H-P to Oracle: here comes Leo (and Ray)

Anyone remember the tagline for The Shining? 'Here comes Johnny' and you see the manic look that only Jack Nicholson can bring to the big screen. Hold that thought regarding the appointment of Leo Apotheker, ex-CEO SAP to the top spot at H-P only with the tagline 'Here comes Leo' as I speculate on what this means.

Apotheker the right man?

Reports that Apotheker has been appointed as CEO H-P have largely been met with knee jerk derision. Silicon Alley Insider did what it does best: concentrate on the negatives to the point of quoting an un-named source as saying the appointment is 'idiotic.' Thomas Wailgum draws heavily on what he sees as Apotheker's failure at SAP and that he doesn't have the fresh eyes H-P requires:

Remember that Apotheker spent 20 years at SAP, was groomed for the top spot, only to fumble his chances away. Exhibit A: SAP's Business ByDesignsuite of Web-based applications, which during Apotheker's watch was "success-challenged," to put it mildly.

The future of business software is going to require "fresh eyes" and a "new perspective" from someone who can think "outside the box." Leo Apotheker is not that person.

Really? Well, alongside Apotheker's appointment comes Ray Lane as non-exec board member and chairman.

Let's consider three important facts:

• Apotheker built global enterprise sales at SAP like no-one else before or since.
• Apotheker was always going to be the wrong man in the wrong place at the wrong time as CEO at SAP.
• Anyone looking at this and forgetting Ray Lane built a personal fortune of over $800 million while at Oracle and who since has been one of Silicon Valley's shrewdest investors is truly idiotic.

Much has been made of Apotheker's 'strong' character. Vinnie Mirchandani eloquently captures how interactions with Apotheker can (and often) go:

We had a couple of throat clearing meetings while he was at SAP.

I can attest to that. But equally I can attest to a man who, once he gets to know you is charming, witty, warm and engaging. Our last meeting was one of those chance encounters at a time when it was clear he could not survive. The content isn't important but my abiding memory is of a humble man. Self awareness in Silicon Valley is often in short supply but that's not something you can say about Leo Apotheker. So when thinking about character, something that has been lacking at H-P for some time, Apotheker ticks my boxes. Sales? Yes - he's up there with the best. Strength of will in keeping cost under control? Another box ticked. Engineering friend? No and that's potentially a real problem for the company as it needs to innovate across multiple product lines. Has he learned from his SAP top spot experience? We cannot know but my gut instinct is that he will have taken away huge lessons and having some time to reflect is always useful. My only caveat is whether ego will get in the way of his making good choices. Again, none of us can know until we see him in action.

The Ray Lane factor

Let's turn to Ray Lane. Colleagues know him far better than I but in my few encounters I saw a person with an extraordinary breadth of understanding, knowledge and vision. He's an operational master who has broadened his scope considerably. That speaks of yet another person who is self aware. Back to Vinnie and his inevitable tie to polymath themes:

With his software and services history (Booz, EDS, decent sized Oracle Consulting) he also brings some of that perspective to HP. And if you buy into the trends I profile in my book on how GE, BASF and so many others are marrying infotech, cleantech, biotech, healthtech etc, HP could use his guidance well beyond its own current infotech focus.

What about strategic direction?

Now to the strategic directions that seems to be on everyone's mind. The printer business leaves me scratching my head. With so much talk about mobile, one has to wonder whether this will be a business that goes into slow but long term decline. Beyond that I have nothing to offer.

Ray Wang looks to core strategy and opines:

Oracle’s strategy takes silicon to software and signals a need to deliver turnkey verticalized, integrated offerings.  Should HP continue to just serve in the commoditized infrastructure market, Oracle will beat HP in joint accounts for thought leadership and mind share.  Oracle’s going after the high end server market and the verticalized appliances.  HP must have something to offer business leaders should they wish to compete.  Software solutions is a core requirement.  HP could partner with SAP in the short term to double up and battle Oracle.

It's not an unreasonable analysis. Where H-P could take a quick win is in the tablet market. Right now enterprise leaders are going nuts over the potential for tablet devices to open up mobile application markets. FinancialForce recently announced a deal which sees all road warriors in a new customer using iPads. Apple is arguably taking an early lead but Dell isn't exactly standing still. Larry Dignan recently implied that H-P will make an Android play. Listening to developer chatter, that sounds like a popular move.

H-P to acquire SAP? No way but...

Now to the question that has been exercising the minds of those looking at the SAP and H-P relationship. In Larry Dignan's report, he quoted SAP co-CEO Bill McDermott saying on Bloomberg TV:

SAP and HP are really good partners… for SAP this is a net positive. For our competitors in Redwood Shores, this is a net negative, so I’m looking at this with bright eyes.

Leo is a very global guy. He really understands the market and clearly understands this high-tech industry. He’s very customer-driven… All in all, he’s just perfect for us because he knows we’re the best business software company in the world.

Putting aside the inside baseball team irony in parts of that statement, it draws attention to the need for both SAP and H-P to offer the market a strong response to Oracle's hardware and software play as outlined by Ray Wang. Back to Larry Dignan who says of the inevitable speculation:

...the biggest one will revolve around HP’s potential acquisition of SAP. HP and SAP have a common enemy: Oracle. Meanwhile, HP has the resources to acquire SAP. And SAP’s ownership of Sybase plays well with the enterprise mobility theme HP has been targeting via the acquisition of Palm.

Many have latched onto this idea conflating it into a possible merger story. Phil Fersht reflects some of the sentiment among many commenters when he says:

Leo is the man you'd want if you are planning to acquire SAP.  He knows the company inside and out and is savvy enough to work out some sort of game plan to integrate the German giant into the HP empire.

Except I believe that thinking is looking at this through the wrong lens.

First up, both SAP and H-P face a common enemy in Oracle. That's stating the obvious. But in bringing Apotheker/Lane into the mix, H-P is introducing two people who have not been directly involved in the day to day firefights for a little (or long) time. It means they can bring new - yes new- thinking to the table about how the SAP/H-P relationship is leveraged while watching to see what sort of a fist Oracle makes of the hardware/software combination.

If Oracle Open World is an indication then at least in the short term, SAP/H-P have nothing to worry about. Unlike Ray, I don't see the same threat level coming from Oracle. The imagery garnered from Iron Man may speak to a company that plays hard but the Exalogic box didn't exactly set the world alight with interest. Let's not forget that Exalogic was Ellison's main theme at a conference many described as lacking vision. But what of the long term?

Any thought that H-P would acquire SAP is fanciful. Regardless of what I might think, there is no escaping Apotheker's low employee ratings at the time of his departure from SAP. This was something about which I drew parallels to Mark Hurd's employee ratings. You can argue that internally, H-P employees might fear a repeat of the past but that would ignore the differing reasons why Apotheker and Hurd scored so poorly. Apotheker is a sales guy at heart while Hurd was a glorified bean counter. But in a SAP/H-P combination, the powerful German workers councils would almost certain make it impossible for H-P to acquire. So let's flip that coin.

Let's imagine that both SAP and H-P agree there is a need for some sort of combination in the face of a long term threat from Oracle. H-P would need to do a lot of house cleaning along the way to build an asset that is much cleaner than what we see today. It would need to be much more closely aligned to the notion of hardware, software and services delivered to any device. That has to be an as yet to be articulated but common goal.

Apotheker can 'sell' that idea to H-P while leaving Lane to keep the ship running smoothly and cutting any necessary divestiture deals. To the side, SAP Co-CEOs McDermott and Snabe can do the needful, taking their cues from Apotheker. It may even be possible for H-P to revitalise the EDS division and so make any combination more attractive. In the meantime, the boards of both SAP and H-P can quietly work out a deal where SAP becomes the reverse takeover king and which rewards Apotheker handsomely for his efforts. That in itself would explain Bill McDermott's generous words about his former boss and would, as Larry Dignan implies, allow Apotheker to bow out to enjoy his wine collection in the certain knowledge he had redeemed himself from the recent past.

If you take that view then just as I thought Apotheker was always an interim CEO at SAP, the same can be said for him and Lane in this current situation. Except in this case, I can imagine a much higher purpose.

UPDATE: Some are reminding me that SAP has always said it wishes to be a software company. Three years ago, Henning Kagermann, then CEO SAP told me SAP would never sell Business ByDesign for less than 25 people, nor would it follow a surround strategy. Funny how a few years and market shifts can change things.