Good life under siege at SAS

A tour of its carefully tended, 300-acre corporate campus here leaves little doubt why surveys, year after year, rate the SAS Institute, the world’s largest private software company, among the best places to work.

There is the subsidised day care and preschool. There are the four company doctors and the dozen nurses who provide free primary care. The recreational amenities include basketball and racquetball courts, a swimming pool, exercise rooms and 40 miles of running and biking trails. There is a meditation garden, as well as on-site haircuts, manicures, and jewellry repair. Employees are encouraged to work 35-hour weeks.

Academics have studied the company’s benefit-enhanced corporate culture as a model for nurturing creativity and loyalty among engineers and other workers. Six years ago, in a report on “60 Minutes,” Morley Safer called working at SAS “the good life.”

But that good life is under threat today as never before. SAS’s specialty, a lucrative niche called business intelligence software, is becoming mainstream. Free, open-source alternatives to some of the company’s products are increasingly popular. On the other end of the spectrum, the heavyweights of the software industry—Oracle, SAP, Microsoft and, especially, IBM—are plunging in and investing billions of dollars.

Credit card companies, for example, use SAS to detect unusual buying patterns in real time, and to spot potentially fraudulent charges. Giant retail chains use SAS to tailor pricing and product offerings down to the store level. Telecommunications companies use SAS to identify the few thousand customers, among millions, most likely to switch to another cellphone carrier, and to aim marketing at them. SAS software is also used to parse sensor signals from North Sea oil rigs, combined with weather and structural data, to predict failure of parts before it happens. Of the 100 largest companies worldwide, 92 use SAS software.

But as the stream of companies’ collected data turns into a torrent, SAS and other software companies are trying to find new ways to harness it. The information is generated not only by computerised systems for tracking operations, customers and sales. It also comes from new data sources like Web site visits, social network chatter and public records accessible over the Internet, as well as genome sequences, sensor signals and surveillance tapes, all in digital form.

This data explosion, experts say, is an untapped asset at most companies, which lack the tools and skills to exploit it. Yet the long-range potential, they say, is to use this data for far more fine-grained analysis of markets, customer behaviour and operations, making business more of a science and less a seat-of-the-pants art.

“Now, the data is available so business can move toward evidence-based decision-making,” says Erik Brynjolfsson, an economist and director of the Centre for Digital Business at the Massachusetts Institute of Technology. “This market is a huge opportunity.” Indeed, no one underestimates SAS’s technical prowess. The big question is whether the company’s seemingly pampered culture can embrace the higher-octane institutional metabolism that it will need to succeed.

The company traces its roots to a time when computing was costly and for the few. Originally called Statistical Analysis System, it was founded in 1976 by Goodnight and three colleagues from the agricultural statistics department at North Carolina State University. Its techniques were initially used to calculate the intricacies of soil, weather, seed varieties and other factors to improve crop yields.

“That was pretty much an ‘aha’ moment for us, that it was time to expand beyond the university,” Goodnight recalls. “It was a little scary, cutting the academic umbilical cord. But I was convinced we could do it.”

He and his colleagues at SAS developed their own programming language and software tools, and designed them for eggheads like themselves. Users were analysts with PhD’s, working with programmers and employed by the largest companies at the forefront of using computing in their businesses, including banks, national retailers, insurers and drug companies.

SAS invested heavily in research and development, and even today allocates 22 percent of the company’s revenue to research. The formula has paid off in steady growth, year after year. Revenue reached $2.26 billion in 2008, up from $1.34 billion five years earlier.
Yet the company also faces the classic challenge of being the innovative pioneer — enjoying rich profit margins but facing new competition from rivals seeking to gain market share with lower prices and substitute technology.
In the last two years, the major software companies have scooped up companies in the business intelligence market. Among the larger moves, SAP bought Business Objects for $6.8 billion, IBM bought Cognos for $4.9 billion and Oracle picked up Hyperion for $3.3 billion.

Still, those companies compete in the broad swath of the business intelligence market for reporting and analysis products. Such data on sales, shipments, customers and operations amount to a numbers-laden portrait of the recent past.

The SAS stronghold is a more sophisticated kind of software typically called “advanced analytics and predictive modelling,” which uses historical and current data to try to peer into the future and model likely outcomes. To counter IBM and others, SAS is looking to forge a tighter relationship with a big technology services company. It is also shortening product development cycles to 12 to 18 months, down from 24 to 36. “That’s what the market expects,” Davis says.

The most sweeping change is the company’s move toward the Internet model of software delivery — as a service that customers tap into over the Web, much as Google and other Internet companies do. SAS has dipped its toe in, with some initial products. But a major expansion is planned, supported by a sprawling $70 million data Centre scheduled to begin operating next year.

To be sure, the corporate cocoon can breed insularity. SAS, for example, was slow to recognise the brewing challenge from free, open-source alternatives to some of its products. A free programming language and set of software tools for statistical computing, called R, has become increasingly popular at universities and labs.

The company shifted course earlier this year and modified its software so programs written with R work seamlessly with SAS technology. “Shame on us for not engaging more with the open-source community,” says Keith Collins, senior vice president and chief technology officer. “But we’re committed to doing that now.”

The architect of the SAS culture is  Goodnight, a lanky, laconic billionaire. The benefits have built up gradually over the years as a series of pragmatic steps, he says. The day-care program began after a valued employee was about to leave to take care of her young child. The on-site medical checkups grow out of the belief that “good health is good business,” he says.

Today, SAS estimates that its health care Centre saves the company $5 million a year, by providing care more cheaply than an outside insurer and by not having employees leave the campus for doctor’s visits. Employee turnover at SAS averages 4 percent a year, versus about 20 percent for the overall software industry.

The office atmosphere is sedate. There are no dogs roaming the halls, no Nerf-ball fights, no one jumping on trampolines — no whiff of Silicon Valley. The SAS culture is engineered for its own logic: to reduce distractions and stress, and thus foster creativity. During the technology boom at the start of this decade, SAS considered a drastic change in its model: going public. Goldman Sachs bankers were brought in as advisers, and in 2000 SAS recruited a former Oracle executive, Andre Boisvert, as its president.

Under Boisvert, SAS installed a new financial reporting system and paid the sales force incentive commissions rather than salary only.  Goodnight recalls those days as a brief period of New Economy surrealism, and going public as a path wisely avoided. SAS, he says, is a culture averse to the short-term pressures of Wall Street, which he characterises as “a bunch of 28-year-olds, hunched over spreadsheets, trying to tell you how to run your business.”

Unlike many other tech companies, SAS has had no recession-related layoffs this year. “I’ve got a two-year pipeline of projects in R & D,” Goodnight says. “Why would I lay anyone off?”

Goodnight regards his new rivals the way a confident card player might. He likes the odds, and he likes his hand. “We’re pushing as fast as we can to stay ahead — on the cutting edge of everything,” he says. “We’ll do fine.”