Why is SAP North America headquartered in Newtown Square? - Technical.ly Philly

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Mar. 16, 2015 12:33 pm

Why is SAP North America headquartered in Newtown Square?

Now the third largest software firm in the world, SAP's North American HQ is home to 2,500 employees. Back in the '90s, it was almost the city's first big get for the Navy Yard.

SAP's North American headquarters in Newtown Square, Pa.

(Photo by Stephan Pfützner for SAP)

The reason why the third largest software company in the world has its North American headquarters in suburban Philadelphia comes down to short commutes. First it was to early customers, now it’s for the workforce it has grown.

In 1988, SAP (which stands for Systems, Applications, and Products in Data Processing) was a growing West Germany-based IT power with nearly 1,000 employees and a growing clientele in the United States. The company had signed Dow Chemicals and wanted better access to the American market. Looking for its first offices in North America, leadership established in July 1989 a small team at 325 Essington Avenue, minutes from Philadelphia International Airport (with flights home to Europe) and a short drive to Dow offices in Delaware, according to a company history provided to Technical.ly Philly.

During the 1990s, the company mostly grew its American team nearby at 100 Stevens Drive in Lester, Pa., one of many tiny Delaware County municipalities that encircle the airport and host sleepy business campuses interested in nearby international flights and favorable municipal taxes. If you’ve driven I-95, you’ve passed this office, which now is the headquarters of healthcare provider AmeriHealth Caritas. But SAP’s team was split, with the corporate team in a business park in Wayne, then the hub of Philadelphia’s suburban Route 202 innovation corridor.

In 1994, American clients accounted for more than a third of the company’s surging revenue — as the century turned, SAP had 20,000 employees and $5.7 billion in annual income. It had added offices across the United States, including at least five in the Philadelphia area, so leadership sought a consolidated North American headquarters, said Dave Spencer, Managing Director of the East Division of SAP North America.

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“We wanted to put down real roots here,” said the nine-year SAP veteran in a phone call earlier this year. “It’s part of our company lore.”

But catch this: The company’s transition from near the airport to its impressive corporate campus in Newtown Square almost took a detour through Philadelphia.

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In the mid-1990s, Philadelphia officials, led by then Mayor Ed Rendell and then PIDC executive Terry Gillen, negotiated with SAP, then one of the world’s fastest growing software companies, to become the first anchor tenant of the Navy Yard. Though it’s now an innovation cluster, it was then still a desolate dream.

But instead, thanks to longterm tax implications, fast-tracked construction permitting and its largely suburban-based staff, SAP chose the suburban path, landing up I-476 in Newtown Square for its $100 million headquarters. The company purchased 170 acres along West Chester Pike from the downsizing Arco Chemical Co., where it developed the sprawling campus in Delaware County it calls home today.

“Mostly it was the cost factors involved,” said then PIDC chairman and longtime Philadelphia real estate leader Walter D’Alessio in 1998. “I think they gave an honest look and a fair amount of effort to the city. I think the decision not to come was a combination of the early stages at the Navy Yard — being the first in is tough. And the second thing is the bottom line, and that just didn’t work for SAP and what they wanted to do.”

Now 15 years after opening its Newtown Square campus, and having continued to expand it, the company is firmly ingrained in Delco.

  • Last spring, Bill McDermott, who lives in Villanova, was named the first sole American CEO of the global company. Though he spends much time in the company’s global HQ in Germany (SAP cofounder and chairman Hasso Plattner is still notably active), McDermott keeps an office in Newtown Square.
  • Even its younger employees largely live mostly in the surrounding western suburbs, with only 16 percent of SAP’s 20-something employees living in Philadelphia city, according to a company spokeswoman.
  • Many of the company’s larger North American clients are still along the East Coast, including pharmaceutical and medical technology companies, said Spencer.

The company’s leadership is rather boastful of its LEED-certified, green-inspired campus.

“We’re proud of our role in Philadelphia,” said Spencer, who lives in Doylestown and has a daughter attending Temple University. He oversees accounts from Virginia to “Boston and beyond,” so he does a considerable amount of traveling, he said. During our phone call he was in New York, but his primary office is in Newtown Square and “that is home.”

SAP is at a unique time in its 43-year history and, given its leadership and substantial American customer base, Newtown Square is a major influence. Last month, McDermott announced “the biggest product launch ever [by] the most global software company on the planet,” one that is part of what company leadership bills as transformational, while investors appear to think otherwise.

Much of that technology is being developed in Delaware County. Of the company’s nearly 75,000 employees, some 2,500 are in Newtown Square, mostly on the IT side, said Spencer. The company heavily recruits from area universities, notably Drexel, a member of the company’s affiliate program, which exchanges software for student access.

Also “the city is equidistant to both New York City and Washington, D.C. and is easily accessible to our employees in cities such as Baltimore and Pittsburgh,” the company said in a statement in response to Technical.ly Philly questions.

Of course, by now, many of the company’s official stances on why it remains headquartered in this region are self-fulfilling. It’s here because it has been here. SAP’s workforce largely lives in the western suburbs. It has a healthy customer base here. For example, most of the 700 companies in its SAP User Group are in the Philadelphia region, said Spencer.

But it must remain a global company — as CEO McDermott told this reporter last fall.

“Our ecosystem is made of our customers and that’s around the world,” said Spencer.

Still, he said SAP is trying to raise its profile in what he knows is a growing Philadelphia technology scene.

“[In the past] there wasn’t much [knowledge] of a community. There wasn’t a lot of collaboration,” said Spencer, who added that he joined PACT in recent years to build relationships. “We’re starting to see the community.”

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Christopher Wink

Christopher Wink is a cofounder and Editorial Director of Technical.ly, the local technology news network. In that capacity, he is a co-organizer of Philly Tech Week, Baltimore Innovation Week, Delaware Innovation Week and other events that bring smart people together. Previously, Wink worked for a homeless advocacy nonprofit and was a freelance reporter for a variety of publications. He writes regularly about news innovation and best business practices on his personal blog here and curates a personal monthly newsletter of ideas and links here. The bicycle commuter loves cities, urban politics and squabbling about neighborhood boundaries.

  • John Franke

    Imagine thousands of employees commuting to a suburb on infrastructure that is not up to the task. It’s terrible and contributes heavily to urban sprawl. Public transportation options are aweful and commuting by bicycle is dangerous. The Navy Yard would have been a much better choice, leading the way to renewal of defunct property and historic buildings and easily accessible along I-95.

  • Angie

    The German leadership must have done their homework to choose such a beautiful location in Newtown Square. So many large companies have moved out of Philly in the past 20 years due to the incompetent politicians who failed to fix the tax structure. Most families prefer the burbs which offer a much better quality of life. Great article!

    • Cameron E.

      HA, then why is there no train station nearby? And by nearby, I mean walking distance.

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