Failure Is Important, Says Indian Tech Leader

STANFORD GRADUATE SCHOOL OF BUSINESSFailure is an essential part of the innovative process, Azim Premji, chairman of the Indian outsourcing giant Wipro Technologies, told a Business School audience. "It is impossible to generate a few good ideas without a lot of bad ideas. Failure should be forgiven and forgotten quickly," he said during his Oct. 27 visit. Premji's talk was part of the School's View from the Top speaker series. Premji, who over the course of a 40-year career helped transform Wipro from a familyowned vegetable oil business (Western India Vegetable Products Ltd.) into one of the largest outsourcing companies in the world, said failure is a critical ingredient in innovation. He added that innovation is what enabled young startups to upset the existing balance of power. To that end, companies must deliberately design a culture of innovation to actively seek feedback from customers, celebrate all kinds of diversity in their workforces, and also foster an environment in which workers feel safe taking risks, even when they fail. "In every market, at every juncture, there are significant scale advantages that make the largest companies appear invincible. Yet time and time again, upstart technologies create disruptions and they change the rules of the game," said Premji. He used the example of Skype, which became the first company to offer voice-over-Internet phone services on a broad scale years after all the established phone companies had started talking about the process. Premji is widely recognized as the innovative business leader who shifted his company "from Crisco to computers." That gradual evolution started during the 1970s, when IBM exited the Indian market, leaving more room for local computer manufacturers. Wipro began assembling its own machines and later set itself up as a provider of computer and IT services to global firms operating in India. Years later, as computers became more commoditized, Wipro again shifted to a stronger focus on servers and offered global R&D labs for hire, where a range of Western high-tech and consumer products companies could conduct critical research at a lower price. A graduate of Stanford's engineering school, Premji said that real progress comes as much from changing behavior as it does from inventing new products. "Creativity is about making new things. Innovation is about doing new things," he explained. Today, Wipro is the world's largest independent R&D services provider. But at a time when many Westerners are skeptical about offshore outsourcing, Premji's discussion offered some perspective on the long history and innovation that led up to the current state of the outsourcing business.

Asked about the political or economic implications of moving so many jobs overseas, he was quick to defend outsourcing as an industry that benefited Western businesses as much as it did companies in India. "Please don't underestimate the trends," he said. "Western culture is not encouraging students to go into engineering, and those who do usually do not want to go into computer science. Outsourcing is inevitable," he continued, "not so much because of cost arbitrage but rather because of talent arbitrage." One telling statistic he offered was the dramatic change in worker movements when they left his company. Although Wipro has consistently had an annual attrition rate of 13 to 14 percent, just four years ago almost all of the workers who left were departing for jobs in the United States. Today that trend has completely reversed itself, with only 1 percent of workers leaving Wipro for jobs with U.S. companies. "There had been a trend of professionals going to the U.S. in an effort to make a lot of money. But now people are wanting to come back to India," he said, noting that the same trend applied in other developing countries like China. Andrea Orr

Empowering Workers Is the Key, Say Infosys Executives

STANFORD GRADUATE SCHOOL OF BUSINESSN.R. Narayana Murthy, named one of the Economist's top 15 most-admired global leaders, takes one of his most important business lessons from Mahatma Gandhi. Quoting the famous leader in a talk at Stanford, Murthy told listeners: "Be the change you want to see in the world." Murthy, the founder who served for 21-years as CEO of India's Infosys Technologies Limited, said in his May 4 talk that executives who want innovation and commitment from employees must model risk-taking and personal sacrifice. "It's the only way to gain

the credibility necessary to motivate people to give their best," he said. "And," he stressed, "your people are your most important asset." Having led his own corporation to revenues of $2.15 billion last year, and a present market capitalization of $20 billion, Murthy indeed has a great deal to say about what it takes to succeed in global business. He and his wife Sudha Murty, one of India's first female technology engineers and chairperson of the Infoys Foundation, shared their wisdom on how best to help a company generate profitsand give them back to the communityat the Stanford View from the Top speaker series. "The task of the leader," Murthy stressed, "is to change the mind-set of your people to become positive, confident, enthusiastic, daring, and open-minded to change." Staying relevant in the market means not holding on to innovations, but "rendering them obsolete" and disseminating them as soon as their value has been extracted. Infosys, which provides consulting and IT services in the areas of banking, capital markets, retail, and high-tech manufacturing, he said, keeps moving ahead by continually turning constraints into opportunities. Our motto is "A plausible impossibility is better than a convincing possibility," he said. At Infosys, Murthy noted, employee morale and the entrepreneurial spirit are supported through a system in which ideas are accepted on their own merit, regardless of where on the totem pole they originate. "In God we trusteverybody else brings data to the table," Murthy quipped. The company also rewards people through recognition, time off to pursue interests, and financial incentives. It builds trust with customers as well by "underpromising and over-delivering," and with investors by delivering bad news up front and sticking to a policy of disclosure and transparency. Finally, said Murthy, "you must earn the good will of society by living in harmony with the environment and making a difference." Toward that end, the Infosys Foundation gives back to the "poorest of the poor" of Indiafrequently womenthrough microlending, counseling, and educational efforts. "We make them aware of their potential and lead them to opportunities," said Sudha Murty. And, she stressed, "we never give anything for free, because I've learned that when you do, it is treated as though it has no value." For Murty, compassion and generosity are also critical qualities for any leader. A person who makes money without giving some of it back to enrich society, she said, "ends up with a flower made of goldyou can't smell it." Marguerite Rigoglioso

The CEO Must Steer the Corporate Culture, Says Steve Ballmer

STANFORD GRADUATE SCHOOL OF BUSINESSMicrosoft CEO Steve Ballmer usually sleeps very well at night. Only two issues tend to cost him rest: human resources challengesbe they personality conflicts or losing employees to competitorsand learning new business models. To illustrate the latter, he cited the Linux operating system, which started competing with Microsoft Windows in the late 1990s by giving away much of what the Redmond, Wash., company sold to consumers and businesses. "If somebody came to you and said, 'Hey, you've got a new competitor [that] has no price [and] no cost,' you might stay up a night or two," he told an overflow student audience at the Stanford Graduate School of Business. "You really might." But Ballmer was far from fretting March 15 when, as part of the student View from the Top speaker series, he visited the audience with thoughts on leadership and anecdotes from the business trenches. Ballmer met Bill Gates at Harvard College in the 1970s, but unlike his future partner, Ballmer graduated and took at job at Procter & Gamble marketing brownie and muffin mix. Ballmer eventually enrolled as a member of the Stanford Graduate School of Business Class of 1981, but after his first year he took a summer job at Microsoft, which Gates had founded in 1975 after leaving Harvard. Ballmer turned down offers in consulting, finance, insurance and automobile manufacturing to become the 24th employee at a company whose future seemed anything but assured. Ballmer's father told his son he was "completely nuts" for tying his fortunes to high tech. His mother asked him, "Why does anybody need a computer?" By the end of his first summer in Seattle, Ballmer had begun to agree with them. He told Gates he was leaving Microsoft. "You don't get it," he said Gates told him. We are "going to put a computer on every desk in every home." That was the sales pitch that persuaded Ballmer to buy a house in Seattle and stick with the company, and the desktop revolution helped grow Microsoft from a startup with two dozen employees into a company that takes in more than $44 billion in net revenue and employs 74,000 people. Microsoft owes much of its triumph to its ability to grow beyond the desktop software business model. It has expanded into servers, consumer electronics, and information/media. The success of the Xbox and the imminent rise of internet television will drive the next generation of growth, Ballmer said. When asked how Microsoft intends to compete with Google, Ballmer dismissed the idea that Google's ascent threatens his company. Critics said the same thing about Linux, and Microsoft responded by increasing market share, he said.

Ballmer conceded that Google built one very good business on its search technology, but said "everything else [it produces] is sort of cute." Microsoft has shown itself to be a multi-trick pony when it comes to building new businesses, he said, and while it dabbles in robotics and other ventures, pet projects aren't "paying for me to come down to Stanford Business School." Google is constantly producing new features, from maps to desktop software, video, and chat. But "I don't really know that anybody has proven that a random collection of people doing their own thing actually creates value," Ballmer said. Google is milking its search success, but the true test of a company is whether it can continue making profitable innovations, he said. Despite having worked closely with Gates for so long, Ballmer was surprised by two things when he became CEO in 2000. The first was the feeling of having bottom-line accountability, and the second was that it's impossible to delegate culture and values. You can delegate finance, marketing, and even strategy, he said, but a CEO has no choice but to steer the culture of a company. Good leaders should simplify problems without "making them seem so mom and apple pie as to be meaningless," he said. Leadership is a balancing act that weighs optimism against realism. Successful leaders encourage employees to take risks while still holding them accountable. Ballmer said his biggest personal challenge is time and how to spend it. He uses a 35-row spreadsheet to balance travel, hanging out at home, and evenings out. Each year he gives himself a "nights away" budget, and he makes time to drop off his three young children at school and get home in time for dinner, or at least dessert. Aside from golf, which he enjoys, and running, which he has to do to stay fit, he doesn't have time for a lot of hobbies. Ballmer described Gates as the smartest person he's ever met, a technical genius with business sense to match. But Gates is transitioning to a part-time role at Microsoft, which means the 27-year Gates-Ballmer partnership will have to transition as well. It would be ridiculous to try and replace Gates, Ballmer said. Instead, Ballmer is focused on running a first-rate company, and to do that he's working to develop a new set of partnerships within Microsoft. "You can have great things happen after great leaders [leave]," he said

eBay's 193 Million Users Like to Speak Up, Says Whitman

STANFORD GRADUATE SCHOOL OF BUSINESSMeg Whitman's first look at eBay's website did not inspire visions of a multinational company that sells $1,608 of

merchandise per second. The site had an online auction section where people sold collectibles, such as Beanie Babies, but it also prominently featured information on the Ebola virus, a passion of founder Pierre Omidyar. Whitman met with Omidyar anyway about the CEO positionand concluded he was a visionary. She took the job as president and CEO of eBay, a company with just 30 employees, in 1998. Today, eBay has 13,000 employees and 193 million users all over the world. And it has a passionate community of users who send Whitman thousands of angry e-mail messages whenever the company does something they don't like. The company's dramatic growth was one theme of Whitman's May 23 talk at the Graduate School of Business, part of the student-sponsored View from the Top speaker series. She also discussed lessons she has learned during her career, which has included executive positions at Hasbro and the Walt Disney Co. And she described two major acquisitions for eBay, PayPal and Skype. PayPal and eBay have helped each other in ways that made the acquisition seem natural: eBay provided the person-to-person transactions that PayPal needed to grow, and PayPal's online payment system made it easier for eBay's users to make their purchases. "PayPal had become the wallet on eBay," Whitman said. "We had to own that company." The synergy is less obvious among eBay, PayPal, and Skype, which lets people make phone calls over the internet and which eBay bought last year. But Whitman said the goal is to harness "the power of three"getting all three companies to thrive on their own but also build on each other's strengths. One area where PayPal and Skype can work together, for example, is in fraud-fighting efforts. Skype, like eBay and PayPal, has seen enormous user growth: It has at least one user in every country in the world except North Korea. Like eBay and PayPal, Skype grows through user referrals. "It has a pattern that we recognize really well," Whitman said. "I think we understood what Skype offered far faster than almost anyone else." Whitman, who keeps a notebook in which she writes down things she learns each week, also reflected on lessons she has learned in more than eight years at the helm of eBay. One, she said, is that "the price of inaction is far greater than the cost of a mistake." The culture at eBay allows people to make mistakes, as long as they recognize and fix them quickly. Whitman emphasized the importance of hiring "an A+ team" and making sure people are in the right job at the right time. This can be a challenge when the company is growing fast and the responsibilities of many jobs have multiplied.

Whitman focuses on hiring "ahead of the curve"that is, hiring people who can handle a bigger job than what theirs will be initially, so that as the company grows they'll be ready for it. This focus stems from another of Whitman's lessons learnedthat experience and intuition matter. "Pattern recognition is gained through experience," she said. Whitman also has developed a strategy for starting a new management position. "The tendency when you come in from outside is to prove yourself by finding what's going wrong," Whitman said. She suggests a counterintuitive approach: Find out what's going right first. Although it may seem that identifying and correcting problems is the best way to add value early in a new job, focusing first on what's being done well is a valuable way to learn about the company culture. Whitman ended her talk by fielding questions from students. When asked who eBay's competitors are, she mentioned, among others, that brick-and-mortar retailers are becoming serious online competitors. Another student asked how Whitman and her husband, a Stanford neurosurgeon, balance two high-pressure, high-profile careers with the demands of raising children. "With great difficulty," Whitman repliedand, she added, with a lot of help both from people they hire and from family and friends. There are always trade-offs when it comes to workfamily balance, Whitman said, and the key is to make them intelligently. Another questioner asked what motivates Whitman and other longtime eBay employees to keep working when they don't need to financially. Some of the company's early employees have left to pursue other interests but most have stayed, she said. "What we try to do is give people what we call a career adventure." Part of that is having a sense of purpose: eBay helps 1 million entrepreneurs make their living selling their products. As for what motivates her, Whitman said, "eBay is endlessly interesting." Margaret Steen

Create Candor in the Workplace, Says Jack Welch

STANFORD GRADUATE SCHOOL OF BUSINESSAccording to Jack Welch, companies that develop extraordinary products and services do more than gain market sharethey represent the very foundation of society. "Winning companies are the only things that matterwithout them, nothing else would work," the former chairman and chief executive officer of General Electric told Dean Robert Joss on April 27.

Welch and Joss chatted before a packed house in Memorial Auditorium about a few of the management insights described in Welch's most recent book, Winning. "My first book was all about me," Welch said, referring to his 2001 New York Times bestseller Straight from the Gut. By contrast, Winning, co-authored with his wife, Suzy, codifies the expertise that Welch has developed and refined over the course of his careernamely, the management philosophies that helped him turn a $13 billion company into a $500 billion enterprise over the course of a 20-year tenure at the helm of General Electric. A remarkable absence of candor in the workplace represents one of the most significant obstacles to companies' success, he said. "In a bureaucracy, people are afraid to speak out. This type of environment slows you down, and it doesn't improve the workplace." Instead, Welch called for developing a corporate culture that encourages and rewards honest feedback. "You reinforce the behaviors that you reward," he explained. "If you reward candor, you'll get it." An effective performance appraisal system, he said, relies not only on honest feedback but also on meaningful differentiation among employees. At GE, he put these principles into action by implementing a forced ranking system that divided employees into three distinct segments: the top 20 percent of performers, the middle 70 percent, and the bottom 10 percent. Even though GE's "20-70-10" systemwhich methodically manages out the bottom 10 percent of employees each yearhas always been controversial, Welch emphatically defended it. "Why are grades OK from the time that you're in fourth grade to the time you're getting your MBA, but not OK once you're an adult?" Welch asked. "You need to use the same rigor to evaluate your people that you use to evaluate your financial statements." Using a forced ranking system requires this type of discipline. "You should take the top 20 percent of your employees and make them feel loved," Welch advised. "Take the middle 70 percent and tell them what they need to do to get into the top 20 percent." Managing out the bottom 10 percent of performers is necessary not only for the organization's continued success but also for the sake of employees affected by the rigorous appraisal system. "People need to know where they stand," Welch said. "Failing to differentiate among employeesand holding on to bottom-tier performersis actually the cruelest form of management there is." An effective performance management system isn't the only HR mechanism driving a company's success. The strategies most critical to an organization's performance relate to its peoplehow they're selected, rewarded, and developed so that highly capable leaders and managers are in the right roles at the right times. Nonetheless, Welch said it's not the company's responsibility to ensure that its employees achieve an appropriate balance between their personal and professional lives. "The organization's job is winning," he said. "Winning companies create value in the products and services that they deliver. They should strive to provide opportunities and job security for their employees, but it shouldn't be the company's job to figure out your work-life balance."

Employees aren't guaranteed an entitlement to the type of flexibility needed to balance professional and personal demands. "Flexibility is something that's earned-it's not something that's handed to you," he said. "If you deliver, you'll earn the flexibility to manage competing priorities." For a company's top performers, Welch said that the right combination of rewards and recognition (oras he put itthe appropriate mix of "cash and plaques") fosters a highperformance work environment. Good managers know exactly how to motivate each of their employees, but Welch suggested a few specific strategies for rewarding excellence in the workplace. "Have small celebrations for every little victory on the way to reaching your goal," he advised. "Excite people. Send them to training. The day you become a leader, your job is to take people who are already great and make them unbelievable." Lisa Vollmer Bhatia Describes His New Urban Design Plans for India January 2007 STANFORD GRADUATE SCHOOL OF BUSINESSAs cofounder of Hotmail Corporation, Sabeer Bhatia helped revolutionize communication. Now he's tackling communities. The web-based email veteran is building a new city in India from scratch around a model he hopes will attract young, highly skilled workers seeking a stimulating community to live in, and high-tech companies seeking to employ them. The new community will be known as Nano City after the technology Bhatia believes will help drive India's growing economy, he told students at the Stanford Graduate School of Business during a January 23 talk sponsored by the school's Global Management Program. Nano City will combine Silicon Valley-style creativity with a vibrant culture and small environmental footprint, Bhatia said. The community will depend on a privately run infrastructure and, if it is to succeed economically, it must be the kind of place a young engineer wants to live. Workers today have their choice of jobs, and most would rather not toil in a business park at the edge of suburbia, he said. If Nano City can attract young people by offering a world-class education and sense of community, companies will follow. "It's not just creating a zone or an office park," Bhatia said. "I'm looking at this whole problem in a more holistic way." Much like Hotmail became the model for web-based email, Bhatia hopes Nano City will become a model for urban growth in India, where development is often "haphazard and unplanned." In Bangalore, what should be a seven-minute drive takes three hours during rush hour, he said. Transportation, water, and other infrastructure systems are already inadequate in India's urban centers, which are predicted to grow by 100 million people in 10 years. India would need to build 300 new cities to absorb them all comfortably, Bhatia said. Faced with a portion of this staggering growth, government officials from the state of Haryana asked Bhatia to help them build a new economic center on what is now farmland. The community "will get developed come what may," Bhatia said. His job is to make it great from the get-go.

Bhatia's social vision for Nano City is utopian: Education will be "the finest in the world"; buildings will trap and re-use energy; after work, residents will meet friends in restaurants, shops, and bars within walking distance of their affordable apartments; on weekends they'll ramble the city's greenbelt. Nano City's soul is so essential to Bhatia's business model that he'll likely sell his first wave of homes at cost in order to attract residents, he said. But that's where the freebies end. Most everything but the police department and legal system will be privately built and operated. This model is an answer to the days of socialist India, said Bhatia who left India in 1988 to attend California Institute of Technology. In California, he found himself with a working phone in 24 hours. In India, the same publicly administered service would have taken 10 years, he said. The Indian economy has made dramatic strides since then, mostly thanks to private enterprise, Bhatia said, and while it might be uncommon to put urban planning in the hands of an entrepreneur, Bhatia sees his skills as perfect for the job. "An entrepreneur just thinks on his feet, or her feet, constantly," he said. "To me, [Nano City] is a problem, or a series of problems, I have to find solutions for." Bhatia's company is currently buying up Nano City land, which is now worth five times its agricultural value. When built out, the site will be about half the size of San Francisco and house some 500,000 people. The first residents will likely move to Nano City in 2010 or 2011. In addition to his work on Nano City, Bhatia is president of Arzoo.com, an online travel service in India, and chairman of InstaColl Technology Corporation, a service that tracks document revisions online. He holds degrees from California Institute of Technology and Stanford University. Sarah Ruby

Today's Technology Must Do More than Merely Dazzle STANFORD GRADUATE SCHOOL OF BUSINESSThe technology industry is no longer the brash young kid on the block. As they mature, tech companies are facing the reality that large parts of their market are outside the United States, that customers are no longer dazzled just because a product is new, and that a global workforce is here to stay, Bruce Chizen, president and CEO of Adobe Systems, told a Business School audience.

Chizen

"We once had the idea that if we built cool technology, people would come and buy it. We did that until '96-'97, when it became clear that in this environment you have to innovate way beyond technology," Chizen said. In introducing Chizen at his Oct. 23 View from the Top speech, Business School Dean Robert Joss estimated that one of Adobe's products, Acrobat Reader, runs on 500 million computers worldwide. Tech companies generally sell more of their products outside the United States than to the domestic market, Chizen said.

"We can no longer build products for the U.S. market and hope other countries adopt them. We get 20 percent of our revenue from Japan, a society that is much different from ours. We have to tailor our products to the way they work, they collaborate, and communicate." In addition to relying on international sales, firms like Adobe rely on international workforces. Trying to deal with the siren call of low-cost offshore labor is a major issue facing Chizen and his peers. Hiring engineers in a country like India or China, he said, is affordable and efficient but, almost more important, does not mean a decrease in quality. "India and China are graduating more computer science majors than we are in the U.S. and that's scary," he said. "If you look out a number of years and look at K-12 math and science, we're behind India and China." Compounding the problem, he said, is that many international students who are still drawn to the superior higher education programs in the United States now plan to return to their native countries after graduation. In an era when a top-quality engineer may earn $15,000 in India as opposed to $90,000 in Silicon Valley, Chizen said, those hired for jobs in the United States will have to stand out. They will have to demonstrate leadership, a willingness to be a team player with coworkers who may be in different countries, and a passion for the job and desire to think outside the box. "If we just want someone to follow the rules, we can hire them elsewhere and for less money," he said. As technology matures, its customers are also becoming more discerning. "A lot of corporations around the world have made huge investments in IT and now are looking for returns. Consumers are inundated with technology and are not interesting in spending as much as they once did on PCs or chips or the next version of software. "Products must be geared toward business, but they must be much easier to use or consumers and industry alike won't be willing to buy them," Chizen advised. by Cathy Castillo

Chinese Consumers Likely to Set Product Standards in Future, Cell Phone CEO Says

Sarin STANFORD GRADUATE SCHOOL OF BUSINESSTalent and hard work obviously were important factors in Arun Sarin's rise to the helm of Vodafone, the world's leading mobile telecommunications company. As a young man, Sarin graduated near the top of his class at the Indian Institute of Technology and went on to earn a dual master's degree in engineering and MBA from the University of California at Berkeley. But as he told students at the Stanford Graduate School of Business April 21, there was another factor in his stunning career success: luck. As the 52-year-old London-based CEO explained, in 1984 he and a colleague both were hired on the same day to work for the Pacific Telesis Group in San Francisco. The colleague was assigned to assess opportunities for expansion in the publishing business, while Sarin, sitting in the adjacent cubicle, was asked to analyze the emerging cellular phone industry. As it turned out, "the mobile business grew to be huge," he said, "and the publishing business didn't go anywhere. So luck plays a very important role in life." At 35, Sarin became the youngest corporate officer at Pacific Telesis. Later he served as CEO of AirTouch before joining Vodafone in 1999. Today, Vodafoneknown as Verizon Wireless in the United Statesoperates in 30 countries and has a total market capitalization of $150 billion, 60,000 employees, and 180 million customers. The company is so big, Sarin said, that it is a continuing challenge to keep it growing in a profitable way. To that end, Vodafone recently was reorganized into three major units. The first focuses on reducing costs and introducing new mobile phone technologies in countries where the business already is well established, such as Germany, Italy, and the United Kingdom. The second unit works on grabbing market share in relatively stable but developing countries, such as South Africa, India, and Romania. The third unit focuses on the development of new mobile phone products and services. On the whole, the global telecommunications industry is going through a "perfect storm" of upheaval, Sarin said, and "five or ten years from now all these companies are not going to look anything like the [ones] that you see before you today." One of the biggest trends is the increasing demand for "convergence," or mobile phones that also serve as hand-held television sets and personal computers. As Sarin noted, "More and more of us

are getting tired of the fact that our phones don't sync with our computers, don't sync with our televisions." Another source of frustration is the bewildering array of telecommunications companies that consumers have to deal with, including separate vendors for broadband, cell phones, cable television, and long distance. "We want to be in a business where you buy all your products from us," Sarin said, "and our view is that you only really need two products: a big broadband pipe to your office or home, and a mobile phone. With those two things you're essentially taken care of." Turning to the subject of leadership, Sarin suggested that there are three traits that effective business executives have in common: a good strategic view of the institution and its future (or as he put it, "how the cookie's going to crumble"), the ability to execute plans flawlessly, and the ability to interact well with other people. "You could be the smartest person," he told the students, "but if you don't have good people leadership skills, that's going to stop your growth." The good news is that all of these traits can be learned. Leadership "is a completely practiced art," he said. "You work on it every day, and you get better as time goes on." Now a U.S. citizen, Sarin made a particular point of urging future business leaders in the audience to travel widely and become comfortable with the idea of working in other parts of the world, especially China. Unlike Western Europe, which has a low-growth economy and slowly morphing institutions, China is changing at warp speed. "I personally find it fascinating to see the marked change that has occurred there," he said. "Three years ago, there were lots of bicycles going everywhere. Today there are hardly any bicycles, and cars are going everywhere." The main thing to remember about China, he added, is the sheer size of its market: Vodafone has a strategic alliance with a company called China Mobile that alone has 300 million users. The Chinese market is so large, in fact, that someday the country will be "setting the die" for product standards in the rest of the worldjust as the United States has doing for the past half-century. Sarin, who also has served as a director for the Gap, Charles Schwab Corp., and Cisco Systems, was invited to speak in Bishop Auditorium as part of the school's View from the Top lecture series. Among the audience members was his daughter, Nina Sarin, a Stanford senior. Theresa Johnston

Customer Focus Keeps Amazon Experimenting, Bezos says

STANFORD GRADUATE SCHOOL OF BUSINESSAmazon.com may be the largest online retailing company with 35 million customers

Bezos

and nearly $5 billion in sales, but founder and CEO Jeff Bezos hasn't switched on the cruise control. In his mind, "it's still day one." Speaking to students and others who packed Stanford's Memorial Auditorium on Friday, Oct. 3, Bezos used a humorous slide show to compare the Internet boom with the golden age of electric appliances. (In appliance speak, Bezos said, the Internet is where the washing machine was nearly 100 years ago, made of two barrels with no off switch.) He also advocated experimenting as much as possible to keep innovation moving forward and emphasized the importance of putting the shopper first. Amazon.com Strategy Once an online bookseller, Amazon.com also now sells products like bread makers and tennis racquets from third-party vendors, who account for 20 percent of sales. Some might say the smorgasbord of products weakens the brand, but Bezos defended the strategy, saying he strives to keep the brand elastic by making the customer regularly reevaluate Amazon.com. "We're actually trying to confuse them," he said. A shopper, for example, who knows the site primarily as a bookseller might be bewildered to see that Amazon.com also sells the Segway Human Transporter. But, said Bezos, that "cognitive dissonance" is good and prevents the brand from setting "in quickdrying cement." Brand consistency, he added, develops by providing customers with a good experience whether they're buying a book or a $5,000 scooter. He shed little light on whether the number of products from third-party sources will continue to grow. "We try to do both things as well as we can," he said. "The marketplace will decide what ratio it will be." While other companies have been successful with competition-focused strategies, Bezos said customers drive Amazon strategy. "Our competition set is in constant flux. If we were basing our strategy on who our competition is and what they're doing, we'd be changing our strategy all the time. Whereas if we base our strategy on customer needs, the customer needs are so much more stable, we get to have a much more stable strategy." Customer focus is critical to aspiring entrepreneurs too, advised Bezos. When thinking about ideas for a new company, "you've got to be able to figure out how you can add value to the customer's experience. If your idea doesn't blow you away in that regard, I'd keep looking." Internet Boom and Bust Bezos said his conviction in Amazon.com was tested the most before the company got off the ground. Securing $1 million from 22 different angel investors involved countless meetings, phone calls, and "various forms of begging," he said. "It was by far the most tenuous part of Amazon's existence." When the stock plummeted during the bust in the late 1990s,

Bezos said his biggest challenge was allaying the concerns of his employees, who were being bombarded with negative media news. "From the inside, if you had all the data, it didn't look very scary," he said. Much of his talk, which was the Business School's first View from the Top lecture of the academic year, centered on putting the early years of the Internet into historical context. He compared the rise of the Internet to the golden age of appliances, when infrastructure played a key role. By the time electric appliances were introduced, most households were already equipped with electricity for lighting and consequently could use the same electric sources to power appliances as they did bulbs. In the same way, the infrastructure was in place for e-commerce: Computers were in 40 percent of households, telephone lines were installed, people had credit cards, and the postal service worked effectively. "There were four big pieces waiting for a match," Bezos said. Moreover, the early stages in both cases were rocky. When electric appliances first hit the market, makers introduced all sorts of products, including flops like shoe warmers and tie presses, until they found appliances consumers needed and wanted. Similarly, many Internet businesses came and went. Another parallel: When electric appliances first hit the market, the technology was so primitive they didn't even have off switches. In Bezos' opinion, the Internet industry is at the same early stage right now. Moving Forward For that reason, Bezos said he encourages experimentationand as much of it as possible. His mantra: "Maximize invention per unit of time." In other words, invent as many things per day per week as you can manage. How? Minimize the cost of experiments with small teams, and make build-and-deployment cycles as lightweight and non-dependent on each other as possible. Also, select the right peoplesome are "more comfortable in a high change environment," he said. Third, "let builders build." Numerous groups of small teams will have ideas they want to pursue, and putting few constraints on them leads to faster innovation. Finally, Bezos recommended tracking whether initiatives are successful. Using the Internet to collect data can provide hard facts about what's working and what's not, he said, and that prevents in-fighting and also eradicates hierarchical rank. Despite the fact that Amazon.com is part of the old Internet establishment, Bezos takes none of his success for granted. "Any company like Amazon that goes from zero to $4 billion in sales in eight years, you don't have to know anything else to know there was a lot of luck involved," Bezos said. "Even our mistakes in retrospect turned out to be smart." Looking forward, he said, there are no "pre-ordained winners. It's incredibly fun to come in every day and invent new stuff with the 8,000 other people who work at Amazon. That's what keeps me motivated; that's what keeps me excited." by Sarah Robertson

Gerstner Describes Bringing IBM Back to Health

November 19, 2002 STANFORD GRADUATE SCHOOL OF BUSINESSIt took an outsider to point to IBM Corp.'s problems and a crisis to solve them. So says Louis Gerstner, the architect of the Big Blue comeback, who retired earlier this year as CEO. Gerstner, author of a new book, Who Says Elephants Can't Dance?, spoke to a Stanford Business School audience Nov. 18 at an event co-sponsored with CNET. The elephant of the book is IBM, the firm Gerstner joined in a high-profile debut April 1, 1993. The former CEO of RJR Nabisco had been asked three times to assume the leadership of the world's largest technology company and turned it down saying he didn't have the technical background. The fourth time: "They ran out of candidates and they convinced me it was a leadership-not a technology-problem. I saw it as a challenge." Greeted with hoopla that didn't subside much during his nine years at IBM's top, Gerstner was prodded from day one to articulate the company's vision . Memorably, he was quoted as saying, "The last thing IBM needs (right now) is a vision"except the press generally dropped the words right now. The plainspoken Gerstner told the packed Bishop Auditorium audience at the time he thought IBM needed much more than a vision. "Visions are easy. The hard work is to change to succeed." When he took the helm, IBM was in dire straits. Although full of brainiacs who could build super-computers, it was hemorrhaging money, losing more than $13 billion in two years. Its share of the mainframe market had plummeted by 50 percent and thousands of employees had left. There was truly a crisis at IBM, with the overhanging threat that investors would force a breakup of the venerable company that invented computing. But crisis was what helped Gerstner turn the behemoth around, he said. "If you are going to change an institution and change the culture, you've got to have crisis," he said. Gerstner, one of the country's top change-artists, spent considerable time describing how culturenot the product nor the manufacturing processis the most important element in an enterprise. He said it is impossible to change an institutionbe it private or nonprofitwithout changing the culture. "The levers you have to pull are cultural, not directional. It's how people think, what they value, what they do." Business School Dean Robert Joss, who with CNET reporter Dan Farber interviewed Gerstner, pointed out that management can't unilaterally change a business-culture. Gerstner agreed, but said you can tell employees that if they don't support change, the company they work for won't exist. IBM was "stuck in neutralnumb," he said. "We needed to convince people to keep it together to fight for leadership and bring IBM back."

To make IBM a profitable company again, Gerstner shed assets, canceled products, cut prices, and fired staff. One of the notable changes was abandoning the OS computer operating system, and ceding market share to competitor Microsoft Corp. Cutting the price of mainframes, which accounted for most of the profits, was another risky move, but "we had to do it to hang onto our customers. If we had failed, the company wouldn't have made it." When he left, IBM was once again in the black (the nearly $8 billion profit in 2001 marked the eighth straight year in the plus column) and back in the ring as the heavyweight to beat. Gerstner had convinced the highly intellectual, individualistic, $80 billion working culture at IBM to work as a team. "We understood what made us successful was our size," he said. "When the elephant dances, all the rest on the dance floor leave." by Joyce Routson

Hewlett Packard/Compaq Benefited from their Merger, Says Ann Livermore

STANFORD GRADUATE SCHOOL OF BUSINESSAnn M. Livermore, executive vice president of services for Hewlett-Packard, recalled the round of raspberries that greeted the company's September 2001 announcement that it planned to acquire Compaq. "Wall Street hated it. Investors hated it. Employees hated it," she told the Business School audience at a May 5 View from the Top presentation. "The one group that universally thought it was a good idea was our customer base." Livermore suggested that many parties were resistant to the merger because it signaled the end of an eraconsolidation is a sign of a maturing industry. But HP recognized it was time for consolidation if it was going to continue to respond to its clients. "You have to have scale and you have to have a lot of revenue to invest in R&D," she said. The naysayers warned against such a big merger and claimed it would be impossible to integrate the cultures of the two companies. But HP and Compaq were prepared. "Before we announced the merger, the product road maps were done," Livermore said. The companies already had determined which divisions had the strongest sales. Even more important, by the time the deal closed, the top 120 executives were in place in the new firm. "The managers brought great stability to the transition."

On the eve of the deal's one-year anniversary, Livermore listed HP's accomplishments: No. 1 market position in Unix servers; No. 1 in Linux servers; No. 1 in Windows servers; alternating with Dell for the top position in PC sales; No. 1 in external storage. And, HP, the leader in printer sales, had its best three quarters ever. Services, Livermore's division, moved from 8th to 3rd nationally. Last month, HP beat service leaders IBM and EDS for billion-dollar contracts with Procter & Gamble and Ericsson. A recent Information Week research survey of 700 IT professionals ranked HP Services No. 1 in overall customer satisfaction. Livermore's division targets a few big contracts a year. "We're still about half the size of IBM. From a customer perspective, we're big enough. We get invited to every big opportunity now." A native of Greensboro, N.C., Livermore still carries a trace of home in her accent, even though she's been in California since she came to the Graduate School of Business more than 20 years ago. She has been at HP ever since she graduated from the GSB in 1982. Livermore, who went directly from earning her undergraduate degree at UNC-Chapel Hill to Stanford, told the student audience she thinks she would have gotten more out of business school if she had worked first. "I was at a big disadvantage" in classes where she was required to apply theory to practice. "The people who get the absolute maximum out of business school have some work experience." Although it has become unusual for an executive to spend so many years at one company, Livermore said it has its advantages. "I've been able to get experiences across multiple companies and multiple functions." Sometimes she has taken jobs she hasn't wanted because they've given her a chance to learn things that would be useful to her down the road. Trained as an economist, she felt far from her comfort zone when she went to work in R&D. "It was a rite of passage. I knew if I ever wanted to be a general manager, I was going to need to run R&D. I didn't understand half of what they were saying at our first meeting." But before long she realized that managers were trying to make decisions that should have been made by the engineers. Her job was to change the conversation so that the managers were handling the right set of decisionscosts, resources, time, deliverables not tech standards. "What is going to unleash the power of the team? That's what I had to figure out." The time she spent in R&D helped her earn the respect of tech-side employees and understand another of the company's functions. Livermore recalled a business school assignment requiring her to figure out how to dispatch the tasks in an overflowing in-basket in time to catch a plane two hours later. "What I use the most are all the soft things I learned in business school, things like time

management and working in teams. A lot of the dynamics you learn from working in groups is key." Asked to speak about "work-life balance," Livermore quipped, "This will be short, because I don't have any. For most top executives, this is not a reasonable expectation." Her husband retired three years ago so that one of them would be at home with their preteen daughter. "And we buy a lot of helpwe're lucky we can afford to do that." Instead of seeking balance, Livermore said her goals are to have a happy family life and to do the best she can in her job. She said she thinks her family would agree that she's managed to do both. "You might claim happinessthat's not the same as claiming balance." by Teresa Moore