DOUG BURGUM: On December 22nd, 1968 the way we are humans envisioned ourselves changed forever – or at least humans that lived on Earth anyway. When the Apollo team took this picture coming around the moon, captured a picture of our little planet sitting out there in space looking so fragile, they captured a moment in time. But that moment in time is actually universal because this is what Earth looks like every day, every single day as we spin and rotate and take the long journey around the sun each year just to do it again.
From this distance it looks the same, it masks the tremendous amount of change that’s been driven on our planet, and interestingly as humans, we’re the ones that have been responsible for much of that change.
That trip to the moon in 1968, which was part of the predecessor to setting up actually man landing and walking on the moon, was really a journey of discovery. And those of you that have heard my keynotes over the years or had a chance to interact with me know that I personally view life as a journey and I view business as a journey. And today, I want to sort of blend that journey theme with the journey of business, with the journey of economic progress and the journey of companies themselves.
I could ask the question that I know everyone would raise their hand for, which is how many of you work for a company. The answer would be virtually everyone in the room. Maybe there are a few sole proprietorships here, independent consultants, but we all have chosen, in a land of free choice and a world largely of free choice, have chosen to join companies. Those companies are a form of organization which has had a tremendous impact on the way we live, the products we use, the information we receive.
But that journey of discovery to the moon wasn’t the first journey of discovery. Humankind has been pursuing journeys of discovery since the very, very beginning, and even in the keynotes we’ve covered names like Magellan, James Cook, Marco Polo and Shackleton, and even the unnamed Polynesia voyagers who sailed across the southern Pacific hundreds and hundreds of years ago. This sense of wanting to learn, this sense of journeying, has been a part of who we are.
And even as we stand here today, it’s the 200th anniversary of the relative midpoint of the Lewis and Clark expedition. Many of you know that I was originally born in North Dakota. Of course, Lewis and Clark 200 years ago right about now were breaking camp from what was Fort Mandan, a fort that they made near a Hidatsa Indian village, and were getting ready to head for the rest of their journey to the Pacific Northwest to find a new route – but not for riches. Their charter from Jefferson was a new route for communications, and their whole effort was called the Corps of Discovery.
And I think the other fact that’s interesting, of course, is that for Lewis and Clark, the river froze and their entire group was stuck in North Dakota for the entire winter of 1804-1805. And this also marks the 200th anniversary of the last time any tourist group came and stayed in North Dakota during the winter. (Laughter.) It’s been a bit of a drop-off in tourism since they came through.
But if you think about the men in the space capsule, if you think about the following year in ’69 when we actually placed astronauts on the moon, think about the trust and the confidence that those voyagers had in each other, think about the trust and confidence that they had in the organization that they had created, think about the trust and the confidence that an astronaut would have to place in the entire NASA organization in terms of achieving that goal of getting man on the moon, and I think that it’s an important theme throughout all of this to understand that there are certain noble human elements that underlay the risk-taking that we’ve taken as we’ve moved ahead on this planet, and some of those elements include – in any form of organization – the trust and the confidence that you have within the organization and with the partners that you may have outside of that.
But in terms of our being here today on this journey of discovery, I also wanted to throw in right at the start a thank you to all of you, and that thank you is not just because you’re a customer of Microsoft or because you utilize one of the Microsoft Business Solutions, – because we certainly appreciate your business and I want to thank you for that – but I think even more importantly, by your presence here today and at this conference, you are participating yourself in a journey of discovery, you are influencing us in terms of the choices that we make, in terms of research and development, you’re influencing us in terms of the things that we see as important new innovations. We learn from you, we’re inspired by you and certainly it’s our goal to help you achieve your goals.
But this synergistic relationship across the community can be easily lost in an era where we think that everything can happen electronically. But your presence here today is deeply important to us. It augments the research and the understanding that we do throughout the year, and so again, we look forward to and anticipate these few days together with you, with the community, with our customers and partners in a deep way because we always come away from this inspired by how we can do more better, faster and great things for all of you and we hope the same for you – that when you leave Wednesday afternoon after Bill’s what I’m sure will be an inspiring keynote, that you too will go back and say, hey, what can we do as individuals, as a company, as an organization both for ourselves and for our community, and for the broader community we participate in.
So again I want to say on behalf of the 58,000 team members of Microsoft Corporation, thank you all for being here for Convergence. (Applause.)
And now stepping back in time, we went back a little bit to 1968 and we have this picture of the planet Earth, which I want you to remember: the sunrise or the sun covering half the planet, think about that, and think about that planet, which has contained this sense of evolution and we’re going to just cover recent history. This may seem like a long time, but we’re not going back into geological time and tens of millions of years, we’re really only going to drop back about 5,000 years, and we can easily cover that in this hour. (Laughter.)
And I’ll preface this whole thing by one other thing; there could be an argument which could be had on the side, which is whether or not the planet is actually better off or not with any economic advancement. And there’s even a group of people who have been now named Luddites after some Union revolutionists in the early 18th Century in England, where people were fighting against the new weaving equipment that came in to automate plants because they felt that the automation was going to eliminate jobs. People maybe think that that’s a current issue, but it’s actually several hundred years old. And there is a sense of ‘Let’s destroy the equipment and destroy the factory that it’s in and that will help preserve jobs.’ So, the name became applied to the group of people and now it broadly means anyone who’s against technological advancement.
And I’m not opposed to us having the debate about what’s good or bad and I’m not trying to come across as some kind of a technologist who is solely all for pure economic advancement, but I would want to at least have people understand that from my point of view, where I stand and observe the planet is that I come down on the side of deep optimism about humans. I come down on the fact that, yes, there have been issues that have been created by technological advancement, and yes, there are pitfalls that we have fallen into as cultures, as societies, as organizations, as companies and even individuals when placed with the array of choice in technological advancement we have. But in general, when I look at any one number of measures on economic statistics – lifespan statistics, healthcare statistics, education statistics, literacy statistics – generally, I’m extremely optimistic about the planet and where the planet is headed and our general ability to progress and our ability to be smart about things like applying our knowledge and understanding to helping or preserving or enhancing and saving the environment versus destroying it through economic progress. I believe that we will have the creativity and the innovation to solve some of the problems that the economic progress over the last 5,000 years has created, so I remain very optimistic.
I also am a person who believes that, roughly, in the media, we don’t get to hear the good things; we hear bad things every day over and over and over. If you live in any of the industrialized societies, your diet is bad news 7 by 24. You have to really, really work hard to try to achieve a balance of all the good things that are happening that underlay this spectacular bad news that we see. And that’s another reason why I’m an optimist, because I understand that the headlines aren’t necessarily statistically representative of the progress of the planet. I mean, pick any topic, from the spectacular sense of an airline crash to the fact that travel and transportation across any form is far safer today than it has been at any point in time in the history of the planet. But you have to sort of look below the surface to understand and see this amazing trend line of human progress.
So I’m an optimist that I’m not saying there aren’t problems but I’m an optimist that we’ll solve those that are there.
So if you sort of say ‘When did all that progress begin?’ Well, some of that progress began when humans as individuals decided that it was better to be collectively working together than as an individual. And some of that goes all the way to sort of the, again, cradle of civilization: the Tigris and Euphrates Rivers in the Middle East. There were individuals there, initially. Then trading firms were built around family organizations. Later both Athens and Rome became more sophisticated in terms of cities and city states, where there was sophistication around tax collection and the outfitting of civil servants and armies, et cetera, to support the goals that they had.
But during this timeframe, again which spans a big chunk or 4,500 of the 5,000 years, the form of organization remained largely the same; it was largely small, family-held trading organizations, they couldn’t succeed from one generation to the next, they often had no longevity.
And so, in terms of written history you go back to the timeframe, and other than the occasional trip which towards the later end of this period may have been documented by someone like Marco Polo, but prior to Marco Polo there were thousands of Muslim merchants from the Middle East who had made the trip to China. And what they discovered when they got to China, of course, was that China was far, far, far ahead of where the Middle East and Western Europe was in terms of its sophistication, and we talked about that in previous keynotes. China had paper money, and it took 700 years for Europe to catch up to the iron production that China had at that timeframe. But even China’s form of organization a lot of times were hereditary monopolies, if you will, and those were passed on by families. That form of organization didn’t survive into the future, and that was again a change, or the creation of the idea, if you will; the idea of the company is part of what allowed the West to catch up, because it was the form of organization linked with innovation that changed the course of technical progress.
So after the traders and merchants, we get into more recent history, which would be the 1500s to 1750. With the innovation around boats that had the scale to be able to sail great distances, navigation capability, the understanding and the development later on of things like precise timepieces, which helped in the linkage and understanding of longitude; all of these things were valuable in terms of technical innovations to allow people to literally span the globe. And initially, some of the economic pursuits that they were pursuing was to take a trip from Europe around the southern tip of Africa and get over to India or the Far East, get a boatload of pepper or a boatload of Indigo – which was popular, and one of the only dyes for turning things blue – sail back. If you actually made it and you didn’t die in a storm or get killed in some kind of conflict along the way, great riches could be had for those people that returned.
And so seeing that there was an opportunity for great wealth creation based on global trade, the first global trade, this is when individuals started saying, ‘Hey, I want to invest; that ship is leaving, I want to be a part owner of that.’ So then fractional ownership was introduced, where investors would each own a portion, or like 1/24th, of a ship that was going out, and if the thing actually made it back, there would profit. But these organizations tended to be organized just around one voyage, and again didn’t have the lasting nature of an organized company or a corporation.
And in some cases it was so lucrative that certain monarchies felt that they should themselves participate directly in this trade. So in cases like Spain, they said, ‘Hey, the crown will take on the task of launching the ships and delivering the profits.’
In other countries, the concept came up of really outsourcing for the first time. Britain came up with the concept of a company, and this company was named the East India Company. It was granted its charter by the parliament, and the East India Company was granted a state monopoly on trade from England to India. The East India Company, of course, there are volumes of history books written just about this act alone, but the East India Company became and evolved into being essentially a governing body, which became Britain’s colonization of India. The East India Company launched ships, created armies, created and organized what we now know as the Civil Service. And that was the predecessor of what people came to think of as sort of the working and middleman and middle management and reporting. A lot of the things that exist in large companies today trace their roots back to the organizational talents applied in the creation of the East India Company.
But as we move forward from that, again leaping forward another hundred years, there was the series of inventions that started to occur in those inventions, including everything from the steam engine to better forms of transportation and communication. And as trade became more important, there was an understanding that the state needed to be involved in creating and sponsoring in some cases monopolies, and those monopolies maybe were around banks and insurance companies or a canal or road infrastructure, and even the earliest railroads were often again had a linkage between state sponsorship.
But there was still a struggle to raise capital, and there wasn’t a concept yet of limited liability. If a wealthy person put a bunch of money into building a canal and the canal went broke, legally — and again this is back when debtors went to prison, particularly in Britain — then you could come back and not only go after what the wealthy person put into the canal building project, but you could go after the rest of their wealth. And this fear of losing everything based on participating in a venture caused a lot of capital to remain in people’s pockets, or in very, very, very, very secure investments and there wasn’t much risk-taking. So there were ideas that were there, including a locomotive for a train that was 40 years — an idea that occurred 40 years before the locomotive actually occurred, but people couldn’t get capital and they couldn’t get backers.
And so literally you could argue that the course and the rate and the pace of human development could have been accelerated tremendously if there had been a way to hook up investors with entrepreneurs, but there wasn’t.
So during this time, again, state-sponsored monopolies and the beginning of chartered companies.
But after 1862 and through the early 1900s, there was a change; there was the creation starting in England of the idea of a limited liability company, where a person could buy shareholder stock and only put at risk the money that they had in that venture. And, of course, as soon as that concept became alive, then the concept of exchanges became alive.
And again, from the earliest days of Wall Street, which literally was curbside trading where people were trading shares, where in England there were exchanges where people were trading and this allowed the creation of capital. This allowed people to pursue new forms of business and, of course, there were some tremendous breakthrough technologies which also became big businesses themselves. The railroad was a breakthrough technology which compressed time, increased distribution capability and in itself was a consumer of large capital and was a large business which needed some of the managerial layers, et cetera, associated with building large organizations that could span geographies. Henry Ford, famous again for his creation of the assembly line and the creation of an organization which had high output, but also paid relatively high wages, so even the employees of the Ford Company could then afford to buy those products. So a tremendous growth of GDP during that timeframe.
And as we moved into the 1900s, then what we saw is sort of the continuation of the rise of big businesses, and we literally saw organizations that became the basis of the first global multinationals. And as sort of an illustration of that, at least in our country, we had the Singer Building, which was the highest building in the world, 612 feet high. People think Singer, sewing machines, the brand still exists, but people maybe don’t understand that in 1914 Singer was one of the largest companies in Russia. It had thousands and thousands of employees spanning across the seven or eight time zones of Russia, again delivering their products on a global basis. Metropolitan Life, one of the early big insurance companies then wanted to build a taller building than Singer, 700 feet high, and the Woolworth Building, 792 feet high, Woolworth being one of the early retailers.
So again, there was all of this happening in the early part of the century, all within three years of each other. So, sort of an explosion and change of the skyline and a sense of companies trying to establish themselves as sort of, I’d say, imperialistic icons in some ways as these become the early days of the multinationals, sort of the New Republics; they had more wealth, more power, more reach than many small countries.
And another example that I want to spend a little bit of time on from that timeframe that sort of had its roots in the late 1900s, and was a story throughout the century, was Sears & Roebuck.
And I’ve entitled this Sears, Roebuck and Rosenwald, in part because I’m sure like me, many of you had never heard of – like, who’s Rosenwald, unless you were a student of Sears’ particular history. But Richard Sears, who was the original founder, was a railway agent in a small town in Minnesota. And as that railway agent, he’d gone to work at a very young age, he was about 19 or 20 years old. His family had fallen on some hard times and so he had started work very early. And he received at his station a box of watches which the local jeweler refuses, don’t want it.
So I’m guessing that, what, out of a thousand railroad station agents, most would say, ‘OK, pain in the rear, local customer doesn’t want it, box it up and send it back.’ Richard Sears said, ‘Hey, I think there’s an opportunity here, I think I can sell these watches.’ Writes the company, says instead of returning these watches would it be OK if I as an agent of yours bought these and then resold the watches and they said, sure, fine, better than sending them back.
So he starts selling the watches, he sells them using the communications that he has through the railway network to people that aren’t in his hometown, he’s selling them to people who work up and down the railway lines and had great success with that and said, ‘Hey, I think there is an idea, I think there is a concept here.’ And so then he put an ad in the paper, he recruited a watchmaker, watch repairman, Alvah Roebuck, who came from Indiana, who joined him and they formed in the late 1880s Sears & Roebuck as a catalog company, moved from Minnesota to Chicago and off the terrific copywriting of Richard Sears, they began a super successful business.
At that time, about 65 percent of the people in America lived on farms. The farmers were upset because of the high cost of middlemen. Even something as simple as flour, which the farmers were raising wheat for, by the time it went through the whole system and came back it might be costing twice as much to the farmer as what they knew the wholesale price was. And so they were sort of outraged against the high cost of the middlemen. And the middlemen weren’t bad or evil or extracting inappropriate prices. It was just a very inefficient cost of distribution.
But there was a new technology that was coming that Sears understood. That was the railroad. He had worked for the railroad and he said, ‘Hey, I can ship goods out of a central warehouse, deliver them through the railroad and I don’t need a physical store, I can sell through a catalog.’ And so they launch and they go.
Roebuck, interestingly enough, was only at the company a few years and then sold out for what he thought was a terrific sum of $25,000 and left the company but Sears stays on.
And then about 1901 Rosenwald joins and Rosenwald is an organization genius who brings order and modern management practices to Sears. And as part of that, he basically says, ‘Richard, you’re a great copywriter, but we have a new concept in copywriting and we think it should be truth and so no more we’re not going to sell patent home medicines anymore, we’re not going to make promises, we’re actually going to add R & D where we’ll do product testing and safety testing of our products, we’ll stand behind our products.’ And so they became strong partners in this business.
But then as their business grew and people understood that there was great value and perhaps lowest price of buying from the Sears catalog, they also were challenged by the organizational capabilities.
So Sears set about and built at the time the world’s largest business building, not the Sears Tower that you see here. What they built was the world’s largest sort of automated warehouse with miles and miles of railroad track both inside and out and conveyer belts and pulleys and pneumatic tubes and everything for the speeding and the automating of the capability of delivering orders very quickly. One might even say that that model was the predecessor of the type of distribution center that Amazon envisioned almost 100 years later on the back of the Internet. But again, with this great capability, they had unprecedented success during the early part of the century.
And then they started building in-house brands like Craftsman, like Diehard, like Allstate. They did a survey across the country and had over 100,000 entries for the brand of a set of tires that they were going to sell to take advantage of the new trend, which is many of their target customers now had cars and Allstate was the name that came associated with the tire brand, which later then became from Allstate tires to Allstate insurance.
So Sears had tremendous success and I’m just highlighting them as an example of a company that had the ability to have great, great success during this sort of 1913 to 1975 run, where companies could promise lifetime employment, the economy grew, they could expand into all kinds of other businesses and sort of the pinnacle of all that led up with them building the world’s tallest tower in the early 1970s, the Sears Tower, sort of the pinnacle of their strength. And their big competition that they focused on during this time of sort of not very rapid change and steady growth was Montgomery Wards. Montgomery Wards, also based in Chicago, intense focus on focusing on Montgomery Wards.
Wal-Mart doesn’t even show up in Sears’ internal documents until the 1980s, until over ten years after they built this tower, was the first time that they sort of woke up and said, ‘Hey, the world is changing on us again.’ But again it’s an example of sort of the rise of big business during this timeframe.
But we all sort of know what happened next, because now we’re moving into an era that all of us understand, which is large businesses that were built, that were comfortable. The company man was working for a large company. It meant status. It meant benefits. It meant perks, and it mean essentially lifetime employment. And not just in the U.S. – that was the case in Germany, in Japan, in Britain. There was a parallel rise during that same timeframe of 1913 to 1975, primarily in those countries, Britain, Germany and Japan, each with a little bit different flavor. Germany had much more of an approach with a flavor towards social responsibility and the organizational structure that still lives on in Europe today of having a managerial board and supervisory board to take a look at sort of broad stakeholder interest as opposed to a more narrow set of just shareholder interest like we see in the U.S. And again, Japan, laying the foundation for the success that they were really going to have during this period of 1975 to 2000.And I lay out these three things, because it’s hard to summarize the amazing things that happened in businesses in the last 25 years, but if you just pick three big, big things, we had a revolution, spurred in part by chips, which in conjunction with software and in conjunction with networking, conjunction with a lot of other innovation, drove an unprecedented amount of computing power, which itself became a big industry, but also transformed other industries.
Wall Street went from a relatively modest role in shaping the economy, as important as it was, the volumes on Wall Street had enormous multifold increase from ’75 to 2000, their role in leveraged buyouts. Their role in financing. The rise of junk bonds. The rise of easier IPOs and again all of this again around this idea that dates back to 1863 of a limited liability stock company really came – 120-some years after it was invented – really came to life and brought an unprecedented amount of capital into the creation and formation of new businesses particularly in Silicon Valley but around the world.
And in Japan, which had in post-World War II adopted the strategies around engineering excellence and around managerial practices that they had learned from the U.S. from Richard Deming in particular, where in Japan they have the Deming Prize, this guy was barely even known in the U.S. but he’s an icon in Japan, and from his work led to things like lean manufacturing, the low total cost of ownership, continuous improvement, the foundations of work like Six Sigma, et cetera, so all of the engineering excellence and practices that later then came back out of Japan, influenced U.S. and European companies to say, ‘Hey, we have to figure out how to deliver higher quality products with just in time delivery practices.’ Again, big influence in the globe where one change one place influenced people all over. So chips, money and processes had a huge impact on business during the timeframe.
But what happened to these large organizations that have their roots going all the way back to the East India Company? Well, the GDP of the top 100 to the top 500 companies in the U.S., you’d say is that larger today or smaller today than 25 years ago? It’s way smaller. Large companies have less influence today in the market than they’ve ever had. People rant and chant about global multinationals, et cetera; the facts don’t support it in terms of their concentration of power in terms of the concentration of business. Yes, they’ve grown, many have gone out of business, some have grown, large companies have grown, but it was new organizations essentially coming out of nowhere that had much looser organizations that weren’t as vertically integrated as a Ford, which owned its steel manufacturing and owned its shipping capability and owned everything along the line as opposed to the people that had relationships built on trust and confidence with suppliers and partners.
And if you think about this in some ways, one of the companies that have benefited from the new form of organization, a looser form of organization, are companies like Microsoft. Microsoft is one of the world’s largest market cap companies but in terms of employees, with 58,000 team members, we are way less than many of the organizations in their heyday that had 300,000, 400,000 direct employees working for the organization because of the deep vertical integration. Again, Microsoft as a company, which has achieved its level of success today, and we don’t have a direct sales organization. The partners that sit among you represent our frontline sales and service.
And so again, the disaggregation of companies into where the transactions that occur in what used to traditional be a company now as an organization the transactions are really market related. It’s not an individual saying to a sales force go sell this, it’s us trying to attract partners to sell and support our products by us having the best business opportunity for those partners. So again, those market forces sometimes inside what used to be a whole company are actually more efficient. And if you think of those as transaction costs, as transaction costs get lower and lower and lower – this goes back to Ronald Coase’s economic thesis that he wrote in the 1930s – the two main economic forces that put pressure on a company are the costs of the hierarchy or the cost of bureaucracy and transaction costs.
And during ’75 to 2000, transaction costs came down and down and down and down, and bureaucracy costs with healthcare and everything went up and up and up, and that’s why you saw organizations like IBM who had promised lifetime employment for all those years laying off 122,000 people in five years. That’s why Jack Welch became an icon of management, but he got there not by promising lifetime employment but by making brutal decisions about weeding out the bottom 10 percent continuously and cutting headcount and driving for efficiencies and doing that because the market forces were overwhelming the benefits associated with the internal bureaucracy. So this is the world that we live in today, with these kinds of forces.
So if we take a look at this sort of very fast view of history and technology and human evolution over the last 5,000 years, we can see that there was sort of an interrelationship between technological breakthroughs like shipping, like railroads, like cars and like computers, and in each case these technologies had an interesting quality to them, which is that they were transportation in some ways but they were also communications. With the train, you were able to transport faster and you were also able to send mail faster. With the car, the same thing. And with the computer, it isn’t really about the transportation of ourselves as individuals, but it certainly is a communications tool and revolution which again created a break – and a major break – in terms of the way business had been done, forcing businesses to respond and causing another leap forward.
And I think that we all feel as humans, rightly so, that we are living today in an absolutely, positively undisputable way, that we live at an accelerated pace relative to the pace that people had to live at in the past. Change occurs faster, and change is not something that can be ignored because some of that change is driven not by fad or fashion – it’s driven by underlying economic forces which are tearing apart the very roots of some of the things that we thought of as being the strongest and most powerful companies and organizations on the planet.
And so, again, we have to figure out how do we as humans and how do we as organizations want to respond to that accelerated pace, and what is it that we can all do. And then we as a company, as Microsoft, say if this is the background that all of us live in today and this is an unchangeable backdrop to what we do, then what can we do to help organizations and help people and help individuals deal with the reality of today.
And that leads us to software, and I say about software in this backdrop, I call it the challenges and the magic. The challenges are that software, which I love – I mean I love software, and I love it for a lot of reasons. I love the fact that it’s a medium which blends both art and engineering. It can contain human emotion and sort of deep science, and it brings all of these things together in a way. And the medium is so malleable. I mean, unlike a different format, if you were a sculptor working in beautiful granite; whoops, take one too many chips, hard to put it back. Software is forgiving in some senses, particularly with the right architecture where you could have the ability to have software evolve and move forward.
But as malleable as it is and as wonderful as the medium is and as powerful as it is — because software has been one of the engines in the last 25 years — granted without the underlying physics of faster and faster chips and cheaper and cheaper storage, but to bring that to life, software has been the key component in terms of actually driving enhanced human productivity, standing on the shoulders of the advancements, if you will, of sort of the underlying physics. But software is where it comes together, and that’s what brings us all here together today is software, and what can the software do to help us achieve the business goals that we have.
And that’s sort of the challenge of software is that as software tries to take on more and more dauntingly complex tasks against the backdrop of faster and faster change, you end up with a situation is that by the time you get the software done for a particular application or a particular business the needs or the business processes of that organization may have already required that they change and so then you’re always in a sense of backlog or catch-up or how does the industry as a whole deliver to help organizations stay on the leading edge, because we have been an enabler but in many cases today the frustration that people have with software is their software holds them back from what they want to try to achieve, that companies understand the need to change, they have the vision to change but they can’t get there because they lack the flexibility or the software has got the flexibility but the cost is too high.
So those are the challenges that we face, but also the magic is there to allow us to sort of close that gap.
And with software as sort of the backdrop of what I see as one of the most empowering forces on the planet, it’s one of the reasons why personally I’m excited to be at Microsoft. I’m excited to be at Microsoft because Microsoft is, in my view, the world’s best software company, totally dedicated to software. That’s what we eat, live and breathe is software, software is this super important thing to help drive the planet forward, and here we are at a company that has an opportunity to play a pivotal role in shaping and in driving software as an industry, and again, enabling and helping lots and lots and lots and lots and lots of other software partners — including the ISVs that are here at this conference and are sitting among you — that we can participate in that community of other software developers to help enable them achieve their goals.
So captured in our mission statement, what you see up on the slide up here is this, I mean, this is our mission, this is what Microsoft stands for, is enabling people and businesses throughout the world to realize their full potential. That’s our raison d’etre, that’s why we’re here, and we know that we can do this. We’re doing it today, we’ve been doing it for 25 years and we can do it even better in the future. But it gives us a sense of purpose, it gives us a North Star in terms of how we want to try to drive forward.
Particularly as it relates to our vision within Business Solutions, it is even more targeted, which is that we want to deliver breakthrough innovation through software that enables organizations like yourselves to be able to pursue your business goals with confidence.
And I say pursue your business goals with confidence because I know that each of you have goals, each of you have wishes, desires and dreams for what your company can be or how your processes could be better. And many people are hesitant sometimes to pursues those goals because like, well, we’re not sure if the software can keep up with us, we’re not sure if it will do that; gee, if I put this new software in it might break the old stuff.
So the hesitancy that people have to take risks and pursue innovation and pursue growth because in my mind growth is a choice. If companies want to grow, it’s a choice; it’s not something that happens because the rest of the market is growing, it’s a choice and we all live — if you’re here at this conference you chose to be here. You’re able to participate in human choice, and companies grow because they choose to grow. And part of that choosing to grow is an attitude that I’m willing to absorb a little more risk. I’m willing to take risks associated with growth. But we want to make those risks less risky. We want you to be able to pursue your goals with confidence. That’s the partner that we want to be for all of you.
So what’s the challenge that we have? I described this a little bit in leading into these slides but the challenge has been with us for decades, which is how do we create software that works the way companies work, and I would say the way companies work is all about people.
And so this slide — on one side, you’ve got a set of people and a set of roles. On the other side you’ve got a set of things that are processes. Those processes tend to be more structured. And you’ve got very structured things in accounting data. It turns out how do people work most of the time? Hey, we’re humans. E-mail — we spend a lot of time working in e-mail. That’s really unstructured. So how do you blend the unstructured nature of things like e-mail with the structured nature of processes and have that all work together, have it all work the way you would like it to work?
We believe that Microsoft is in a unique position to bring these assets together. Microsoft is the world’s leader in working with unstructured data, with products like Office, and we have a great infrastructure capability that we bring to bear through the other parts of Microsoft, which again we believe that we can bring those assets in here to attack this challenge in a deep way.
And so, if that’s the challenge, if the challenge is how to make all this stuff work the way that you want to work and to keep up with the pace and change you’re facing, how do we articulate that as sort of our core passion for Microsoft Business Solutions? How do we describe that as our sort of central strategy? And when I say strategy, I talk about that at this particular thing we want to be better at this than our competition, that’s one form of strategy.
And we also believe that this is what is one of the most important things to you as customers, which is that all of you desire rich functionality. There isn’t one of you out there that I have met that say our software does everything you want it to do. As rich as we make it, you’ve got one more thing or five more things that you want it to do. So we’re going to continue to pursue functionality, functionality, functionality, in a deep, deep way, ourselves and with our ISV partners to deliver that functionality.
And you wanted it low cost. You want the stuff to go in easily, easy to use, work the way other software works; you deserve that and we believe in low cost.
High adaptability. This relates to the theme of the whole talk. The backdrop that you’re facing is a world undergoing continuous, rapid and accelerating change; you need to have processes that adapt to — rapidly adapt to — the changing environment that you work in, and you don’t want to have that adaptability come in the form of consultants who have to live with you for a year that cost a lot of money, who at the end of that year they finish the project and then you need changes again. We want to have that high adaptability come at low cost and augment the rich functionality.
If we take this whole thing together, we call it affordable adaptability. That’s the central passion that we have as an organization, and that’s what we stand for, that’s what we want our brand to stand for, that’s what we want to deliver to all of you.
It turns out, guess what, that that’s not only our passion, it’s also we’re the best at it today. Today in the markets that we serve, by and large, for the most part, we are the low-cost provider of software. We do have the richest functionality and with the tools that we have today, we do have the best and lowest cost adaptability.
We feel this builds off where we are today, this is not the other side of the river. This is the side of the river that we’re on. We are here. This is where everybody else is trying to get to. But guess what, we can get much, much, much better at this — much, much better.
Why can we get better? In part because of the strategy that we have is about taking the R & D, not just at Microsoft Business Solutions but of taking the R & D and utilizing and integrating the R & D coming from Office, coming from Windows, coming from the server and tools team and bringing all of that together.
So again, we have unique strengths as an organization, Microsoft, to have the platform, the desktops and the biz apps, together with the broad ecosystem all come together. Our deep, deep experience on the desktop with hundreds and hundreds and hundreds of millions of users using Office allows us to understand interfaces and get feedback about the way people utilize and work with unstructured data. Our hundreds of millions of customers that are using our platform products today allow us to deliver breakthrough in terms of process adaptability. Again, Microsoft started as a tools company, and we grew and developed and had great success as a tools company because we democratized, if you will, the ability, we lowered the bar in terms of what it took to be able to do customizations over the years with the innovations that were built in products or with separate products like Access that allowed people again to sort of reach the masses at a low cost.
So again, together with our ecosystem, again because the strategy here is high volume, low cost, high adaptability, with our ecosystem we can deliver the ultimate we believe over the long term in choice and precise fit for our customers.
So how does this all relate back to you? Well, how it relates back to you is that among the audience today is you are probably using one or more of the five products that are listed on the bottom here across Great Plains — there’s Solomon, Navision, Axapta or CRM or retail point of sale or again many of our vertical and ISV products.
But what we want to do as we pursue innovation, harder and deeper innovation than anybody else in the industry is pursuing, and we want to pursue that with our own R & D budget and we want to pursue it in an integrated way with the rest of Microsoft. While we’re pursuing that, we want you as customers to have great peace of mind. You’ve made a choice, you’ve selected our product, you want to use that for a bunch of years.
So part of what we’re announcing is that we’re extending our lifecycle support, which means the number of years that we would support a product after it’s released. So, for example, Great Plains 8.0 comes out, it had been, ‘Hey, we guarantee we will support that at least three years.’ Now we’re extending that lifecycle support to say, ‘Hey, when you buy 8.0, we guarantee lifecycle support extended for five years.’ You buy Great Plains 9.0, lifecycle support for when 9.0 comes out, five years. You buy Navision 5.0, Navision 6.0, whenever that comes out, five years after that; Axapta 4.0, five years after that; Axapta 5.0, five years after that. I won’t be redundant, I think you can do the math. A product comes out, five years after the time it released, lifecycle support.
This gives you a sense of peace of mind about your investments in how you choose. We also are describing and will describe in more detail as we go through the week how we plan to drive towards, if you will, a convergence of our product line where you continue working with the products you have, buying the upgrades of the product you have but we continue to deliver innovation through a series of upgrades to a point that’s more unified in the future.
How did we get to this strategy? Well, we didn’t get there by saying what are the cool technologies. This was a strategy that was driven almost exclusively by deep, deep customer research. And so, it’s a combination of the innovation that we have on technology plus our better understanding than we have ever had of what your needs are. In the past two years, we’ve interviewed on site at locations in a detailed way — hopefully not in an annoying way if it’s been any of you. But we have 2,000 people across many, many different roles who use our products or use competitor’s products where we would come in and literally spend the day, and we want to understand everything they do — who they talk to, where they walk to. Why are all these post-it notes around your screen? What are the things that you’re actually trying to accomplish and get done? How do you use e-mail? How would you like to connect unstructured and structured data?
We did some of that research last year at Convergence 2004. We will do more this year at Convergence, but last year many of you participated in some of the labs with us and we appreciate and your input went into this.
And with that customer insight we got even a deeper understanding than what we had had over the past 20-some years that we’ve been building business applications, and we’ve got even a deeper understanding specifically of what the roles are and we tried to understand how processes cross the different silos and how we need to make sure that we’ve got a level of integration and communication going across all the different roles in an organization.
We have a word which we call a persona, which is essentially an aggregate personality or role, we assign actually a name to that person and this illustration you see here is part of a poster that you would see in any of our development sites that you might find around the world where people are building Business Solutions products, but off a common understanding of what we call the customer map — who are the individuals we’re building for, what are the specific benefits for the IT director or the AP clerk, for a sales manager, what are the specific benefits that we’re going to deliver in our next release for that individual. And that individual again is an aggregation of all the research in your comments and themes.
And when we did all that research and understood all the processes and understood over 50 discrete roles, one of the things that we aggregated all that data into a series of what we call design themes, or we’ve called these pillars in the past. And we took the feedback from all of you and from our customer base and said there are a couple of core areas that people really want to help them as people, and the first three things about people is they want to be more empowered and that has to do with the user interface, And the user interface being designed in a much more role-based way that matches with the way that they do work.
It was about being insightful, because again people that use our solutions are business decision-makers. They want to have access to information that allows them to make insightful, forward-looking, thoughtful decisions about resource allocations, about competition, about customer service. They want to be able to get at in again a familiar and useful way the information that they have, and again we believe that we can drive that very well, again leveraging capabilities coming across other capabilities from Microsoft.And then connected: being connected both inside the company and outside the company is something that’s essential to people in terms of the way people work today.
And with all of that, as I’ve already discussed, one of the most important themes is that we want to be able to create processes which cut across the way people work to allow people to work together in an easier way and to have those processes adapt as the organization goes.
And, of course, there are other things which we uncovered, which we just call the fundamentals, which is that all of you want all of this and you want it at a low cost or you want it at the lowest total cost of ownership. And then there are also some fundamentals which we have to deliver as an organization around security and with things like the Dr. Watson capability and with Live Updates that we want to be able to continue to deliver to you a safe, secure, updated in a very automated way where you again can have the confidence in your mission critical systems.
So these are the things, all of the innovation work that we did, all of the deep research we did led back to us focusing around these particular design themes, which guide all of our releases across all of our ERP and CRM product lines.
So how does that actually translate into a roadmap? Well, the first wave is now and we would even say that some of it has already surfaced in the releases you’ve just seen in the last year like with Navision 4.0 and Great Plains 8.0, because some of the ‘green research’ as we call it influenced those releases. But as we continue to apply the learning that we get from the marketplace and from you and we understand the core design themes, then we can really drive through a major set of things.And today when you go to your breakouts, those teams are going to go very deep in wave one, talking about the directions that are going, what they’re adding, giving you demos and really delivering the proof and the specific roadmap by product line, so look forward to that. But there again there are some common themes that will come across all these product lines, which is again all will move towards a common role-based user experience where roles will surface in our product, where the person using it will have an interface that is specific to their role, which will enable them to be more productive and work more the way that they want to work.
Portals. Again this is about connectivity both inside and outside. SharePoint Portal, a Microsoft product, is going to be the basis for our portal strategy and for our workflow strategy and again you’ll see this in the demos today. But this again is going to allow great connectivity, great communications and great workflow process within an organization.
Insight. Again, one of the design pillars. SQL, the SQL team working to deliver some of the absolute very best, lowest cost contextual business intelligence on the market today. We will surface that across all of our releases to allow you to take great advantage of the BI capabilities and the alerts associated with the SQL reporting and analysis tools.
And again, as far as tying in how we want to work with third party ISVs and creating additional functionality, our whole Web Services strategy and our approach of opening up the APIs of our current product lines to allow the deep integration of other products and allow extensions to occur by your partners and by ISVs, will again help you achieve the functionality and the verticalization that you want in your business.
And so again wave one coming soon, great innovation, driving towards common designs and in some cases common code across all of the product lines.
Wave two, which we will talk about more next year than this year, but wave two will continue us on this roadmap in terms of how we drive towards, again, common model-driven design processes, the use of standardized Microsoft tools, the alignment with the Office 12 wave, alignment with Longhorn, again bringing great value to you in terms of the application that you’re using. But again wave two will surface for each of you as a second upgrade beyond the next wave of upgrades that you’ll see in wave one.
So again the products you’re on today are safe, secure, stable, gets even better with the wave one releases, gets even better with wave two so you can have peace of mind and participate in the innovation. And, by the way, when we come out with a new release, you don’t even have to upgrade; five years, keep using the one you like, don’t worry about it, we’ll keep innovating. You move at your own pace.
So let’s go to the specific roadmap, which I guess I’ve already covered, wave one. Again you’ll see a lot of the dates you’ll see CRM coming at the end of 2005, the four ERP lines all with major releases coming in the second half of 2006, and so again, great innovation coming on top of the great products that we have to do. And then wave two essentially the commitment to the next version of the products that you love and use today, with even more shared design, in some cases shared code and then driven towards a convergence of innovation.
So where does that bring us to, having covered a lot in a short amount of time? It brings us back to what I guess I would call the human journey. We started less than an hour ago thinking about how we as humans envision ourselves, and we sort of understood what has been the role of the company — I wasn’t talking about this as a history of the planet based on companies, not a history of the planet based on countries, and part of that was deliberate because companies are a force for change and not just economic change. Some of the great social progress that has occurred in the world has, in fact, been led by or driven by innovations that have come from companies.
So one of the things where you might say what’s the future going forward, I mean, you know, hey, want to change the world, you go into government or you join a company. Some of us join companies. This was the chance to actually really drive and make a difference and make a difference at a time when the world was changing and make a difference when there was an explosion of new invention and new knowledge and be able to participate in that.
For my own human journey, it’s been an interesting ride, so to speak, for sure. Today is March 7th. On March 7th, 22 years ago, also a Monday, I had my first day at Great Plains. (Applause.) Thank you; it wasn’t that good of a day. (Laughter.) But I’m glad I made the decision.
Great Plains was a startup, an under-funded, no-business-plan startup. Interestingly enough, we’re here in California, my first day on the job I was with the two founders of Great Plains and the two of us, the two founders, our R & D guy and myself — and we were in Northern California my first day. We were there to understand what was going on as a startup in the software business, go visit some software companies and try to see our way to the future. We went to one company that we thought really had a future, Corvis, very impressive company, particularly impressed by the cars all the founders were driving in the parking lot. I’d never seen a Lamborghini before, so it was my first glimpse of what venture capitalism was all about. (Laughter.) But Corvis is not a name you probably remember but they were a company that was sort of the leader before even Novell in networking.
The next company that we saw, also very impressive, later named VisiCorp, they were the creators of VisiCalc, had great energy, great sense of conquering the world and a great esprit d’corps. The first sort of Silicon Valley Dilbert cubeland extending as they were hiring people as fast as they could to write additional products and no sense that their future was going to be very short based on the introduction of Lotus 1,2,3 only months later, but they were full of energy and excitement, but a great lesson there.
And then there was another company that we went to which was already impressive, not yet public but impressive, and it was a company that we had worked with on the hardware side, which was Apple. And that was just fun and exciting to see Apple.
And then we went to another startup, about a 50-person startup and we thought they might have some stuff that we might be able to use to build on top of our products but we weren’t sure. We were still working on our business plan. We decided not to use the products they had to build on and that little startup was Oracle — (laughter) — so interesting first day on the job.
But I think that so my personal journey, if life is a journey and business is a journey, my business journey has certainly been an interesting one. And across that I’ve had the joy of having the experience of working at a startup to working at a fast growing small company to working at a midsized company to working at a very fast growing public company that was becoming global, and I think people know at the time we were acquired four years ago, about 2,000 people in our organization and that’s still by some scale small, by some scales it’s kind of large. 1,600 in the U.S., 400 team members outside the U.S. so we were dipping into our own experience of growing, but it was an experience of how do you build a company like that, how do you have the systems that work to apply to achieve that growth. And then along comes the opportunity to hook up with Microsoft, and now I’ve had an opportunity to work for a 58,000 person company. Today I guess we’re up about 10,000 or so from when I joined four years ago, but to think about what are the systems requirements and what are the capabilities of a large organization.
So I’ve been fortunate in my journey to span a lot of the sort of, if you will, drawing S curves with my hand but sort of the points of inflection that many organizations go through, and that many of you have gone through and I feel grateful to have participated in that journey with so many great partners, and the relationships that I’ve had with partners and the relationship we’ve now had with customers.
I had a chance just the other night at one of the receptions, and yesterday, to talk to people who were remembering their first Convergence when we had 57 people at Convergence. The journey has been great, and the journey has been a great collective journey, and I want to again express my gratitude to all of you that have been on that journey with us and a part of that because again it’s the inspiration that I have from working with entrepreneurs and risk-takers and individuals like yourself that are great.
And I think just what I’d like to do is just take a moment and again run a little video of some of you just before we close as a way to hear in your words maybe what this journey has been. So let’s take a look at some of you fresh from yesterday.
(Video segment.)
(Applause.)
DOUG BURGUM: Well, this helps set up, these comments from our Pinnacle Award winners help really tie it all back together today, because we talked about the human journey. We talked about the journey of business. We talked about the journey that we are on as individuals and how we as a community can all enhance each other and our own success on that journey.
And when I think again about realizing potential, the gap between our own potential and our company’s potential is often not just the technology, not just the software. It goes back to those noble human values that each of us posses, that each of us have. It’s the passion, it’s the courage, it’s the willingness to take risks. It’s the optimism that we have, the curiosity to allow our egos to fade away and understand that we need to learn more, that we have to bring an innocence to learning and we have to be willing to take risks and ask questions and learn from others, that those human elements which are all available in huge quantity in the planet today and are available, they’re resources right there for us to use each day if we just take a moment to think about it, that those elements are going to help us reach our own potential.
And that’s why I get excited about working for Microsoft, that’s why I get excited about the strategy we shared with you today, because in the end it’s not about the power of our software that matters, but it’s about the power that it unleashes in you.
Thank you. (Applause.)
