After an acquisition: SAP Ariba CEO on how to sustain innovation (and what can go wrong)

alex_atzberger_finalEven when acquirers pay billions of dollars for their prize, too often they spend the years after the deal closes driving away some of the most productive employees and squashing the culture that made the company so appealing in the first place. Alex Atzberger warns that if you don’t work hard to avoid that, acquisitions can bleed the acquired company of its innovative spirit.

Atzberger is CEO of SAP Ariba, a division of the German software giant that was acquired in 2012 for $4.3 billion. Ariba had built a cloud-based procurement network to connect buyers and sellers, and had reached $335 million in revenue prior to being picked up by SAP. Before taking on the CEO role at SAP Ariba, he had worked as Chief of Staff to SAP CEO Bill McDermott, and as a Senior Vice President based in Shanghai.

We spoke with him earlier this month about what to do — and what to avoid — following an acquisition, as well as his perspective on why innovation needs to be taking place within mainline business units, as opposed to solely in a lab or innovation center.

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Culture & identity. You can’t crush the identity of the people inside the business. We had a proposal at one point to rename Ariba and call it SAP Procurement. Everything would become SAP. That’s what Oracle does [with companies it acquires]. But you need to still have the identity, and ensure that the employees that come onboard still feel the sense of identity. It sounds trivial, but the name of the company is on your business card. It’s what you refer to. It makes a big difference to people.

At Ariba, I have my own CMO, within the marketing organization, to help make sure we have our own identity and value proposition.

Process and structure. There’s no doubt that a big company introduces more structure and process, but you want to as much as possible shield the acquired entity from some of that — especially in the first six to twelve months.

Integration points. There are a couple of really important integration points, like how we work on accounts together, and bringing the sales teams together. Making the connections at that level is important. And big companies want a unified finance system that can produce a single set of numbers. But do you need integration of everything? I don’t think so. Same thing with mandating a portfolio process, where you decide how to invest engineering capacity across the whole company. That sort of process works for a company the size of SAP, but in a business the size of Ariba, with 4,000 people, it can be a killer. I want an agile development team that can decide on things quickly. I don’t want them to go through an approval process. Too many approval processes really breaks people’s necks. It doesn’t add any value. And nobody in the larger company can better approve something than the people who ran the business in the first place. Why should an SAP person far from the product and the account be able to say “yes” or “no”?

I see collections of loosely-coupled businesses as the model of the future. Otherwise, too much integration limits what they can achieve.

Meeting overload. [After an acquisition], you could spend a year doing nothing else other than internal presentations. But that’d be a waste of time and the wrong focus. You need a navigator — one person who can help serve as a guide through SAP, and single out what’s important and what’s not important.

Retaining founders. In some cases, it is OK to bring in new leadership. What worked in the past might not work in the future. Sometimes when you have the founders remain, they struggle with some of the bigger company processes, and don’t understand how to leverage resources in the best possible way.

Confronting the innovator’s dilemma. Creating an innovation center, even with GoogleX — I think there are some interesting ideas that can be explored in that sort of structure. But revenue-wise, and to be meaningful for the business, it typically is too small to really change the company. I don’t think they are the answer to the innovator’s dilemma.

Instead, I think a better approach is to take the heart of your business, and structure it so that entities have end-to-end accountability, so they can address market opportunities and become the best in class. For Ariba, it is cloud procurement. We wake up every day and say, “How do we win against our competitors?” If we think about innovations like artificial intelligence or the Internet of Things, those need to be embedded into the applications that we create. That’s where the power comes in, rather than to put an innovation lab somewhere and create a showcase for AI, but not really change the way our apps work.

My team and I are focused on growth. The only way I can grow sales at the levels I am supposed to grow sales is that I need those sorts of innovations. You have to set the right goals and be willing to make the right investment. If you want this group to be the future of the company, you need to put the money behind it. If I don’t incorporate AI into my solution, I know that in two or three years, a new competitor will do exactly that, and will take our pie. Typically, SAP would’ve missed that opportunity. From my perspective, innovation needs to come out of the business units.

But SAP does have a Chief Innovation Officer [who leads the SAP Innovation Center Network.] They come up with proof of concepts and look at base research. I work with my CTO to engage with that person. I do think that if you create an innovation lab, you can work on things that are two or three horizons away from your current core business, and current customer implementations. In time, that stuff gets closer to view. But what companies need to focus on getting right is when you switch something over from the lab into your product groups.

I think that those innovations need to be done with the idea that the exit is becoming part of the applications business, versus creating a new standalone business. I do try to influence the agenda of the incubators and innovation groups [around the company] If they want to explore virtual reality for manufacturing [uses], and believe it’s a good idea for SAP to go into that, they can choose to do so. But my personal view is that large companies have to identify what their core is. With Google, the vision is organizing the world’s information. You have that vision and you’re nimble in how you get there. At Ariba, we want to make procurement awesome. In doing that, we want to remain nimble and fast and close to the customer, but we know procurement is what we’re doing.

Connecting to think tanks and thought leaders. This is one benefit of being part of a larger company – you have resources and reach. For instance, our Silicon Valley campus holds innovation sessions regularly where luminaries come in to talk about future trends. My team is encouraged to join in and keep learning.

How we stay customer-driven. As tech companies get larger, they introduce more functions between engineering and the customer. You start to build up a lot more overhead. I think it’s a fallacy and a mistake to do that, especially in a technology business. Our engineers are on-site with customers, getting requirements directly and building solutions with customers. All functions need to touch the customer and be with the customer. We created a customer advisory board with fifteen of our largest customers. Sometimes, when you’re part of a larger organization, you can be tempted to say, “SAP already has that kind of board.”

I lead by example. I spend 70 percent of my time with customers — both prospects and existing customers. Each executive that reports to me has three key customers that they directly sponsor. This means they need to meet with these customers on a quarterly basis, listen to their concerns and needs, and relate our strategy. [We also] celebrate top employees that are recognized by customers, and co-innovate with our customers.

Reducing friction, delay, and distance is the ultimate way you build a customer-driven organization.