Dr. Goodnight's Good Days

For the CEO of SAS, success is partly a product of "management by loitering."

Along the one-mile drive between the main gate and James Goodnight's two offices are signs warning that the speed limit is 23 miles per hour. The signs say 23 miles per hour, not 25, and they definitely catch the eye. The signs are, however, far from being the only remarkable features of the 200-acre wooded campus in Cary, N.C., that is home to $1.34 billion SAS Institute Inc., a company that bills itself as the world's largest privately held producer of computer software. On the campus, there are, for example, three child day-care facilities, fitness centers and playing fields and hiking trails, and about 3,000 sculptures.

But the most distinguishing feature of all is 6-foot-5-inch SAS president and CEO Goodnight himself, a somewhat shy executive whom Dennie Norman, the company's global supply-chain strategist for worldwide marketing, admiringly describes as a professor with some interesting ideas about how to run a business.

Sixty-one-year-old Goodnight is, indeed, a former college professor at North Carolina State University in Raleigh, the school where he earned his bachelor's and master's degrees and a Ph.D. in statistics. Among his interesting ways of running a business that produces widely used analytical software are to continue to hire during the 2001-2002 economic downturn, to plow 26% of revenues into R&D, nearly twice what other large software companies do, and, to practice what Goodnight has termed "management by loitering."

Management by loitering is his personal take on the practice popularly known as management by walking around. "It's just to be seen walking around and talking to people, and finding out what they're working on, and basically being approachable," explains Goodnight. "You learn a lot of things that don't really come up through the management ranks [and] sometimes you find out some very interesting things that people are working on. And you say, 'Well, maybe we ought to elevate the status of this thing a little bit.' " He credits management by loitering with helping to improve SAS graphics and with the development of a new algorithm for SAS demand planning software that's "probably" 100 times faster than previous step-by-step mathematical procedures. "It really does give us an edge on our competition," he asserts.

Management by loitering also gives Goodnight the occasional chance to get back to writing code. For example, he put together a team to write new procedures in an SAS statistics package to compete with IBM Corp.'s Intelligent Miner, a data mining product. SAS' product is Enterprise Miner. "I actually got that one started . . . . And within a year's time, we were the industry leader in the software, and we own about two-thirds of the market right now." Management by loitering also apparently gives Goodnight the occasional opportunity to tell an employee to go home. If he finds someone working as late as 6 p.m., it's said, he'll remind him or her it's time to turn off the lights. SAS is serious about balance between work and the rest of life. Goodnight, for example, expects people to be with their children for the first day of school, the first soccer match or the first play -- and not at work. That together with a work environment that's conducive to creativity -- every person in the newest R&D building in Cary, for example, has his or her own office -- has resulted in SAS consistently being voted one of the best companies for which to work. "And having that reputation makes it much easier to recruit the highly talented people that we have here," adds Goodnight. SAS has 9,403 employees worldwide, with 4,003 of them at its headquarters in Cary. There are about 200 applications for each job opening at SAS, where the turnover rate right now is under 3%, remarkably low by tech-industry standards. That said, Goodnight states it takes SAS longest to recruit Ph.D.-level statisticians and operations-research people. "We just aren't producing that many of these people anymore here in the United States. [And] the ones we are producing are going back to China and India and elsewhere in the world," he states.

Innovation, so critical to the future of software production and manufacturing generally, is not limited to an "I" building on SAS' Cary campus of alphabet-lettered buildings. Not surprisingly, given Goodnight's personal attention to people and dynamic markets, innovation permeates the campus. "It's a mixture of letting development ideas come up from the bottom, from the individual programmers, and also some of our pragmatic marketing efforts," relates Goodnight, who appropriately maintains one office in an R&D building and another in a sales and marketing center. One example of SAS' synergistic innovation is the development of supplier relationship management (SRM) software. Created in 1998, refined in the field with the assistance of Zurich-based ABB, and quite different from programs that simply keep track of past and current transactions, the software allows manufacturers to look forward, better equipped to decide which suppliers to do business with to meet strategic goals. Separately but similarly, SAS' warranty analysis expertise grew out of a consulting contract in the auto industry. Using a relatively small amount of warranty data and some advanced statistical techniques, "we're able to help forecast what failures are most likely to occur in the future," says Goodnight. For a manufacturer, it affords the opportunity to make changes in production before tens of thousands of cars are shipped only to be recalled later on. "We can save companies millions and millions of dollars," claims Goodnight.

Founded in 1976 and having recorded increased revenues every year since, SAS has made Goodnight, its only CEO, a very wealthy man, a multi-billionaire, according to Forbes magazine. But don't look for him to take the company public, a move that, among other things, could make him even richer. SAS has "lots of money in the bank," Goodnight says, so liquidity is not a problem. And staying private, he says, provides him with a distinct advantage. "I can take that long-range view that other companies have a difficult time taking," he says. For example, during the 2001-2002 economic downturn SAS increased payrolls by 6% and 8%, respectively. "There were a lot of very good people out on the street looking for jobs, having been laid off from other software companies. We used that as a building time," says Goodnight. "Now if we had been public, I'd probably been out of a job by now because I didn't increase profits those two years -- they stayed relatively flat." Goodnight also shares results of an internal poll about two years ago in which 87% of SAS employees said they opposed going public. Their reason: concern that a focus on increasing quarterly profits would come at a cost to SAS' creative, worker-friendly environment. Adds Goodnight, "If you pursue [the strict profit focus] too long, you can sap the innovation of the company."

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