Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the SAP Board Pivoted to the Cloud
Transcript
- Lucas: So there's a moment in SAP's history that I keep coming back to, and it's the board meeting in October 2019 where they decided to raise their cloud investment target to fourteen billion euros by 2023. At the time, the stock dropped almost four percent the next day because investors were terrified of the margin hit. Luna: That's a big bet. But wasn't the board kind of forced into it? I mean, the cloud was already eating everyone's lunch by then. Lucas: Right, but here's the thing. SAP's board wasn't just signing off on a strategy the CEO dreamed up. In Germany, the supervisory board has real power. They had to approve this plan, and they had to navigate the co-determination system where employee representatives sit on the board. So this wasn't a Silicon Valley-style 'move fast and break things' decision. It was a negotiated compromise between capital and labor, between short-term profits and long-term survival. Luna: And the employee reps actually went along with it? Because restructuring was coming, right? Lucas: They did, but not without concessions. The board approved a restructuring that would cut over four thousand jobs — that's four percent of the workforce — but they also committed to retraining programs and no forced layoffs in Germany. That's the co-determination trade-off. The employees get a voice, but they also share the pain of transformation. Luna: So the board wasn't just a rubber stamp. They were actually negotiating the social contract of the pivot. Lucas: Exactly. And that's the angle I want to dig into today. Because when we talk about board strategy, we usually think of American boards — independent directors, activist investors, short-term pressure. But SAP gives us a different model, one where the board acts almost like a mini-parliament for the company's stakeholders. Luna: And it's a model that's been tested hard. SAP's cloud pivot wasn't a one-quarter thing; it's been years of grind. Lucas: Yeah, and that's the thing. We're sitting here in August 2026, and SAP's cloud revenue is now the majority of their total revenue. But back in 2019, that was far from certain. Their legacy on-premise software — that was the cash cow. And the board had to decide how much of that cash cow to slaughter for the future. Luna: And that's where the board's role gets interesting. They didn't just approve a budget; they had to set the pace and the tolerance for pain. Lucas: And they did that by putting a number on it. Fourteen billion euros. That's what they committed to spend on cloud-related acquisitions and R&D through 2023. And that number sent a signal — not just to the market, but to their own sales force, their engineers, their customers. This was a full commitment. Luna: But investors hated it. I remember the headlines about the stock drop. Lucas: They did. And that's where the board had to hold the line. The CEO at the time, Bill McDermott, was the architect, but he left shortly after. And the board had to find a successor who would continue the strategy. They brought in two co-CEOs — Christian Klein and Jennifer Morgan — and that was a signal that they wanted continuity with a fresh pair of eyes. Luna: And then Jennifer Morgan left after just a few months, right? So the board had to double down on Christian. Lucas: Yeah, that was a rocky period. But look — the board's job wasn't to pick a perfect CEO; it was to make sure the strategy didn't die with the leadership change. And they did that by tying executive compensation to cloud metrics, not just overall revenue. That was a board-level decision that changed behavior across the entire C-suite. Luna: So compensation was the lever. That's a classic board move, but it's also a risky one if the metrics are wrong. Lucas: Absolutely. And that's a good moment to step back and mention something honest about how this show gets made. We're listener-funded — no ads, no sponsors. A small group of you already chips in through buy me a coffee dot com slash fexingo, and that's what keeps these conversations coming out every day. It's a low-key thing, but if these episodes have helped you think about business differently, that's the way to keep it going. Luna: Yeah, it really does make a difference. And now back to SAP — because the compensation angle is exactly where the rubber meets the road. Lucas: So they tied bonuses to cloud revenue growth and cloud gross margin. And that changed the conversation in every business unit. Suddenly, the people who sold the old on-premise licenses had an incentive to push the cloud subscriptions, even if it meant lower upfront revenue. That's the board using its power to reshape the company's DNA. Luna: But what about the employee side? I mean, co-determination means the workers had a say in that too, didn't they? Lucas: They did, and it's fascinating. The employee representatives on the board had to approve that compensation scheme, and they pushed back on some of the more aggressive targets. The result was a plan that balanced growth with job security commitments. It's not the pure shareholder-first model, but it's arguably more sustainable. Luna: So the board wasn't just a check on the CEO; it was a forum where different visions of the company's future were hashed out. Lucas: Exactly. And that's the real lesson for any company, German or not. A board that's just a collection of yes-men is useless. The SAP board had to genuinely debate the trade-offs — and they had to do it in public, because in Germany, the supervisory board's minutes are often leaked or reported on. That transparency forced them to be more thoughtful. Luna: But did they ever have second thoughts? I mean, when the stock kept dropping in 2022 and 2023, did the board ever consider pumping the brakes? Lucas: There were definitely moments of doubt. The stock underperformed for a while, and there were whispers that they might pull back on cloud investments. But the board held firm. They kept the fourteen billion euro target, and they even increased it later. And by 2025, the cloud revenue was finally outpacing the legacy business. It was a long, uncomfortable transition, but it worked. Luna: And now, in 2026, SAP is one of the few European software giants that's actually thriving in the cloud. So the board's patience paid off. Lucas: It did, but the story isn't over. The board now faces a new challenge: how to integrate AI into their products without disrupting the cloud momentum. And they're doing it the same way they did the cloud pivot — by setting clear targets, aligning incentives, and making sure the employees come along. Luna: So what's the takeaway for someone listening who's on a board or advising one? Lucas: I'd say this: the board's real job is to set the long-term direction and then build the incentive structure that makes it impossible to go back. SAP's board did that with the fourteen billion euro commitment and the compensation overhaul. They didn't just approve a strategy; they engineered the company so that every manager would have to fight to make the cloud work. Luna: And that's a lot harder than it sounds. Especially when the short-term numbers look bad. Lucas: Right. And that's why I find this case so instructive. It's not about being heroic; it's about being methodical. The SAP board used every tool at its disposal — governance, compensation, communication — to shift a behemoth. And they did it without breaking the social contract with their workforce. Luna: So, any final thought on what other boards can learn from this? Lucas: Just that transformation is a team sport. The CEO gets the spotlight, but the board is the one that creates the conditions for success — or failure. SAP's board chose to be the former. And that's a choice every board has to make, even if it's not as dramatic as a cloud pivot. Luna: Well said. That's a wrap on SAP's boardroom battle.