Steve Ballmer: CAN>WIN 2005

Remarks by Steve Ballmer, CEO, Microsoft Corporation
CAN>WIN 2005
Canadian Chamber of Commerce
Ottawa, Canada
December 6, 2005

STEVE BALLMER: Well, thanks, Russell. It is certainly a very kind introduction, and I want to say thanks to the Canadian Chamber of Commerce for giving me the opportunity to be here at this speaker series, and as part of Microsoft’s annual CAN>WIN forum.

(Repeats in French.)

(Cheers, applause.)

All right, I’m done. (Laughter.) This is actually I was confessing I lived in Belgium for three years as a kid, and if I don’t practice occasionally, I don’t know when I ever would, except at this kind of good event, so thank you.

This is actually my third visit to the CAN>WIN forum, which is a very important event for Microsoft, and it’s one of the ways in which we’re really trying to support and contribute to discussion of Canada’s economic competitiveness and growth.

The theme of this year’s forum I think is particularly timely right now with a federal election coming up. I’m no expert on Canada’s political parties, I was learning a little bit at lunch, but I’ll bet they’re all putting forward ideas on how to strengthen the Canadian economy.

Our CAN>WIN theme is “Economic Prosperity Through Innovation and a Skilled Workforce.” This is a subject that really interests me a great deal, but let me say first of all that I’m not going to claim to be an expert today in economic development. There are people in this audience who are experts, people who really know what’s most needed in the communities and in Canada in general.

But at Microsoft we have a strong interest in economic development and more broadly if I could say in human development, because we make software and we believe that software is a unique tool that really helps people expand their capabilities so they can better their lives and so they can help the societies in which they participate really progress.

That’s why we say that the mission of our company and really in a sense of our entire industry is helping enable people and businesses throughout the world to realize their full potential.

After my 25 years with Microsoft, I’m humbled by how much our company still has to learn about the world at large. We’re still a relatively young company; in less than three decades, we’ve grown into a company with 63,000 employees, doing business all around the world. In recent years we’ve consciously become much more global in our thinking and our approach. And while we know we still have a long way to go, we’re committed to being this kind of truly global company, and I’m optimistic that we can make a positive contribution around the world and particularly here in Canada.

From traveling a lot and having an opportunity to talk with leaders in business and government around the world, I find that a lot of the challenges are really quite similar from country to country, and I think that our CAN>WIN themes really point the way for many communities and many nations on how to promote productivity and job creation.

Our team briefs me sometimes whether I’m supposed to say productivity or prosperity. Prosperity is the goal, productivity is merely a tool, if you will, to really get there.

So today I’d like to focus in on innovation and workforce skills and really talk about how we at Microsoft approach innovation and how we’re working to develop workforce skills here in Canada and around the world to help drive prosperity.

I grew up about 500 miles from here, 800 kilometers I guess I’m supposed to say, in a suburb of Windsor, called Detroit. (Laughter.) Although I have to highlight, of course, it’s the only place you can grow up basically north of Canada in the United States. And my father worked at Ford Motor Company. These days, as we all know, Ford and the rest of the North American auto industry — Michael Grimaldi from GM and I were having a little chance to commiserate about this — are really dealing with some tough challenges. Some are peculiar or particular to the automotive industry, but I think virtually every industry today faces fundamentally some of the same crucial challenges. Those challenges come from a globalized economy that is growing more competitive and changing faster all the time.

The challenge is even greater than ever before as countries such as India and China quickly develop the necessary technological skills and infrastructure to compete globally on so many fronts.

The challenge for businesses here in Canada, in the United States and for economic policymakers really in both countries is to find or create new opportunities for competitive advantages that will help us all achieve and sustain growth over a long period of time and enable prosperity for all.

We also need to do what we can do to reduce the impact of some of the disadvantages we have. Labor costs are higher — we don’t really want those to go back down in our countries. Tax rates, our regulatory environment brings with it benefits, although I’m sure the Chamber, as the Chamber in the U.S. and many other places, represent business interests, there’s a valid need for some of the regulation that goes on environmentally and elsewhere. But we need to find and work to sustain our competitive advantages and drive them even harder.

I believe that for Canada and for the United States and other advanced economies our biggest potential advantage is our ability to innovate, to get ahead of the competition by being smarter, more productive and enhancing the value we all deliver to customers, creating whole new categories of products and services and having those change the world for the better.

The need to innovate really confronts every industry and also government agencies and educational institutions. The public sector must innovate to meet the rising expectations of citizens, citizens who want public services to be as convenient as today’s Internet-based consumer services that are delivered anywhere, 24 hours a day, seven days a week.

What’s more, innovation in government is crucial to maintaining a climate in which businesses can compete globally. Innovation in education is crucial to developing a workforce that can really take advantage of the opportunities in the global economy of tomorrow.

The challenge and the need to innovate in response to all the changes taking place in the world reminds me of a great Canadian who foresaw a lot of this. Thirty years before the World Wide Web was ever invented, Marshall McLuhan wrote that computers and electronic communication would transform the world into a global village. Today, his work seems incredibly visionary but back then most people thought he was nuts essentially. (Laughter.) McLuhan compared his critics to dinosaurs who couldn’t see the changes and challenges ahead, and that it would ultimately lead to their extinction. He commented that dinosaurs never had it as good as they did until just before they vanished. (Laughter.) Good words for Canada and the U.S. I think to pay attention to and to heed.

I think we all do increasingly have a sense that the world is changing in very profound ways, ways that will require us to adapt and to innovate in order to survive and achieve prosperity.

At Microsoft, we’ve given a lot of thought to how we build a culture of innovation, we’re innovating in the right areas and making sure that we do that. Innovation for us is a special imperative, because we build a product that never wears out. Think about that: The product never wears out, it never gets used up. I’d say it never breaks, but that would be inopportune I think. (Laughter.) It comes broken if it’s broken from day one. Software is kind of the Energizer Bunny, if you will, of the computer industry: It just keeps on going and going and going.

So our previous products are often actually our toughest competition. Only by innovating can we motivate customers to upgrade, to do something new, and I’d like to talk a little bit about how we approach innovation, which may be useful to some of you in your businesses or in government policymaking or at least may be interesting for you to say that’s not right for us.

We recognized that successful innovation is in a sense a lot like hitting in the game of baseball: Not every one of the hits is going to go out of the park every time. Despite everyone’s best efforts, all the testing, the market research, you’re never sure how the market is really going to respond to a new idea. Your success can depend on a variety of factors, internal, external, easy to control, difficult to control.

On the other hand, the only way really to succeed is to just keep on swinging. If you want to hit a homerun, you’d better keep on taking some swings. And sometimes you miss but successful innovation is a matter of probabilities and — and this is different than baseball — it’s a function of patience and tenacity; you’ve got to stick to it. Sometimes innovations fail the first time and you’ve got to believe, refine, tune, and keep coming. And I don’t care whether it’s our Windows product, the Google search engine, the first PBXes that were done at Nortel, great innovations require that you strike out, but that you be patient and you be very, very tenacious. No one is going to bat even close to a thousand, and that shows itself. There’s always a hot company of the moment; we have to be hot companies not just for this moment but for many moments into the future. What really counts is this kind of sustained, successful, tenacious effort of innovation over time.

Achieving that in our industry has actually become much more challenging over the past several years, for a number of reasons. The pace of technological change has continued to accelerate. When my dad worked at Ford, his competitors released products every, I don’t know, six years, seven years; I mean, it was a long time back then. Today, in some parts of the software business, new versions are released every few weeks or few months. With software now being delivered as a service over the Internet, the change can be made daily, hourly. And if we aren’t innovating fast enough, if our innovations aren’t big enough, if we’re not innovating on the things that are new, we don’t succeed.

Meanwhile, the concept of the computer itself is actually changing very rapidly. Michael (Sabi ?) and I were talking today about how the phone becomes a computer, how the TV becomes a computer. Those changes change the fundamental environment in which our entire industry works.

Everyone expects this trend of change to continue. Moore’s Law style advances in hardware power will continue for at least another decade, so at least for that period of time all of us in the technology industry are challenged to really keep pace on the software side, to make sure we’re targeting the great new things that hardware permits and to continue to bring forward things that change the world.

Globalization is another trend that is complicating all of our and everybody else’s efforts to innovate successfully. In our industry and others, globalization is forcing companies to customize more products and services by market and by demographic. In the past, a multinational company could really more or less impose its products on the marketplace; today, customers want the best solution for them, not one size that supposedly, if you will, fits all.

A related factor in plotting successful innovation is the big change that’s coming in the global balance of economic power. The markets that most North American companies rely on today are very likely to grow more moderately at best over the next decade, and the fastest growth is going to come in Asia and in other emerging markets.

Companies in North America will be forced to ask themselves some very hard questions. Are we innovating for a world where China is one of the top three markets? Are we innovating for the specific needs of businesses and consumers in India? Are we planning for a future that is very different than the past?

So there really are tremendous changes taking place, changes that I find exciting, that I find invigorating, but it also can be frankly nerve wracking. I tell our people we must be the first to launch innovations, we must be the first to popularize new innovations, and we must be the first to make money off of new innovations. Those three don’t always correlate, I might add. We need to get a lot of things right, and it’s hard, and we’re going to get it right a lot of the times and we’re not going to get it right some of the time. When you do get it right, you really need to make sure that you continue to stay focused, that you focus your people, that you focus the talent you need to continue to propel those innovations forward. If you stop innovating in an area, somebody else is going to come and take your future, if you will, for you.

You need to be persistent and relentless. I know this has come through a couple of times, but I really believe it. And you need to be sure that you really have the right talent working on the right problem.

People talk about China and India as a source of low-cost labor. In our industry we simply point out that almost two-thirds of the computer scientists in the world graduate in China and India. It’s not a cost issue; the talent pool in our industry is shifting towards Asia because of the low graduation rates in Canada, the U.S. and other developed markets.

Innovation is fundamentally rooted in people, ideas drive innovation, and also companies that can collect that kind of talent inside of them, and that’s one of the key missions of any innovative organization.

I tell our people that we’re going to continue to be at the leading edge of innovation as long as we’re the greatest place in the world for software people to do their work, not just software engineers but also the people who want to market software, support software, explain it and drive value from it. We need to provide a great environment for those people, and we put all the energy we can into recruiting and hiring and retaining the best and brightest people in the industry.

I find as a CEO 60 percent of my time is on these kinds of people issues, because at the end of the day there aren’t that many big strategy decisions but getting the right people in the right environment is key.

It’s also necessary to invest in people by giving them the tools they need. This isn’t just true in our business. People come to work every day ready to make a difference in all organizations. People determine the success of all organizations. If you amplify their impact, you improve their results. In businesses people empowered by the right tools can be so much more effective at doing all of the things that businesses must do to succeed today, developing and strengthening relations with customers or citizens, creating new products and services, improving operations, reducing costs, connecting with partners and suppliers, et cetera.

If you excuse me just for a minute, I’ll kind of pound my chest just a second. We think Microsoft technologies are really as effective as any you can find at helping you enable your people with the kinds of tools they need to be effective. Our tools are familiar and easy to use, could be easier — I got some feedback at lunch — but familiar and easier to use. Relatively widely used and supported, easy to integrate and connect with other systems, very open in that regard. And they are innovative. We try to make software that continually expands and evolves to meet your ongoing needs.

But regardless of who you choose to use for technology, whatever that looks like, you have to ask yourselves are we meeting the innovation challenge, are we using technology to enable us to innovative, to enable us to globalize, and to meet the kinds of demands that are on all organizations today.

Investments in plant and equipment are also needed, but so is the investment in technology, and that’s why in Canada and the U.S. over 50 percent of all capital investment, in fact, goes into information technology. And I know people here are aware that there’s evidence that the Canadian economy lags behind the U.S. in technology investment. Economists have to say what that really amounts to or not; it’s self-serving for me to say, yeah, sure, invest more, but I think it is eminently intuitive for people to see some of the connections between productivity and economic development and economic growth. Finding ways to close that gap I think will be important to Canada’s efforts to be more innovative and more competitive in the future.

Technology is just as crucial frankly to increasing the effectiveness of government but in this respect at least from what I know from our people here I’d say Canada compares quite well with what we see in most parts of the world. Microsoft is working with the Canadian public sector on a number of pioneering efforts. The government of Canada was the first to sign on to our Government Security Program and cooperation program. We’re now partnering with public safety and emergency preparedness Canada on some very exciting new ways of using technology.

We’re also working with many governments around the world on Shared Source Initiatives where we actually make our source code available to governments so that government can more effectively use that in terms of doing its own business.

A great example of public-private kind of partnership and innovation here in Canada is how the government of New Brunswick is working with us and some of our business partners — we’ve got 11,000 business partners in Canada alone — to provide one window approach to delivering government services to the citizens of that province. To compete with the rest of the Maritimes and with New England, New Brunswick is creating an Internet solution that enables travelers to create an itinerary online — maps, restaurants, leisure activities, everything, and then book it all from one central portal, delivered by Services New Brunswick.

Another great example is Alberta SuperNet, which is a high speed broadband network that is now built and operational in thousands of facilities in 429 communities across Alberta, making that province far more connected than ever before. SuperNet can use videoconferencing for distance learning and remote medical instruction and monitoring, just a couple of examples of the kinds of applications that can be delivered over the broadband network that will really make a difference, we think, in the lives of Albertans.

And because Alberta has had the foresight to open the network up to the private sector, now more than 86 percent of the population has access to SuperNet, making it a key factor in Alberta’s social and economic development.

I said earlier that people drive innovation. Because Microsoft depends so much not just on the quality of our people but the quality of our customers’ people and our business partners’ people, education is extremely important to our agenda. And we understand very much how important education is to the health of the communities where we do business. We believe that investing in education and workforce development may be the single most important thing that communities and countries can do to compete successfully in today’s global economy.

Our flagship programs to promote digital inclusion or the evisceration of the digital divide, programs we call Partners in Learning and Unlimited Potential, are all focused on this dimension of education. Partners in Learning involves working in schools to increase access to technology, technology skills, providing software, and helping to really improve and expand teacher training. It’s a huge undertaking. We’re collaborating on our Partners in Learning process in over a hundred countries, working with national governments and many international agencies. So far these projects have reached over 10 million students worldwide. For example, we’ve been working with elementary and secondary schools across Canada, providing over US$2 million in support for programs to help advance learning about technology and the use of technology to improve learning and pedagogy in many subjects.

We’re also working with many universities. We sponsor the annual Canadian Undergraduate Technology Conference, which gives students from across Canada an opportunity to interact with some of the country’s brightest minds and with world leaders in technology.

Microsoft Canada has made a $2.5 million grant to the University of Waterloo to support some very innovative programs, including academic research with the Tablet PC, in partnership with the University of Western Ontario. This grant also supports development of online learning tools and technologies such as virtual lab equipment and simulators, as well as online lectures, tutorials, quizzes, discussion forums, et cetera.

Another element of the partnership with the University of Waterloo is reaching out to high school students with online preparatory learning initiatives to expose them to state of the art technology and tools before they ever enter the engineering programs at Waterloo, or elsewhere.

I was explaining at lunch our deep affection for Waterloo. We’ve been recruiting since we were only about 30 people, at the University of Waterloo, because I had noticed that it was one of the top schools in the world on the Putnam Math Prize competition; still is, it’s a national gem, I would say, for Canada.

Online learning initiatives, funded by Microsoft, have exposed 3,500 undergraduate students to state of the art tools and technologies, and funds from Microsoft have been used to improve the learning environment in 12 different courses, which I think has really helped in an impressive way step up student grade improvements.

We also partner with many Canadian organizations to promote lifelong learning through our so-called Unlimited Potential program. We started this program two years ago, after consulting with many government and development agencies here in Canada. We discovered that many countries, in fact, not just Canada, wanted private-public partnerships that would help in the development of workforce skills of adults, workforce computer skills in adults, especially disadvantaged groups who were outside of traditional school and learning settings.

Today, we partner on Unlimited Potential programs in 95 countries. For example, here in Canada we’ve been working with the Boys and Girls Club. We’ve established 90 technology clubs across the country, providing access to technology for more than 100,000 children and youth, and we’re working with local organizations like Dixon Hall, a social services agency in Toronto, to help provide computer training for new immigrants and others who need additional skills in the workforce.

These kinds of grassroots initiatives are really vital to sustaining innovation, a skilled workforce and economic prosperity. And so today I’m very pleased where I get the chance to announce that we’re expanding our Canadian partnerships to advance education and lifelong learning. Microsoft Canada will commit an additional $4.5 million over the next three years to provide software, training and tools to local schools and community organizations. We will work with those organizations to help them create social and economic opportunities and hopefully positively transform communities. Our goal in this effort is to help a quarter of a million Canadians realize their full potential. (Applause.)

We’re very pleased to be able to make this commitment to education and lifelong learning, and I’d like to say a few words about the role of innovation in helping to meet other pressing social needs.

An example that I’m very proud of is the work that Microsoft Canada has done recently in partnership with the Toronto Police and the Royal Canadian Mounted Police to help develop systems to combat child exploitation and child pornography. This is really an effort that I think will have global impact. It all began with an e-mail to Bill Gates from Detective Sergeant Paul Gillespie of the Toronto Police. He was frustrated that police lacked the technological tools to help them rescue the children who are exploited in the making of child pornography, and that’s really become kind of an epidemic, if you will, on the Internet.

Microsoft Canada responded to this request that Sergeant Gillespie sent to Bill Gates and contributed $4 million, and more importantly probably the expertise of our technical teams to work closely with the Toronto Police and the RCMP. Together, they’ve developed a specialized database and powerful online investigative software known as the Child Exploitation Tracking System or CETS for short. This enables multiple police agencies to quickly share and analyze vast amounts of information that can help connect the dots that really lead to these child predators and their victims.

While CETS was still being tested, the data it linked from several agencies resulted in the arrest of a Toronto child abuser and the rescue of a 4-year old girl. CETS has helped lead to other arrests since it was launched eight months ago. It is housed at the RCMP National Coordination Center for Exploited Children and is used by police agencies across Canada.

Law enforcement agencies around the world have seen CETS and have expressed a great deal of interest in the system. This is a Canadian innovation that has the potential to impact people on a global scale. (Applause.)

As I wrap up, I want to say these kinds of private-public collaborations to help children are really modeled for what we must be doing to address many other equally important social needs. The world needs more innovation, not only in business and not only in technology but in also how we work together to change the world for the better.

From my many visits to Canada over the years, and as I said, from growing up just on the other side of the border, I know that Canadians are innovators and leaders, particularly when it comes to pulling together and finding ways to resolve differences and solve problems. This is one kind of innovation that the world actually needs most today. At Microsoft, we want to be a partner for you in government, in education, in business for increased productivity, for increased prosperity and, in fact, for a more humane society.

I’ve really enjoyed the opportunity to speak here with you today, I say thanks again to the chamber of commerce for the opportunity. I’ll look forward to some questions and dialogue with Allen, which I know will be fascinating, if I didn’t take too long. And if we don’t get to something that’s on your mind, I’m steveb@microsoft.com, feel free to send me a piece of mail, maybe we’ll all get another CETS out of it.

Thank you very much. (Applause.)

END

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