Computer Business Review recently caught up with Dr Jim Goodnight, CEO of business intelligence and analytics provider SAS Institute, at its Premier Business Leadership Series in Las Vegas to discuss the coupling of business and technological innovation to stay ahead in today’s fast-paced and highly competitive environment.
Even though Goodnight is a techhy at heart, more comfortable coding behind a keyboard than in front of a microphone, he certainly has enough business experience and savvy to comment on what’s important for managing a successful software enterprise. Three decades after gaining his doctorate in statistics and forming SAS with colleagues from North Carolina State University to analyze agricultural data, he has built the world’s largest privately-owned software firm and was named by Harvard Business School as one of the 20th Century’s Great American Business Leaders and one of the America’s Top 25 Most Fascinating Entrepreneurs by Inc Magazine. He is also an active participant in the World Economic Forum, where business leaders discuss issues on international standards, regulations and global economic issues and is renowned for his outspoken views on educational reform in the US.
In this interview Goodnight shares his thoughts on the critical role that education plays in driving innovation back to US shores and how SAS is striving not just for technological but also business management leadership.
Q. What’s the Premier Business Leadership Series all about?
A. The idea came from us as an outgrowth of the Better Management user group meetings from our 2002 acquisition of ABC Technologies [an activity based analytic management software firm that SAS bought]. Those meetings focused less on technology issues and more on business issues. That’s now evolved from a SAS Forum to a management conference that we call PBLS, which provides a forum for private and public sector executives to share innovative ideas for accelerating business performance and new ways of thinking about how you make business management decisions. So the goal of the conference is to provide an opportunity for executive participants to gain knowledge from global thought leaders who will highlight trends, challenges and best practices for business leadership and performance management. You’ll notice that we speak very little about technology at the event.
Q. So this is SAS telling the market that it’s more than just an analytic software provider?
A. Absolutely. While we are the best at doing analytics, we also provide a full enterprise intelligence strategy to use these tools to support business efforts and solve critical issues. I’d say we’re in a generation of opportunity – the global economy, Web 2.0, the sophisticated consumer, and so on – and achieving success in this environment depends on their ability to jump the curve and predict their future.
Q. Indeed business innovation seems like a key theme at PBLS. How has it been important in your industry?
A. I’ve learnt that in the software business if you stand still you’re going to get run over. Software isn’t static. You should be constantly updating it and adding new and innovative features and capabilities. SAS’ software products aren’t created on an assembly line, but in the minds of people. That’s why we call ourselves a knowledge company. The best way to innovate is to work with our customers – the ones that have the business problems. We work together to create software that solves those problems and in the future possibly sell that to other companies as well. That’s what we did with a customer that asked us for anti-money laundering solution six years ago. Now we’re number on in that space. So I tell my sales people: don’t be afraid to sell stuff we don’t have as yet, but do it with the notion that we’re going to build something (laugh).
Q. What impacts a company’s ability to innovate?
A. Innovation happens where you least expect it – usually at the intersection of different technologies and business domains. You must constantly look for it and coach your teams to embrace it. The problem is that many companies tend to get inward looking and their staff more concerned about their position vis a vis others in the organization. And in doing that the company forgets to look at the competition. For instance, when development teams are heads-down to meet deadlines it can be difficult to accept a new or better idea that comes from outside your domain. But it’s critical to learn to do this. This dynamic along with bureaucracy and petty hierarchies are the burden large organizations face. Every CEO must be diligent in addressing these issues or you will find the only way to innovate is through acquisition.
Q. What’s role does analytics play?
A. Analytics is a key ingredient in a company’s strategy; driving innovation, competitive advantage, and fact-based decision making. There is a logical alignment of topics.
Q. What types of innovation are you seeing in enterprise software today?
A. As I’ve already said, innovation for our analytic solutions occurs more closely with interaction with customers where we work jointly to discover new ways to optimize business processes. But Sometimes can’t wait for customers to give you the idea. You have to come up with it yourself.
Q. So where’s the innovation coming from today in the software industry?
A. Business innovation is happening around the world wherever risk and failure are supported and encouraged. We see it around the world inside of SAS. Technology innovation happens when those with deep skills can attempt to apply new technology to solve a problem and not worry about failure. However, I’m worried that in a decade or two all the innovation – all the new products and medicines – will come from Asia, and [the US] will become a service economy.
Q. What do you think has caused this shift?
A. The problem is there’s no sense of urgency. Think back to 1957 and the Sputnik launch by the Russians. That made the US terrified. We thought: if the Russians could put an object in space then they could equally rain down nuclear weapons upon us. We panicked and the Congress mobilized and passed a national defense education act and poured millions into schools, colleges and universities to provide grants for scientific research, engineering and labs. Heck, when I went to college [Goodnight studied mathematics] back in 1961 it was like marching off to war!
That clear and present danger is not here today and as a result we’re losing ground to Asia. That’s sad because our kids are the smartest technology-oriented generation there has ever been; they’re born with an iPod in one hand a cell phone in another. They’re Googling and using things like MySpace, YouTube, instant messaging and Xboxes.
Yet our school system hasn’t realized that and they’re using the same old methods to teach this new plugged-in generation. They’re asking kids to leave all that technology stuff at home and stare at a blackboard. It’s no surprise that a third of kids in the US are graduating from high school. In fact the US is now 16th in the world when it comes to drop outs. They’re not going to survive in today’s knowledge economy without at least a high school education.
Q. What types of skills are lacking in the US?
A. At SAS we’re looking for workers with technical skills for development positions, but finding consultants and sales people with domain expertise is also a high priority. In the risk area in particular, we have aggressive growth plans and aren’t finding enough of that skill in the market. SAS employees who refer job candidates in these categories that we eventually hire receive referral bonuses. In the US these can range from $3,000 for experts in operations research to $5,000 for a national account executive.
Q. There seems to be a lot of development work being done in India and China right now? What about SAS?
A. Almost all of our development is done in the US, but we have some developers in China, India, and the UK. Only a handful of developers are here on H1B visas. We reached our 2008 cap in June of this year. The US is crying out for help in this area. We’re simply not producing enough skills. Nor are we being allowed to bring in more than 65,000 people each year [referring to the tech quota of H1B work Visas] who have those skills. Why restrict these bright people from coming into your country?
Q. What can the US do to plus the skills gap and catch-up?
A. The answer is to bring technology into our schools’ curriculum. My wife [Ann] and I along with John Sall [SAS’ co-founder] started the Cary Academy 12 years ago with that goal in mind – as a model school that integrates technology into all facets of education and learning. The Academy uses technology extensively in the classroom and every student is assigned a tablet PC upon which he or she takes notes. Teachers can watch them doing class assignments and see which one’s are struggling. It’s a great way to drive down the drop-out rate and also improve classroom demeanor.
Q. Does SAS’ unconventional approach to R&D help you innovate? Will that continue?
A. Last year we were at something like 24% of our total revenue [$1.9bn] which is quite a bit more than most other software companies, who tend to focus more heavily on sales and marketing. That’s an area which SAS has only paid greater attention to in the last four or five years. Being private has allowed us to do that, and we’ll continue to do so in the future. It’s proved to be a very successful way to run a software business. We’re not private but our customers are our real shareholders. They aren’t worried about our quarterly profits but rather the value proposition we’ll continue to provide for them. Customers expect us to innovate and deliver new features they want in the next release. Customers of other vendors like SAP often have to wait four or five years.
Q. Why do SAS employees stick around so long?
A. It’s simple we care and look after our employees. Companies prosper only when they make best use of their creative capital – i.e. their staff whose creative thinking and ideas generate valuable products and services. Innovation might be key to success in the software business. But it’s creativity that fuels that innovation. Those creative thinkers are especially important to SAS because our software is really a product of their minds. As such 95% of SAS’ most valuable assets drive out of the gate every evening. It’s my job to maintain a healthy and balanced work environment that keeps them coming back every morning. I think I’ve succeeded in doing that. Yearly staff turnover at SAS is around 4%, which is far below the software industry average of 20%. Plus SAS has been a fixture on Fortune Magazine’s Best Places to Work lists.
Q. What to you make of the rampant consolidation happening in the BI and analytics software market today?
A. To me it’s really about Larry Ellison [CEO of Oracle] and his ego wanting to make his company bigger. Oracle’s swoop for Hyperion Solutions [for $3.3bn in April] is just another chapter in Oracle’s ongoing saga with SAP. To me it’s really part of a customer acquisition strategy against SAP. When Oracle messes it up by stripping all the innovation out of the companies it acquires I expect we’ll get quite a few customers from them, not to mention bright employees as well.
Q. Fair enough, but can SAS grow quick enough itself to compete?
A. We’re an organic growth company first and foremost and we intend to stay that way. In 30 years we’ve acquired less than 10 firms [most recently
Veridiem, a marketing resource management company, along with
MarketMax for retail planning and merchandise, ABC Technologies for activity based management, Intrinsic for marketing automation and Dataflux for data quality]. In fact we’ve built 95% of our analytic and BI products ourselves and we only buy in specialist or industry expertise or niche functionality to fill in parts missing in the SAS platform. We’re more focused when we do an acquisition. It’s always small, which means it’s easy to integrate into the core SAS platform.
Q. You’ve had some strong words for Microsoft in the past. Why?
A. Probably the least innovation of any company on this planet is being done by Microsoft. But if you look at what they’ve done, they have simply copied other people’s ideas, and done that quite well. Microsoft’s hallmark is personal productivity tools. Again, they do them well. But when it comes to innovation that leads to sustained competitive advantage, businesses do not look to personal productivity tools. They need the ability to uncover and harness the value within their data. They get these things from enterprise intelligence software powered by analytics.
Q. How is the SAS of today is different from the company you founded back in 1976?
Q. Well there are more people for sure. Plus we’ve got rid of all our paper documentation and replaced it with CDs. Seriously though; I think SAS has become better known in the industry thanks to more aggressive PR and marketing. We’ve got the word out better as to what we’re about.
Q. Where do you expect SAS to be in 10 years time?
A. I don’t think that far ahead. Two years is the maximum that any software company can think ahead. However, I would say that I’d like us to more nimble, well-known and continuing to be at the forefront of innovation in BI and analytics software development.
Q. And SAS will still be a private company with you at the helm?
A. I certainly hope so. I’m not thinking of retiring right now – I’m only 64, which I don’t think is old. I’m still having too much fun.