrayed by the new CEO of
SAP (Systems Applications and Products in Data Processing) to provide ultimate success.
Transactional Leadership
A transactional leader “helps an organization achieve its current objectives” (Hill et al.,
2011) by running the company efficiently and successfully without making any changes to how
the company was operated by the previous CEO. The leader works through creating clear
structures so their subordinates are clear as to what their tasks involve and the rewards that they
get for following orders. Punishments are not always mentioned, but they are also wellunderstood and formal systems of discipline are usually in place (Sandilands, 2013).
SAP appointed Leo Apotheker as a co-CEO with Henning Kagermann in hopes that Leo
would be able to adapt how Henning operated SAP. Generally, changes in leadership in big
companies were done to bring in fresh perspective but SAP new how new leadership can disrupt
and destroy a company, so they tried to prevent this by staying with the way things have always
be operated (Seth, Tadamalla, & Gollapalli, 2009/2013, p. 3). This method may have not been
the best decision for SAP due to the rapid changes in technology that they were facing.
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Advantages of a Transactional Leader
Followers that are motivated by a clearly defined system of rewards and punishments will
work well under a transactional leader. (Turner, 2012)
Easy and convenient for a manager (Benjamin)
Effective for motivating subordinates and eliciting productivity(Maier, 2012)
Very clear and structured system (Maier, 2012)
Employees know what is expected of them at all times (Maier, 2012)
Best results for completing short term goals (Maier, 2012)
Disadvantages of a Transactional Leader
Motivates at a base level only (Turner, 2012)
Only works well with followers performing tasks and processes that are well designed and give
clear understanding (Turner, 2012)
Poor if high level thinking skills need to be utilized. (Turner, 2012)
Creativity is limited (Turner, 2012)
Not effective at motivating at high levels. Reward and punishment are too basic of a motivator
for this level of employee (Turner, 2012)
Simplistic view of motivation (Benjamin)
Employees can become unhappy and dissatisfied easily due to the fact that it's never the fault
of a transactional leader when tasks go wrong always the employees (Benjamin)
Can cause a stressful work environment (Pilgram, 2011)
Transformational Leadership
A transformational leader is someone who is an agent of strategic and organizational
change(Hill et al., 2011). They possess that spark of innovation and creativeness that engages
people into seeing the way they see and having an advantage over their competitors. One of the
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most admired Transformational leaders of our time is Steve Jobs. Long established
organizations find their competitive position under attack from new rivals who are utilizing new
technology and new business models to gain market share. When Steve Jobs created the iPhone
it was not only a breakthrough digital convergence device, it was an iPod, a phone, and an
Internet communicator all in one. It was a force of disruption of the traditional phone business
(Moisescot, 2012). Steve Jobs used his transformational leadership skills of strategy,
organization, and operations to implement a much needed innovation.
When looking for a transformational leader there a multiple elements in which they will
obtain. These types of people envision a different future for the organization that they are leading.
Unlike the transactional leader they want to change how the company is being operated and
make it more efficient in hopes of a greater success. Communication is a huge value for
employees in today’s business world. These leaders use every opportunity to express to their
employees what their vision is, allowing them to feel a sense of belonging to what the common
goal is. When employees are involved in their job and feel as though they are an important asset
they develop a sense of responsibility and pride in the success of the overall program (Federal
Employee Occupational Safety and Health Program). With the employees having this kind of
attitude it creates greater results for the company as everyone is working harder for the common
goal.
Advantages of a Transformational Leader
Draws on assorted capabilities and approaches to leadership, creating distinct advantages for
the organization (Zellman, 2011)
Leader using this approach possesses integrity, sets a good example and clearly communicates
his goals to his followers (Zellman, 2011)
Expects the best from them (Zellman, 2011)
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Inspires people to look beyond their own interests and focus on the interests and needs of the
team (Zellman, 2011)
Provides stimulating work and takes the time to recognize good work and good
people(Zellman, 2011)
Obtains Exceptional People Skills (Zellman, 2011)
Enforces New Initiatives (Zellman, 2011)
Improve the outcomes of existing employees and equip new employees for productive work
(Zellman, 2011)
Effective during crises such as economic difficulties that hamper the growth of a particular
organization (Dems, 2011)
Extreamly passionate and innovative (Duggan, 2013)
Disadvantages of a Transformational Leader
Results take time. (Travis, 2011)
Must invest time and energy building trust and convincing followers to believe in a shared
vision. (Travis, 2011)
Powerful, but power not always used morally (Travis, 2011)
Depends entirely on the charismatic qualities (Johnson, 2012)
Seen as Totalitarians (Johnson, 2012)
Usually articulate a clear vision but often lack the skills and expertise to run the business on a
day-to-day basis (Duggan, 2013)
People-oriented Behaviour
People-oriented leadership includes showing mutual trust and respects for subordinates,
demonstrating genuine concern for their needs, and having a desire to look out for their welfare
(Hill et al., 2011). Leaders with this trait tend to listen to employee suggestions, do personal
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favours, support their interest when required, and treat employees as equals (Hill et al., 2011).
Employees who work for these types of leaders feel as though they are valued and listened to
resulting in a harder work ethic and greater results.
Advantages of People-oriented Behaviour
management offers employees the opportunity to influence decision-making (Pirraglia, 2009)
they use team input to arrive at their objectives (Pirraglia, 2009)
employees feel empowered and valuable (Pirraglia, 2009)
energizes employees causing job satisfaction levels to rise (Pirraglia, 2009)
Disadvantages of People-oriented Behaviour
causes confusion regarding job duties and responsibilities (Pirraglia, 2009)
decision-making duty can become overwhelming (Pirraglia, 2009)
ultimate job dissatisfaction if there becomes to much confusion (Pirraglia, 2009)
lower performance, high employee turnover (Pirraglia, 2009)
Task-oriented behaviour
A leader that portrays a task-oriented behavioural leadership style is someone who
assigns employees to specific tasks, clarify their work duties and procedures, ensures that they
follow company rules, and push them to reach their performance capacity (Hill et al., 2011).
These types of leaders tend to care less about their employees personal lives making that sense of
involvement and value less dominant. Having a task-oriented behavioural leader has many
advantages to creating success in a company. These leaders are very time efficient and get things
done within their deadlines. For employees who don’t care about a personal relationship with
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their job this system works very well with them. They have a mapped out schedule and task sheet
with what they need to accomplish and when they need to have it done by as well as they do not
have to think outside their area of tasks. All they need to think about is what they are assigned.
Advantages of Task-oriented Behaviour
set out easy-to-follow work schedules with requirements and deadlines(Kokemuller, 2013)
ensures that deadlines are met(Manktelow, 2011)
useful for team members who don't manage their time well(Manktelow, 2011)
Disadvantages of Task-oriented Behaviour
low morales(Kokemuller, 2013)
employees feel as though their leader is condescending and non-trusting (Kokemuller, 2013)
does not allow employees to be creative or think outside of their requirements (Kokemuller,
2013)
leaders as well as co-workers don’t tend to think much about their team's well-being
(Manktelow, 2011)
Section V – Solution, Implementation, Justification (20%)
After looking over the internal and external analysis of SAP and the different kinds of
leadership and behavioural styles a leader can have, we decided that as SAP invests heavily into
creating trend setting innovations in the areas of service-oriented architecture, new solutions, and
business models for the mid market Leo Apotheker would not be the best candidate to move SAP
ahead of its formidable competitor, Oracle. Generally changes in leadership in big companies are
done to bring fresh perspectives, but often turned disruptive and damage an organization's repute
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(Seth, Tadamalla, & Gollapalli, 2009/2013, p. 11). Leo was internally selected to assume the
position of co-CEO to try and prevent this from happening to SAP but the fact that Leo was
neither a member of the founders generation nor was he a geek who ever developed any software
at SAP made it difficult for him to resume the position of Henning (Seth, Tadamalla, &
Gollapalli, 2009/2013, p. 17).
Leo’s transactional leadership appears to be an inappropriate method for keeping SAP
competitive against Oracle. Larry Ellison CEO of SAP’s top competitor Oracle was a
transformational leader. He was both an innovator and visionary. “When you innovate, you’ve
got to be prepared for everyone telling you you’re nuts.”(Jonathan, 2011). Oracle had turned the
corner on their speed of development and ability to react to CRM market needs making it
extremely hard for SAP to catch up. “SAP is falling further behind Oracle”(Seth, Tadamalla, &
Gollapalli, 2009/2013, p. 17). It would have been in SAP’s great interest to hire a CEO that
obtained a transformational type leadership. In todays day and age technology is a forever
booming industry that is constantly changing and evolving. SAP needs someone that has an
innovative perspective and will help the company soar above their competitors instead of falling
behind them. Transformational leaders inspire people to look beyond their own interests and
focus on the interests and needs of the team (Zellman, 2011). They are able to get people
involved and see their vision.
Leo also obtains a very task-oriented leadership style he sets deadlines for task and does
not allow his employees to be creative and expand their ideas outside of their area. Although this
method is successful in many companies we feel as though it is not the best method for SAP.
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SAP is falling behind their competitors and have no plan to fix that. They need a leader that
expresses a people-oriented leadership style to get their employees thinking again. These types of
leaders show interest in their employees personal lives and make them feel as though they are
important not only as an individual but as an important asset to the company. This leads to a
sense of pride within their work and usually brings lots of new innovative ideas that the company
can work with.
As SAP invests heavily into creating trend setting innovations in the areas of serviceoriented architecture, new solutions, and business models for the mid market the best CEO to
move SAP ahead of its formidable competitor, Oracle, would be someone that expresses
transformational leadership in a people-oriented behavioural way.
Writing and referencing requirements (20%)
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