Steve Ballmer: The Executive Club

STEVE BALLMER: Well, thanks. It’s a real honor to have a chance to be with you again five years later, I guess, and I’m excited to have a chance to be back.

I understand this is the 100th year anniversary of the Executive Club. Is that correct? 2011. Ninety-eight years, hundred years; it’s a long time. Certainly the energy in this group – you live here, you may not know this – it’s unlike anything I see anywhere else in the country, and I want to say thank you for the chance to speak, but I also want you to understand what you have here is really something I think special, special for the community.

Chicago means a lot of things to me at this stage. The biggest capital expense in our company’s history is going to open up, up here just outside Chicago, a new datacenter, state of the art facility that we’ve built that we’re opening this summer. So, it means datacenters to us. (Applause.) If you get a chance to look at a datacenter that’s as big as 16 football fields, it’s really, really big.

We have a lot of involvement and activity, of course, with customers, but also in the community here in terms primarily of digital literacy for businesses and for folks who may be on, so to speak, the other side of the digital divide. We have over 1,100 business partners in the state of Illinois providing IT services primarily to large, medium, and small businesses in the community. We certainly have a lot of end users, a lot of important activities here in this area.

I’m going to pass on the first question that I got at the pre-brief for this. Even if it comes up, I won’t pick sides in Sox versus Cubs, but I’m nonetheless pleased to be here today in Chicago.

I want to talk a little bit about the economy, but really only to set up the thing that to me is probably more important to talk about, which is productivity and innovation. We are going through an unprecedented kind of economic – I like to call it reset. I don’t think we’re in a recession; I think we are resetting. I think this is the new normal, and yesterday was the exception. And I think we got ourselves there in a lot of ways, but economic growth in general is fueled, GDP growth is fueled by productivity and innovation and debt, and over the last 10, 15, 20 years we’ve seen debt for businesses and consumers rise to almost 300 percent of GDP. It was 150 percent, by the way, before the Great Depression. And we were kind of borrowing our way to prosperity, and I’m afraid post-reset we’re going to have to innovate and improve productivity to drive GDP growth.

We have a guy who’s a voracious reader in our corporate strategy group who tells me that average GDP growth in the world economy was about a tenth of a percent from the beginning of history to 1500. I don’t know how anybody knows that, but it amused the heck out of me. It grew to 1 percent during the time of the Renaissance, and was about 1 percent from 1500 to 1800, and it’s actually been 2 to 3 percent from 1800 through to today, and that’s primarily been built on the back of innovation. I could say productivity and innovation, but at the end of the day, I think you’ve got to see innovation as absolutely a critical, critical factor.

Our industry is in a sense the information technology industry. We like to think we are an innovator. We think to think we facilitate innovation in other industries. We like to think we are productive, and we like to think we can enhance the productivity of other industries.

And so in a sense I think we have almost – at least it’s an interesting viewpoint on what can proceed from here on productivity and innovation.

It’s clear debt will not be the economic growth driver of the next 10 years. After every major deleveraging of the world’s economy in the last 200 years, people were slow to bring back debt.

Particularly in Chicago I should probably avoid this story, but I’m going to tell you anyway. In the U.S. history, 1837, 1873, 1929, and basically now there were big deleveragings of the world’s economy. In 1873 the bubble – real estate again – it burst in Vienna, spread globally, even in 1873, hit Chicago, and as I understand the story, Chicago housing prices didn’t hit their 1873 levels again till about 1925. Now, I’m not predicting 50 years here; I’m merely saying that for now debt is not the key, productivity and innovation, and I’ll comment from the perspective of the information technology industry, but we were talking at lunch about manufacturing, you can talk about pharmaceuticals, telecommunications, media, you name the industry, everybody has got to ask themselves, how do we drive productivity and innovation.

Certainly from an information technology industry perspective there’s never been a more exciting time for innovation. We talk about cloud computing, natural user interface, the future of search, the digitization of the world’s information. I’m not going to sort of bore you with the details, so to speak, but nonetheless we look out and we say the next 10 years, they’re going to be as good or better as the last 10 from an innovation perspective. And that will help power a lot of improvements in productivity, and in innovation.

We talk about helping all kinds of businesses continue to take cost out and improve essentially their agility by improving the communications and collaboration infrastructure inside of business, between a business and its customers, between a business and its suppliers, and you’ll see amazing things.

I am glad to be here with you today. I don’t want to be here in 10 years. I want this to be so good, our technology to be so good, you’ll welcome me digitally to this meeting. Now, you might say, ‘Oh come on, Steve, come on, physical is always great,’ but that’s kind of how we think about our job. We have to view it as our industry’s job to make the virtual world as good as the physical world.

Paper: I’ve got a piece of paper. I’m going to say I am an old-fashioned troglodyte. I’m not carrying an electronic digital screen here, because this old fashioned technology is still easier for me in some ways than the digital device I’d pull out of my pocket and write on. There’s an opportunity there to change the world.

Digital communications, digital commerce: We think the Internet has done it all; it hasn’t. All communications, all information is moving digital.

Try to get a shipping container onto a ship bound for Europe. You’ll find that there’s no digital interaction at all. Everything is done via paper and fax. There’s a long way to go in terms of improving productivity.

Understanding what’s the number one frustration of every business executive I talk to, other than the cost of IT, it’s I spent all that money and I still can’t get the answer to the simple questions I want to know about business performance.

You know, if you want to make somebody more productive, give them the data they need to improve customer service, to get the right price on the right product at the right time. That stuff is incredibly impactful, and I think we have to focus as an industry and as our industry serves all of the businesses in this room and many, many others.

Let me turn to innovation. I think innovation is kind of a funny word. Generally when you say innovation, most people’s sort of visceral reaction is three people all under the age of 25 in a garage for three months, that’s innovation.

And yet I think we all know in our own businesses innovation actually takes many forms. There’s small innovation and large innovation. There’s innovation which you can get quickly, six months, nine months. Some innovation actually takes two, three, four years, longer cycle time. Some innovation comes out of the minds of brilliant people, some comes out of the power of teams and what they can do. Probably many of you innovate, and many of you study your competitors to see where the important innovations are, and you want to bring all of that to market.

We spend about $9 billion a year on R&D. I love to think we are an innovative company, but even more importantly we love to think about how people innovate and the various tools and methods that you need to drive this. And I think about all of those forms of innovation, and I think they’re probably meaningful to the people in this room.

But innovation at the end of the day is about enabling people’s creativity and their ability to work together in new and novel ways. It’s super, super important.

I think innovation is as much about perspiration as it is about inspiration. We’ve seen plenty of people invent things, and frankly not matter for much in our industry. So, you now not only have to invent, you’ve got to stay with things, you’ve got to show tenacity. And particularly in these tough economic times I question whether people will show the tenacity, perspiration, patience that they need to with important innovation.

We certainly see ways in which information technology actually has a chance to play a role in innovation in other industries. I’ll give a few examples. Modern science in large measure is about simulating the physical world in the virtual world so that you can speed up the pace of experimentation in scientific discovery. You see that in the pharmaceutical world where essentially people are now cracking the genome, as they say, and modeling what might happen with various drugs applied to various diseases. And with more and more computational power, that can go further.

You see it in the energy industry with the way people are looking for and exploring for gas, for oil, for various minerals.

I think if we’re going to actually have key breakthroughs in energy and environmental science, it’s going to come because scientists, not just in research labs but in businesses, have better tools to model the physical world and the virtual world.

Media and advertising: Does somebody think a book is going to look like a book and a magazine like a magazine and a newspaper like a newspaper over the next 10 years? We’re going to remake, the world will remake the content, media, and advertising businesses over the course of the next 10 years. This is a case where the innovation will probably be not only embraced but forced. Because things are tough in the advertising and media businesses today.

I was in my hometown of Detroit yesterday, and I hadn’t really understood the fact that the newspaper I grew up reading as a kid is not distributed door to door on Monday, Tuesday, and Wednesday anymore. That’s how tough things have gotten for the newspapers in various places.

You know, when you think about what does a magazine look like in 10 years, there’s going to be innovation that drives that in significant ways.

Sales: How do we do sales? We’ve seen the Internet already play a role. How much more role can we have for driving technology to improve sales and customer service?

The financial industry: The financial industry has done a lot of innovation with information technology to create a host of new products. We may need a lot — at least the way I understood yesterday’s message from the administration, we’ll probably need a host of new technologies to help give better insight into really where financial products and derivatives, et cetera are taking us.

So, I see an incredible opportunity for the world to innovate not just in our industry but in all kinds of industries, and certainly our industry thinks that information and communications are a backplane for the innovation that we’ll see in all of your businesses.

The only way this is going to happen, though, in my opinion starts with better and better workforce here in the U.S. and around the world, which means more and more focus and quality education: education in general, digital literacy, science and math education, and I think the country really has to double down and kind of get its mind around the fact that what has made the U.S. over time the most innovative economy and the most productive economy in the world is, in fact, that we’ve been able to have the best and the brightest in this country going through the best educational institutions, K-12, university. We’ve attracted the best and the brightest when we needed to from outside this country. And so I think a real focus on continuing to keep this the place where the best and the brightest get a chance to develop and mix from around the world is going to be key to an economic growth scenario that’s really powered by productivity and innovation.

I talked about education, but I’ll admit I think information technology has to also facilitate innovation in the way we educate people, and there’s certainly a lot of experimentation and work that we’re doing. Bill Gates, since he’s gone full time at his foundation, has really been pushing the pace in terms of experimentation on this dimension, but I think it requires more than just technology, it really will require commitment from community leaders, from business leaders, from government, from parents to really drive the pace of education in this country.

My basic point to you today really is to theme this fact that at the end of the day, now especially, in this time of economic difficulty, innovation and productivity matter, that information and communications are important to that. Certainly our company and our industry will try to play its role. But now is not the time to pull back.

Fifty percent of the Fortune 500 companies were started during times of recession and economic decline. The level of innovation we’re going to see across all industries, certainly in ours but I think I can fairly say energy, environment, transportation, over the next 10 years is amazing.

I’ll just end with a small reminder. Some people probably have seen the old movie from the late ’60s called The Graduate. Some of you may not. But if you go back to that movie, Dustin Hoffman is a young college graduate, and his father-in-law to be says to him, “I have just one word for you: plastics. The future is plastics.”

Today, I think certainly I’d tell anybody getting out of college the future is software, but each of you in your own industry and your own ways, just think. The future really is about innovation. We can do it, we can drive it, we can all make it happen, and it will lead us back onto a path of economic growth that I think we all aspire to.

I thank you for your time today. It’s been my pleasure. I’ll look forward to your questions. (Applause.)

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