Christian Klein: AI is really changing, once again, how businesses run in every part. And we need to be the best in embedding this AI into the businesses of our customers.<\/p>\n
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This is Exceptional Leaders, an original series from Morgan Stanley that brings you direct access to the thought leaders and changemakers at the forefront of business, technology, and culture\u2014to shape what\u2019s next.<\/p>\n
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\u200aI’m Adam Wood. I lead European software research at Morgan Stanley, and I’ve been covering this space for over 25 years. Today, we explore enterprise software. It’s the stuff that runs everything, your supply chains, your financial systems, the platforms you shop on, and right now it’s racing to figure out Gen AI.<\/p>\n
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For SAP, Germany\u2019s tech giant that powers 80% of global business transactions, the next five years are absolutely critical\u2014because what happens won\u2019t just determine SAP\u2019s future\u2026it\u2019s going to shape what happens to software as a whole.<\/p>\n
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So I went to Walldorf, Germany\u2014SAP’s headquarters\u2014to sit down with CEO Christian Klein. We talked about how he pulled off SAP’s cloud transformation, what he learned, and how he’s thinking about GenAI.<\/p>\n
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Wood: Hey, Christian, thank you very much for joining me.<\/p>\n
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Klein: Yes, thanks for having me.<\/p>\n
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Wood: So maybe could you help us understand, you know, if the SAP systems were to be turned off tomorrow, how would that impact business, and maybe, how would it would impact us personally?<\/p>\n
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Klein: Today I would say there is no large company in the world, I guess only 2%, [who are] not running finance with SAP. So every time when they are reporting numbers, there’s actually an SAP system behind. You get reminded again how mission critical, actually, our job is. You know, the moment I felt it the most, it was actually during COVID. Suddenly a lot of pharma companies reached out and said, \u201cHey, I need to get this ingredient for this medicine from this place to this place. \u200aCan your software help us also to figure out alternative routes? Can we do remotely something where we can bring in some logic on how I can still ship my goods in times of COVID? Think about commerce: when you are, you know, going to an online shop. There is a high likelihood that is also SAP behind a lot of telcos doing their billing. When you switch to pay as you go subscription, that’s all SAP and they want to do it real time. And that is what SAP does. It runs the world economy.<\/p>\n
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Wood: When you took over as SAP CEO, you had some big decisions to make. What were those decisions that you made that really started to set the tone of your future leadership?<\/p>\n
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Klein: Yeah. I mean, you know, in this career, you also sometimes as a coach, have to make bold decisions in order to win the game. And when I became a CEO, it was actually clear to me also being the chief operating officer before, that with our customized on-premise ERP system inside SAP, there will be no cloud transformation. And I also learned that how we code, how we service, how we sell will be different in the future. So we needed a fundamental transformation. And that’s why when I became, later, the CEO, it was crystally clear to me: hey, the profit is still looking good, the revenue is still looking good. But we cannot take this for granted. I mean, the train has left the station, and the station is called \u2018Cloud\u2019. And the destiny needs to be to still be the number one software application company in the world. And that’s why we made a very disruptive decision.<\/p>\n
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Wood: \u200aI remember watching all of this unfold in 2020. SAP’s entire business was built on incredibly complex ERP systems that ran on their client’s own servers and their customers. We’re talking Apple, Walmart, BMW, Nestle, Nvidia. These are giants and Christian\u2019s telling them, we need to move you to the cloud. The complexity is insane.<\/p>\n
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And then you’ve got these companies that many see as more nimble and ahead in adjacent areas to ERP: Salesforce, Workday\u2014they’ve built cloud first systems from the ground up. They’re chipping away at SAP’s market share.<\/p>\n
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had a tough choice. Should he entirely disrupt the very business model that SAP had built itself upon?<\/p>\n
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Wood: So if we look back to that time, You know, those are big decisions. What did you do, first of all, to get the board on board? What did you do with shareholders?<\/p>\n
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Klein: The board, I clearly explained to them from a customer perspective, what has to change while we have to also disrupt our core business. The core ERP are still very much on-prem. So I convinced the board about that. I said to them, \u201cWatch out. That will not be nice in the financial market.\u201d Now did I see the share price top coming? \u2014yes. Did I see it would be 30%?\u2014no. But second is then with the investors, I mean, it’s always this balance. I mean, you cannot just go before and say, \u201cHey, this what is coming.\u201d I mean, you there are certain rules you have to adhere to. But, you know, I guess we did in a good job afterwards to say, \u201cHey, this is why we did it.\u201d Many didn’t like it because they, you know, got caught by surprise\u2014and surprises are never good. But then, I feel, we really consistently delivered.<\/p>\n
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Wood: I remember I was sat there following the company at that announcement, as you described, and I think I was probably as shocked as you at the scale of the share price reaction. Could you talk a little bit about the personal cost for you in terms of making those decisions and how it felt at that point?<\/p>\n
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Klein: I guess, what was super important for me personally, that you have good mentors, good advisors. We were not the first tech company doing such a transformation. There were some who did it before. And it was good to talk to these people. It’s important because you should never believe as a CEO you know everything for a fact. So actually, it’s a continuous learning curve and it was good, at that time, to have people like those who also gave me some advice on how to manage this transformation. And then lastly, obviously, still today, you need to spend the time first with your customers. Now with AI it’s the next transformation coming, but you also then need to make always sure that you keep the balance between, okay, the people carry the company, they need to perform, so they need to be moderated. The second one is, of course, the customers need to see why is SAP going in that direction. And then the investors, what I said, is really about promising, but then also keep on delivering what you have promised.\u201d<\/p>\n
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Wood: What enabled you to catch up and what sets SAP apart in that area today now?<\/p>\n
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Klein: Five years back I clearly acknowledged: Hey, look, the hyperscalers are very good in what they’re doing. Customers anywhere want to have choice. Let’s be agnostic. But what differentiates SAP in the cloud? Our differentiation comes\u2014look at our transformation. Look at Microsoft\u2019s transformation. Look at the transformation of a BMW here, more south. They need to fundamentally change their business model. So you are not only lifting and shifting an SAP system to the cloud. Let’s focus on your business model, because something there is changing. So we are not only putting an ERP to the cloud for BMW; we are thinking, okay\u2014how will BMW one in the future? We definitely also look into the process layer. And the second very important piece is data. Because when we talk about AI in the B2B world, yes, you have all of these great large language models, but you also need business data. I mean, otherwise you will not deliver the high value that customers expect. So we are always doing both. We are looking into the business model, the business process, see what is good for the top line, what is good for the bottom line, how can we streamline those business processes, redesign them?<\/p>\n
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Wood: For years\u2014decades, really\u2014\u200aenterprise software has been trying to automate business processes.<\/p>\n
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Now, GenAI changes everything, because for the first time, computers can understand natural human language. Suddenly, the GenAI can help the worker predict what the customer needs.<\/p>\n
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It can suggest responses in real time, and this isn’t just call centers, it’s finance departments doing manual data reentry. It’s people fixing errors in invoices. It’s all these tasks that we’ve never been able to automate before. That massively expands what software can do, which means it should expand the market opportunity for software companies.<\/p>\n
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Now, there’s a separate question: who benefits? Is it the big incumbents, like SAP? Is it startups? \u200aIs it LLM companies creating new enterprise systems? Or is it companies just building this stuff themselves? The fundamental point is, if software can do way more than it used to, that has to be good for the industry.<\/p>\n
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In the longer term, the debate isn’t whether GenAI expands what’s possible. It absolutely does. The debate is: who wins?<\/p>\n
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Klein: The software actually is super important. Who has the smartest agent for sourcing? Who has the smartest agent for automation of billing, et cetera. And that is, of course, super important for the next five years, that with every piece of software we sell, the first discussion will be, \u201cOkay, what is the agentic AI doing for me? How can we automate, how can we change sourcing? How can we change workforce management?\u201d Just saying: oh, success factor helps you with putting a good workforce together to hire, to educate, to skill\u2014that is not enough. You need to explain what is the AI, what is \u201cJoule\u201d doing for HR to really, you know, have the best workforce in industry? And that is true for all of our portfolio. So AI is really changing, once again, how businesses run in every part, and we need to be the best in embedding this AI into the businesses of our customers. That is super important in the next five years. Now, that sounds easy. I can tell you, when you look into our customer’s landscape, it’s not all SAP. There are big data lakes, big issues around data quality, and so on. And again, an LLM can screen a document, can make sure you can make use of unstructured content, but where’s the business data? You need to correlate it to your business. Otherwise, strategic workforce management, intelligence sourcing will not happen. You need the business data, you need it clean, you need it high quality. And that is of course, something in the next five that we will also not only work on AI, but also work on a super strong data platform with our customers.<\/p>\n
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Wood: You know, we’re all talking about GenAI, as we know in software, there’ll be startups that come and try to lever the new technology to disrupt the incumbents. What enables SAP to compete? What enables SAP to stay ahead of those startups?\u00a0<\/p>\n
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Klein: Yeah, customers obviously have choice. In the future they can also customize an agent on top of an SAP system. I doubt, of course I have to doubt it, but it\u2019s, in my eyes, true\u2014very true\u2014that a customized agent on top [does not have] the business logic, doesn\u2019t understand the business context. And you build another layer on top. If you build it into the business process of a customer with the access to quality business data, business context, business workflow, then these agents are seamlessly embedded, and that is not only way better from a cost perspective, but you can really then think about how can we infuse more intelligence, more automation, into end-to-end business processes and not building 400 custom agents on top, when no one understands how will they ever talk to each other, and how can you orchestrate actually your business with that? And that is super mission-critical. And again, there’s only one tech company who has so much business data, who understands how to build high quality data, and understands the business process layer.<\/p>\n
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Wood :\u200a Here’s what investors are worried about right now when it comes to enterprise software.<\/p>\n
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First, GenAI is making it way cheaper to write code. So companies are debating internally about whether they buy versus build.<\/p>\n
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Second, it’s never been easier to launch a new software company. New competitors are coming in and could drive prices down.<\/p>\n
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Third, do we see entirely new software architectures with LLM vendors moving into enterprise systems and disrupting the incumbents?<\/p>\n
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And finally\u2014and this is interesting\u2014most enterprise software charges you based on how many people use it, but in a GenAI world where maybe you don’t need as many people actually touching the software, that whole model might start to look shaky. Companies will need to start rethinking monetization to focus on metrics like usage.<\/p>\n
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As for SAP, they’re actually in a pretty strong position, because companies will still need to upgrade their ERP systems. That’s not going away. Plus, there just aren’t that many companies that can do what SAP does at the scale SAP does it. It may be in a category of one.<\/p>\n
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The question is: execution. How well can SAP actually embed GenAI into the business processes companies depend on, and can they keep their competitive advantage as everything around them changes?<\/p>\n
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Wood: How does GenAI change the way the employees work? What does it mean for the workforce?<\/p>\n
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Klein: First, we need to retrain and re-skill our developers and say: okay, what does really now matter in the future to be world class with our AI? So it\u2019s less about spending your time on coding, but more about how to build a cohesive data layer, how to build really great AI modules, how to reimagine business processes. Take sales\u2014there is not one contract now who is not screened with AI based on all the refrack checks done, compliance checks done, et cetera, et cetera. It’s huge. Second, pricing\u2014we are working on new agents for: How can we [more smartly] package a deal? How can we [more smartly] price a deal? What are the deals we have done with this customer before? What are industry best practices? So also that will fundamentally change how you actually create and close a deal. Take legal\u2014today they’re screening a lot of papers to analyze a certain case. AI will be a big game changer there to focus more on, okay, what kind actions can we take? No, it’ll impact SAP a lot, and that’s why we have a massive project running also inside SAP, change management\u2014using our own AI\u2014where we ask all our managers to really look into: how will AI help you to become more productive?\u2014while, of course, also making sure that the people understand how to use those tools in the future. And that is not a half year exercise. That will take one or two years. Also, the AI will become more mature. So that will be a long term journey.<\/p>\n
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Wood: How do you future-proof SAP more generally for the next five years and beyond?<\/p>\n
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Klein: If in five years from now, not 70% of the deals we are closing does not include, really to a large amount, AI, then we are probably not successful, because this agentic AI layer will take over huge parts of the business processes we are running today. So that is, for me, really, really important. And then the second piece is, of course, industry-by-industry, really be the best in understanding: okay, you run all of these supply chains for us today. How is SAP the front runner when it comes to resilient supply chains, intelligent supply chains, in the future? And that is what we are doing here now, but you need to engineer that.<\/p>\n
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Wood: Let’s imagine a world a little bit down the road where actually we can sit back and relax because \u201cJoule\u201d the agent is doing both our jobs for us. Let’s picture that. I’m gonna be sitting on a beach with a margarita. What does that world hold for, for Christian Klein? Are you gonna be living out your childhood dream, ski racing, or where are you gonna be?<\/p>\n
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Klein: Yeah, I mean, imagine, you know, here in this place we are actually doing our earnings. You are sitting at the beach, I’m sitting at the mountains of Austria or Switzerland, and yeah, enjoy life. And there is an agent, you know, presenting itself smart enough to answer all of your questions better, and you actually can just instruct a chatbot, \u201cHey, today, Quill Christian,\u201d \u2014 or the chatbot of Christian \u2014 \u201da little bit more on this topic.\u201d I mean, absolutely possible. I still believe, nevertheless, honestly, [in] human conversation. I mean, you leave every conversation, you have a gut feel. You feel the sentiment. Yeah. I’m not saying that AI can’t measure that as well, but at the end, there is still a piece left for an analyst, for an investor, for a CEO, for CFO, who is still, you know, also where you need a human being, where you need the sentiment, feel the emotions in the room\u2014to also then come up with a final judgment: was this, you know, good earnings, or not so good earnings?\u00a0<\/p>\n
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Wood: We need to keep that personal connection.<\/p>\n
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Klein:\u00a0 I mean, human beings also like that. I mean, I love this conversation.\u00a0 I enjoy it, and I guess this is who we are. We need that. And by the way, also when we talk about innovation, the home office thing after COVID was of course big, but we changed that because I’m a big believer that innovations also happen here at the coffee corner. And that’s why I also believe, when you want to create innovation, that is not only happening offline at the beach, or on the top of a mountain.<\/p>\n
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Wood: Perfect. Look, this is a great conversation Christian. I really appreciate you taking the time. Thank you very much.<\/p>\n
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Klein: Thanks a lot. Yeah, thank you for having me.<\/p>\n
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Wood: Christian Klein’s leadership at SAP is a study in transformation under pressure\u2014how a legacy tech giant reinvents itself without breaking what makes it essential.<\/p>\n
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Six years ago, he inherited deep skepticism. Critics had written SAP off as a cloud laggard. What’s defined his tenure isn’t caution\u2014it’s his willingness to disrupt SAP’s own business model to secure its future.\u00a0<\/p>\n
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The companies that endure won’t just adopt new technology. They’ll integrate it so deeply into their customers’ operations that it becomes indispensable. They’ll know when to take risks and how to bring people along.<\/p>\n
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That’s exceptional leadership.<\/p>\n
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That’s all for this episode of Exceptional Leaders from Morgan Stanley. For the video version of this conversation, visit morganstanley.com or our YouTube channel\u2014and be sure to rate, review, and subscribe wherever you get your podcasts.<\/p>\n","protected":false},"excerpt":{"rendered":"Christian Klein: AI is really changing, once again, how businesses run in every part. And we need to…\n","protected":false},"author":2,"featured_media":21809,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21036],"tags":[24229,24134,24231,9695,24230],"class_list":["post-21808","post","type-post","status-publish","format-standard","has-post-thumbnail","category-sap","tag-exceptional-leaders","tag-morgan-stanley","tag-podcast","tag-sap","tag-video-series"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/posts\/21808","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/comments?post=21808"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/posts\/21808\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/media\/21809"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/media?parent=21808"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/categories?post=21808"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/germany\/wp-json\/wp\/v2\/tags?post=21808"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}