It is estimated that 63% of all transactions in Europe occur via programmes developed by SAP, which has more than 230,000 customers and earned €16 billion in revenue last year. Jim Hagemann Snabe was appointed co-CEO of SAP with Bill McDermott in February 2010. In 2011, his base salary was $1.1 million and total compensation reached $5.5 million. He has worked for SAP since 1990. He is also a director at Bang & Olufsen Holding, the design and technology company. Hagemann lives in Copenhagen and works in Walldorf, Germany. He recently visited the London School of Economics to speak about “Creativity and recovery from recession”.
What is a co-CEO, Mr. Hagemann?
Co-CEO means, or at least this is what I tell my wife, that I share one of the best jobs that you can get in a company.
SAP is one of the few large IT companies in Europe. Should Europeans worry? Can we do something about it if, indeed, we agree it’s a problem?
In the summer of 2012, I was invited to attend the opening ceremony of the London Olympics. And–congratulations to London, by the way–what Europeans saw was a collective success that generated value for the rest of the British economy. In itself, the ceremony was a celebration of precisely that legacy over the history of the UK: the original rural areas and farms, the industrial revolution and the transition to a new era of transformation, represented by scenarios of hard manual work and masses of workers. And then, here it came the digital revolution, which basically appeared to be …a musical number, a party that lasted two hours. And this made me think as a European: where was the creation of value? The new digital era, an era of great opportunity, in short, had been reduced to a single, huge celebration with loud noises and lights. And this made me worry about the future of Europe
You, too, are pessimistic about Europe.
We have critical challenges before us. It is difficult to pinpoint where the economic growth will come from in Europe. We compare ourselves to emerging markets such as China, which debates whether GDP will increase by 8% or 9%, but this is totally irrelevant from our perspective because these are, in any case, unattainable percentages for us. Moreover, even among our peers in the United States, for example, there is greater optimism: I do not know if the Americans carry it in their DNA, because if you look at the current crisis in the United States, it started from a base position very similar to ours. However, their attitude is much more positive, and very often they tend to exploit the opportunities before we are aware of them.
Besides, if we look at the overall picture, there has been a 180-degree turning in the worldwide map of economic activity. If we compare the costs of production and labour, Europe sits in a very difficult situation to compete. Furthermore, in our industry, we find people extraordinarily well prepared and educated in India, for instance. Using these parameters, which are quite important, it’s time Europe realises is not going to be easy. And it is even worse if we add that the population group of young people in Europe is decreasing every year: in India alone there are over 400 million people under 25 years. Think about it.
So young people in Europe are in for a tough race.
It is irrational that our young people suffer such unemployment levels as currently seen in many EU country members. We have to fix this, and fast.
Your description is demoralising.
Wait a moment: I am Danish, and as Danish, I am optimistic. The Danes are forced to be optimistic because we are a country of five million, what in China would called “medium sized city”, and yet we know that we can change the world. So, I am optimistic and when I see how the digital age is shaking the pillars of most of our industries, I realise the vast opportunities of change, recovery and growth in productivity that we can achieve.
Does it help, to have the euro?
Do not believe for a moment that when we talk about the crisis in Europe, we are talking only about the survival of the single currency. It is about innovation, where we find productivity, the future of our next generations, and how to create value from the digitisation of our economy. I would say, it is not about how much an hour of work costs but how much value an hour of work produces if we add technology to the equation. And I am convinced that the scope for expansion of the value of an hour of work is dramatically greater than the profits to be expected when you choose cheaper labour in emerging markets.
Where does SAP in this scenario?
We are dedicated specifically to add that value, but my hypothesis goes further. We are a company with 41 years of experience, one of the world leaders in our industry, and we are so because we have reinvented ourselves. We have plans to grow by 200% in five years, and these forecasts are feasible because we have focused our attention on innovation and new technologies.
If we consider the state of the European economy, we see that on one side there is very high youth unemployment and, paradoxically, in our industry we cannot find the right people for the jobs we offer, so we are forced to look outside. In Spain there are over 50% youth unemployment, for example, and unfortunately we did not find the IT talent we need.
But, as I said, the changes occurring and that will occur in all industries through digitisation are enormous.
There are some clues out there: among the world’s largest companies by market capitalisation, IT enterprises have risen over the last ten years to represent 43% from 21%. Only since 2008, start-ups with faster growth than the average all have appeared in the technology sector. And by the way, all have been American and all have been directed towards the use of technology. Europe is lagging behind, look at the number of patents filed each year in Europe and China… our industries, as a result, are being left behind, too, because technology is no longer a matter of a sector but a need throughout the economic system.
Can you be more specific?
Everyone is aware of what has happened to the music industry: when they invented the MP3 format, what was the reaction of the sector? None. Interesting, is it not? And when the first illegal music distributors online appeared, what was the reaction of the music industry? Legal action. They wanted to educate the consumer. When you are in a business meeting where you discuss how to educate the consumer, believe me, that meeting is already a failure. When the iPod came, of course, it was too late.
What lesson is there for other industries?
Of course, some will say that music is digitisable, and it is impossible to extrapolate this case to other sectors. But look: financial services, aren’t they digitisable? Do European banks know that there are in Africa service providers using mobile telephones as their main platform? With the highest cost of zero.
New technologies offer us the opportunity, unthinkable until very recently, to include the base of the pyramid of the public among our consumers.
Do you want more examples? Health services: today we can ascertain what are the most effective drugs thanks to digital information of treatments in cancer patients. Thus, it is possible to identify the medication at negligible cost for companies that avoid having to use up to six years in experimental chemotherapy on patients who have sometimes shorter life expectancy. What about mining? This is another case that never would come to mind when we talk about digitisation. But we at SAP have customers in the industry, and provide solutions from the first time the operation begins until the product reaches the containers at the sea port. Even much of the heavy machinery work automatically, nowadays.
And Europe is missing out this new wave of change.
We are not prepared, we are not. It is essential that Europeans develop the intellectual abilities to exploit this new era.
In Germany alone, we have concluded that there is a lack of IT staff of at least 40,000 workers. Estimates, by extrapolating to the rest of the European Union, indicate that in 2020 there will be up to 200,000 IT jobs vacant due to the shortcomings of our current educational system. When I compare our situation with India and China, I see that these countries are developing these skills, mathematics, engineering, aggressively and at high speed.
But what do European companies like SAP propose? Do you expect the public sector to face the costs of these changes alone?
SAP is part of a project with other companies in the industry, an academic centre, a platform to share knowledge and to teach potential employees new digital skills, and educate them. We must accelerate this process in programming. It is a problem that we have to find solution together.
The key to the overall economy is creating jobs.
I represent a company that in the last three years has brought more than 20,000 new workers to our company, two thirds of them through acquisitions and the rest thanks to our organic growth. The ratio offers an explanation about why I think it isn’t the big corporations that must be asked to generate new jobs. Apple itself has created many more jobs in sales assistants than any other type.
I think this is the time for governments and large companies to support small and medium size companies, which are free to act flexibly and quickly, to generate jobs. Many may think it is strange, or even a mistake, to offer support to those who can become your direct competitors, and critics would say it is something that neither the directors nor the shareholders should allowe. But the discussion is another one altogether: SAP, like any other company that is successful, is at the same time victim of that success, which is a huge limitation against innovation. Innovation always comes from lower business levels. Instead of fighting the small and medium enterprise, we have to promote it and easily identify good ideas, new entrepreneurs, and new international markets. Over 80% of European jobs generated in the last decade have come from small and medium enterprises. In one of my recent visits to China, I expressed to representatives of business organisations my confidence that our programmes could help nearly one million small companies: they replied that why I spoke about only a million.
In the digital age, the question to ask is not who will give us work but how we create our own job.