In Other Words - SAS Senior VP and CMO Jim Davis talks about business, analytics and technology

I often wonder what the life of a CMO is like in a publicly-traded company. From a marketing standpoint they’re constrained by SEC, Safe Harbor and Sarbanes-Oxley. They have to be very cautious in their forward-looking statements. Does that suppress their ability to paint a vivid picture for their customers? And even their employees?

Is the CMO of a public company catering to the customer or catering to Wall Street? In reality they’re having to balance the needs of both, and to me that’s kind of a shame.

So how is it different for SAS? For one thing, we can project our vision of the future and hope it will spark reaction and get feedback from customers. It’s a very collaborative and open process. (It’s well suited for social media, by the way.)

A lot of consumer packaged goods organizations do that, but they have to be very careful. If they set an expectation in the marketplace while they’re feeling the market out, that could turn into Wall Street expectations. Then rumors start abounding and when the reality doesn’t live up to the hype, that can impact their stock price. Then the finance guys get involved and before you know it you’re laying people off.

That’s another benefit of being privately held. We don’t have to manage to the expectations of Wall Street. We can create campaigns and strategies and give them time to develop.

Imagine the challenge they face at Apple. Is there any company that generates more consumer product rumor and speculation? I wonder how much their marketing strategy fluctuates with the share price.

I’ve read different reports that put the average tenure of a CMO at somewhere between 18 and 24 months, and I’m not surprised. But that’s both a symptom and a cause of the problem. How can you create a comprehensive marketing plan that will have long-term benefit if you have to justify your existence every day based on the ticker?

We’ve gotten a lot of attention since the IBM acquisition of SPSS for being a privately-held company and our desire to stay that way. While looking at all the coverage we’ve gotten, I keep coming back to an analogy made by Mary Hayes Weier in her InformationWeek post, “SAS Institute: There Is No For Sale Sign In Our Yard.”

Imagine you're a homeowner standing in the yard watering the flowers when a potential buyer walks up and makes an offer. Even if you aren’t thinking of selling, you’d probably stop and listen.

“Indeed, at this point, SAS seems content to keep watering its flowers,” she said. And it’s true.

We have been growing wonderful things in our garden for over 34 years, but a lot of these stories talk about us as being a well-kept secret. When you’re a private company you don’t get the coverage that a publicly-traded company does.

Over the years, other publicly-traded companies got recognition and media attention for their contributions to business intelligence and business analytics. Our role was often overlooked because we don’t generate those exciting share value stories. It can be a little frustrating.

But it’s pretty clear now that our strategy has paid off, and not just in a spike in media attention. We’re the largest independent vendor in our space, we have high customer retention and we put a much higher percentage of our revenue back into R&D than public companies could ever get away with.

Our garden is of great interest because of the downturn and the pain publicly-traded companies are experiencing. Buying our nicely-tended patch must look a lot more appealing than all the digging and weeding they’ve got ahead of them.

From the start of this blog, I’ve talked about the value of analytics for companies who want not only to survive the economic downturn, but come out of it stronger. Today we learned that IBM is acquiring SPSS. Not only is it further validation of the value of analytics, but it’s also sending a jolt of electricity through the industry.

I wasn’t surprised to see this announcement. But there's an important issue to keep in mind. This market is not about selling software – it’s about providing value. That was true even before the downturn and it’s even more important now. The key is value-based selling. Customers want to know that if they spend a million with you, they get back $10 million in value.

You need to show that you understand your customers’ industries and can help them solve industry-specific problems. It’s far from one size fits all. Retailers need size and price optimization. Banks need fraud detection and credit and operational risk solutions. Manufacturers need warranty analysis and supply chain optimization.

Without domain expertise, it’s all just software.

IBM’s biggest challenge will be to piece this all together and see if they can create a complete analytics solution from the disparate elements and business units. That’s no mean feat. Obviously they have a strong installed base to build on, one that may be patient while they work out the kinks.

Another challenge for SPSS, as for any of the recent acquisitions, is to remain focused and innovative. Being privately held gives SAS the ability to pump more than 20 percent of our revenue into R&D every year and keep innovation at the forefront.

It’s much harder to stay dedicated to innovation when you’re a small business unit within a big publicly-traded company.

Some acquisitions turn out well, others cause problems. We’ve heard customer rumblings from some of the previous acquisitions about maintenance issues, service plans and pricing. A new owner always brings a new focus. I wonder, for instance, if current SPSS customers will see a bigger focus on optimizing SPSS to work with DB2, at the expense of Oracle or SAP integration.

Ultimately, as always, customers will decide and vote with their IT budgets.

Writing about the acquisition in The Wall Street Journal’s Digital Daily, John Paczkowski says, “Business analytics powerhouse SAS best watch its back.” Thanks for the advice, John, but we’ll keep looking forward. You don’t get to be the largest independent vendor in this market by watching your back. You get there by focusing on your customers, understanding what’s keeping them awake at night, and helping them solve their problems and find new opportunities.

In my last post I talked about the value of employee loyalty, and how it has a direct relationship to innovation. Having loyal employees doesn’t do you any good if you don’t listen to them.

You have to empower the people in the organization to make their own change. Provide guidelines and boundaries to work within but allow folks to express what they feel is necessary in terms of change, then give them the opportunity to make the change. Give them the right and the license to experiment. A top down management style isn’t the approach that will foster innovation and creativity.

So how do you open it up?

If, like us, you’re trying to provide a service or product to a customer or constituent base, who do you talk to and get your direction from? Who is closest to your customers and their needs? Are you spending your time in management meetings, or with the people on the front lines, finding out what’s going on?

I’m a big believer in skip level meetings. If you tell me there’s a situation preventing us from effectively reaching our customers and you want my help to solve it, I want to talk to the marketing, sales and services people - the people who actually have to make it happen - not the people who will dictate the strategy in a conference room.

There are lots of examples of executives who sit with their folks. I was just talking with someone about Tony Hsieh from Zappos, for example, who sits in a cube just like the rest of his employees. At SAS, nearly every employee has a private office, but I challenge anyone who’s never been here to find the executive suite. There isn’t one.

You need to have a connection with every level of the organization, and you can’t do that with glass walls around you.

It used to be that getting the key to the executive washroom was a sign you had arrived. In the future, I suspect it will be seen as an outdated example of 20^th century management isolationism.

Sometimes, though, it would be nice to have my own bathroom.

I moderated a panel at our Premier Business Leadership Series event with our CEO Jim Goodnight and David Brennan, CEO of Astra Zeneca. As a drug company, Astra Zeneca lives and dies by innovation. They need to make sure they have new drugs in the pipeline to replace the revenue they lose when patents expire. If they were to put innovation last, one day they would find themselves with a dry revenue stream.

David summed it up perfectly:

We need to simplify the way the organization operates, to get out of people’s way. This can be difficult when you employ 65,000 people but if we can’t empower our people and innovate – in R&D for example – then we can’t succeed. You need to take some risks and move forward.

It’s a very similar market dynamic for us at SAS. It’s all about technology. We’re fortunate that we’re a privately owned company and we’ve been able to stick to our principle of putting more than 20 percent of our top-line revenue into R&D every year. There’s no question we’re an innovative company. But there’s more to it than that.

The market has compressed the cycle. It used to be you could spend two to three years developing a new idea and testing it in the market. Now you have to figure out how to do it in less than year. That means changes in engineering, changes in the way you do your marketing studies.

We need to constantly ask ourselves if we have changed our internal processes to match the timing of market changes.

Two weeks ago I was in London at our Premier Business Leadership Series event. I’d like to say I came away more optimistic about the economy and the end of this downturn, but I’m not sure I can. I don’t think we in mature markets are doing a very good job with this at all. We’re paying it lip service. We’re bound by quarterly expectations and quarterly thinking and I’m concerned we won’t break out of this cycle unless we take some bold actions.

The companies that will succeed are the ones that take risks, look within and make the gut-wrenching changes this economy demands. I don’t mean layoffs or short-term financial band-aids. I mean changing the way we do business. The companies that will win are the ones that focus on innovation.

I had lunch with Geoffrey Moore, author of a number of great books including Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. He has invaluable insight into what it takes to innovate in these times. For instance, Geoffrey says the way we traditionally budget within mature organizations doesn’t lend itself to innovation.

The typical budget decision goes something like this: “We’re going into the next budget cycle. Let’s make sure we keep our expenses to plus or minus five percent this year.” If you look at innovation as an afterthought, you’ll never get to it. Geoffrey says look at innovation first, and then look at what else you need to do to manage the business.

To do that, you need to ask yourself what it takes to create a culture of innovation. What kind of people do you have in your organization? You need leaders who can accept change and look beyond quarterly goals, and employees who can adapt and help drive change from the bottom up.