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In this episode of BCG's "CEO Moments of Truth" series
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I'm sitting down with Christian Klein,
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CEO and chairman of the executive board of SAP,
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a global leader in enterprise applications and business AI.
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We are exploring one of the toughest challenges
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a CEO can tackle, reinvention.
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When underlying economic realities
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and industry dynamics shift, how does a leader reshape
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and transform their organization
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for success in an entirely new business model?
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(upbeat music)
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Christian, it is so good to be with you today.
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I see you've hurt yourself, how are you doing?
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Yeah, thanks for having me Christophe.
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And to be clear, to avoid any kind of rumors,
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this was not an annoyed customer or partners.
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We don't have annoyed customers.
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Actually, this was completely on me,
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but a good piece is, you know, there's a surgery,
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a little surgery required,
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but the professor told me my tennis
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and ski career is not at risk, so all good.
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That's good, but now, while you are hurting right now,
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SAP, the company that you lead is on an amazing journey
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of success over the past years.
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Tell us a bit more about where things stand.
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I mean right now, indeed, so we are on an all-time high.
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The company is developing really well
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and very happy where we stand.
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But especially in tech, if you believe everything is done,
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then you're yesterday's company.
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So there's no time to rest.
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Listen, you became the sole CEO of SAP in April, 2020,
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pretty much in the middle of the COVID pandemic.
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And soon after that moment,
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you came to a very important decision about the need
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to transform the fundamental business model of SAP.
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What led you to that decision and how did you make it?
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Before I became the CEO,
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I was also the chief operating officer of SAP.
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And I have seen the company for many different parts.
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So, and I also saw that, hey,
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my legacy ERP customized, you know, very mission-critical
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for the company--couldn't serve my new business.
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So I said, "Stop it.
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We need to rethink our business model
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because all our customers are sitting
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on 15-year-old releases, which cannot serve
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the business modules of the future.
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And to also make sure they always stay on the latest release
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and don't fall behind 15 years
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of, you know, new innovations,
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we have to move them to the cloud."
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This decision was actually make-or-break for SAP's future.
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Even if you know, as a CEO,
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that this is the direction you have to take,
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there are still concerns that weigh on you.
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What were the concerns that you felt
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you had to manage at that point in time?
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I mean, that was a big change.
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I said to my CFO back then, hey, when I'm now also changing,
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you know, from an upfront license model on Premise
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to a recurring subscription module, we need to go back
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to the financial market and tell them,
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"In order to give SAP long term, a future,
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we have to take a few billion profits out short term.
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But it will be very rewarding, you know,
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on the mid- and the long term."
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So for you it was a must,
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but then when you went out to the capital markets
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and you communicated the change in strategy
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and the change in business model
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from on-prem to all in on the cloud,
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the market reaction was very negative.
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Take us to that moment.
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Did you actually wonder, "Well Christian,
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was this the right thing and was it the right moment?"
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Because we were still in the pandemic,
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there was a lot of difficulty in the world.
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How did it feel?
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I mean, of course, yeah, you can prepare yourself
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for such a day and I didn't expect, you know,
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a positive reaction.
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Trust me on that, I mean,
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but still, then when it hits you, not only the company,
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it also of course hits yourself.
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I mean you have feelings
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and you know, this night was not easy for me.
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I needed probably more than one glass of wine.
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But the next day, and this is also who I am,
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I mean this is also what I learned in sports,
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is, you know, you can fall down,
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but then next day you have to stand up.
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So it's then the time to fight
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and to convince the people to come on that journey,
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not falling back and say, "Oh, the world is so miserable.
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How could this ever happen?"
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I mean, you can have these thoughts for a few moments,
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but the next day it's very important that you walk on.
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And then second is what is also very important
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from a leadership perspective
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is you cannot over communicate at that point of time.
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And that you can only do if you talk to the people,
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if you explain in a very authentic manner,
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why was this now the right decision?
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Because then you look at the share price,
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but you still have to believe, okay, but there is an outcome
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and he can explain it in a very authentic manner.
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Why was this now the right decision for SAP?
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Your SAP user groups are very influential
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and I know very important to you personally
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and to the company overall.
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Tell us a bit more how you brought them along.
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It's a very good question, Christophe,
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because not only investors had question marks
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about the decision, of course customers approached us as well
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and said, "Hey Christian, I spent
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so much on my ERP on premise on your platform
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and now suddenly you are shifting it all to the cloud.
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You know, how can I actually move on
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on this journey together with you?"
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And I said, "Hey, we are not only expecting you now
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to lift and shift an existing legacy landscape to the cloud,
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use this as a chance because no matter if you are in energy
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or if you are in oil and gas or retail,
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I mean your industry is also disrupted as well
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with new technology.
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So take this opportunity and we help you.
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We start with the business,
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we start with the business process layer
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and things will, what does your company need to transform?
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We will have tools, we will have architects.
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We call this offering Wise with SAP.
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So you will be not alone in this journey.
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We know that many big companies
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try to transform themselves and never get there.
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Many fail, you succeeded.
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How did you do that within your company?
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Again, also a very valid point
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because you know, they are the investors,
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they are the customers, now they are the employees,
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and they also had huge concerns
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when they saw the share price collapsing.
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Are we now yesterday's company and is there hope?
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And I said, "Of course there is hope.
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We have a great foundation,
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but now we need to change the way how we work as SAP."
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And it was super important to over-communicate
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and give people's confidence that yes,
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we have the right strategy, now let's execute together.
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So we told our product owner, say,
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you have to now come together on one platform
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to build a modular suite,
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but not like, you know, a Frankenstein stack.
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We have to be one SAP.
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And similar thing on the sales,
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on the marketing, on the delivery side,
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I mean suddenly, you know, the whole module changed
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and we needed to work on reskilling.
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We needed to work on training.
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We needed to build up also certain shop profiles,
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which we didn't have.
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That's why we did restructuring.
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So if you look forward,
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let's say five years into the future, 2030.
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Yes.
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What do you think are going to be the core elements
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of your success story in 2030?
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Definitely, and not in five years,
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actually in three years I see a world,
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where you're going to do...your quarter ends,
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and there's probably your chief accountant saying, "Yes,
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I like the work, what the agents of SAP did.
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And I actually have my books closed,
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you know, in almost real time
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and not in 20, 25 days when you look at your cash flow,"
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Said, "Oh, this software is so intelligent,
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it's analyzing the root causes and it helped me."
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This week I had a logistics company
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who was hiring around about 100,000 people a year
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and they said, "Hey, on recruiting,
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I like your use case, let's expand it.
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And so that also, my recruiters at the end
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can still make the final decision."
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But a lot of the work, the screening,
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finding the right people,
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attracting the right talents is done by the AI agent of SAP.
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And this is one where we are now going to,
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we have a good foundation
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because we have the data,
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we understand the business process,
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we understand the industry,
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and if we bring this together with all the new technology
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around AI, I mean this is the kind of flywheel
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what we will now infuse in all of our solutions.
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I think that's a great vision
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and I'm sure you will do everything you can to get there.
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Now Christian, let's talk about you as a person.
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What did you learn as a leader
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and how has that shaped you?
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I mean, I learned that a piece of technology
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is not transforming a company.
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A cloud move is not transforming a company.
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Yeah, you have to really think through
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starting with the business, starting with the end users.
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What do they need in order to be successful
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in the age of AI, in the digital age.
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That is very important.
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Also on the leadership side, I mean, I regretted, you know,
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looking back to the last five years,
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only the decisions which I didn't make
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and not the decisions which I did.
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when they're not all right decisions.
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But I'm more managing under, you know, the belief
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that you rather do ten decisions a day and eight are good
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and two are not so good, instead of just standing still
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and paralyzing yourself.
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Wonderful Christian, it is so great to hear from you.
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Congratulations on the amazing success story
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and all the best for the upcoming surgery.
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We will fix that.
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Good.
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Thanks a lot.
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(upbeat music)