Steve Ballmer: Executives’ Club of Chicago

JOHN EDWARDSON: If I could have your attention, we’ll begin the program for the evening. It’s wonderful for me to get out from behind the podium to introduce our speaker for this evening and I know you’re going to enjoy Steve’s speech very much.

I have thrown away most of the formal introduction and I just want to say a couple of things about Steve that I think are important and that you may want to know. He has been with Microsoft since 1980, so he’s been there for many, many years. And you think about the type of person it would take to follow the chief executive officer of one of the most well-known companies in the world and probably the most well-known CEO in the world, what kind of a person is willing to do that, is willing to take that risk and stand up to that challenge and then know that that chairman was going to continue to work at the company every day and they’ve formed obviously a very good relationship.

But over the years that I’ve been at CDW I’ve had the chance to meet with Steve on several different occasions, I have not met anybody who loves what he does more than Steve Ballmer does. I haven’t met anybody who has more fire in his belly than Steve Ballmer does. Think about the things that you have read about Microsoft over the last couple of years, the huge issues that they have faced in the U.S., in Europe, in mainland China and the forcefulness with which Steve speaks out on those issues; there is nobody who has the energy that he has, as you will soon see as he is speaking to you.

One of the things he wants to encourage you to do is to ask him questions, so we will have people circulating during his speech. He would also like to be able to address you individually, so if you wish to, you can write your name on the card so that he can seek you out in the audience and talk one to one with you about the question that you may have.

So there’s no one that I know of in the U.S., in the world that knows more about technology, about what it can do, how it can make us more productive, more efficient and make our lives more enjoyable than Steve Ballmer, so let’s welcome Steve back to the Executives’ Club. (Applause.)

STEVE BALLMER: Now, I’m sure most of you thought that that was a very kind and nice introduction and by most standards I would say so, but if you really stop and dissect it, I want to point out John started out by saying Steve’s been around a long, long time. I felt kind of old and aged. Then he said the guy took over from Bill Gates. Then I felt almost a little stupid, like who would take over from the most famous CEO in the world. And then he had to go mention our legal troubles. (Laughter.) So I think it is very important to note that John is one of our very best business partners in the world and I’ll take absolutely no offense to it whatsoever. (Laughter, applause.)

It is a real honor and privilege for me have a chance to be here. I guess it was over three years ago now, Corrina said, since I’ve been here, and this is really a very unique thing you have here in Chicago, this kind of an organization promoting this kind of dialogue, and so for us it’s really an honor and a privilege to be here. For me personally I’ve got to say it always works out that I wind up running into old friends. I have seen at least two classmates from college here today, and so I get a lot of enjoyment out of it professionally, personally and every other way and I encourage the whole team to keep up this kind of fine activity.

Innovation and the CEO

What I thought I’d talk about tonight is in a sense about innovation, but I want to give kind of two characterizations of that. I’m going to talk a lot about innovation and IT and how they can help CEOs, but I also want to talk generally on kind of innovation. I think every CEO is challenged to think about innovation, you have to innovate in everything you do. There’s a great quote that I saw from Sam Walton that basically says something to the effect of even if you don’t want to change, the world around you will, and therefore you’d better be prepared to change. And it doesn’t matter what aspect of life, what you’re doing, what part of your business, new product development, manufacturing, fulfillment, customer service, we all essentially as business and as technology leaders that we have here today, we have a responsibility to be innovation leaders, whether our company is two, three, four people or whether our company is 200 or 2,000 or 20,000 or even more.

We’re in a very unique kind of an industry, I would say, in the sense that software is one of the more unusual products. Software never gets consumed. It’s not like a quarter-pounder, which John had, it’s not like a Coca-Cola, it doesn’t get consumed. I’d say it doesn’t break, but you would contradict me quickly on that, but it never wears out. It’s not like a tire, it’s not like a car. If it has problems, they were there on the first day and they stay there every day until the day we fix them.

So in a sense, all we have to fall back on to renew ourselves, to reinvigorate ourselves, to drive additional revenue, is in some senses innovation. If you don’t like our new version of Office better than you liked our old version of Office, you’ll keep using our old version of Office.

And so in a sense, probably in a way that is even more dramatic than many of you have to face, get to face, we have to confront this issue of innovate or be absolutely, what shall I say, irrelevant to the world at large.

That is to some degree true of the IT industry overall, but it’s certainly very, very specific to anybody who’s a player in the software industry: Innovation is our way of life and if we don’t innovate we have big problems.

In our company we probably have the opposite problem. We sometimes have a harder time baking in regular, everyday process because our people want to invent new things all the time.

I was sitting with a roundtable of about 20 of our senior managers here in the Chicago area just kind of chitchatting today and we all agreed it’s interesting to work in a company where everybody wants to publish best practices but nobody wants to adopt anybody’s best practices. (Laughter.)

So, yes, innovation is important and, yes, everything needs to be kept in the right balance in our company and in all of your companies, but I think innovation is part of the way we all work.

How Does Your Company Innovate, How Does It Respond?

In our company it’s so steeped in the culture, as I said, we have to worry maybe more about the other problem. Whether it’s the $6 billion plus that we spend on R & D, whether it’s the nature of the institution, but as I talk to CEOs, all CEOs are asking themselves the question not only how do I make my company work better but how do we push ourselves to innovate as a company.

Certainly there is something we can all learn from each other. I can tell you what we do to keep Microsoft a vital, active place from an innovation perspective. I can tell you how we take pride when we’re first and how it kind of grinds inside of us when one of our competitors beats us to market with an innovation. Let’s face it, we don’t like the fact that Apple is out front with this iPod thing. That’s not a feelgood around Microsoft. (Laughter.) There are just better days than that. But in a sense, being constantly ready to say we missed that, push, push, push, push, push, in some way, shape or form that spirit of change and innovation has to come from everybody in the room.

And I’m not going to try to pontificate or play management consultant — because I’m not — but I think it’s important to have that orientation a little bit as I talk about some of the kind of philosophy of innovation we have as a company and hopefully how some of that can bring some value to the organizations represented in the room today.

At our place we think there has to be kind of two muscles on which the business is built: innovation and customer responsiveness. And the classic thing you hear from CEOs and business leaders is either one or the other. You’ll have some companies that say we have a vision, we pursue our vision, and then you’ll have other guys who say we don’t believe in the vision thing, we just do what our customers want us to do. I think both of those kinds of companies are not destined to have a big, long-term, successful future. I think you really have to have twin muscles: How do you innovate, how do respond? How do you innovate, how do you respond?

Especially in our industry, if I was really to come to any one of you and say, look, we only want to do exactly what you want us to do, we’re just here to listen to you, you won’t listen to us very long. You expect people in the technology industry, the IT people who work for you expect people in the technology industry to come to you with new ideas, things you don’t know you want to do, things you may not even agree frankly that you want to do. But if people are not pushing the frontier, somebody will come to you with that exciting and new idea.

So vision is essential, innovation is essential, but so is customer responsiveness. It is also important to say I don’t follow my vision to the point where nobody wants it. It’s to take your time, listen, hear customer feedback, respond, respond, respond, respond, respond.

And it’s a very hard balance to hit, it’s very hard for every company in the technology industry to hit, but those are really kind of the two big muscles at least at Microsoft that we’re trying so hard to develop. I think we grew up with the innovation muscle as our dominant muscle, and really over the last five, six years we’ve been working very hard to make sure we had a very strong muscle that lets us listen and then respond to customers.

There’s a bit of a joke in the technology industry — I don’t find it all that funny, but I’ll repeat it nonetheless — that says it takes Microsoft three versions to get any product right. Windows 1 was a failure, Windows 2 was a flop, Windows 3, ah, and people see that in some of the things that we’ve done.

I could sit here and tell you that’s sad, that embarrasses me, that makes me feel bad, or I could tell you it’s a good example of innovation and responsiveness at work: blaze trails, try new things, and if you don’t have them exactly right, have the patience and persistence to take the feedback from the customer and try again and try again. Don’t just stick with the idea in some static form and don’t abandon the idea altogether.

The biggest mistakes we’ve ever made as a company on the innovation front is when we abandon something that we started before everybody else in the market, we gave up on it and it got popular when somebody else went and worked on it. Our worst mistakes are not showing that kind of patience and persistence on the innovation and responsiveness boundary.

And I don’t care whether it’s you as a CEO thinking through the issues of your customers, or frankly some of the IT folks. If you’re an IT folk, then you’re supposed to also be pushing your company to try new ways to use technology. And sometimes you’re going to get it wrong and you have to be able to listen, take that feedback, refine and make sure that the fundamental, core concept you’re working on can really be applied in the right way.

Innovation and Responsiveness

At our place we’re trying to make both of these as scientific as we can, scientific in the sense that we think broadly about what are the key breakthroughs coming in hardware and software. We’re investing in the research, in the customer research and in the technology research to do new things. We’ll file this year for about 3,000 patents, which will make us now one of the biggest filers of patents of any company in the world because we think those kinds of innovation are super important.

But we also need to be scientific about the way we get feedback and I’ll mention one of these ways, which I know will be very familiar, maybe unfortunately but very familiar to everybody in the room. Anybody here ever get a message on their computer that says something to the effect of, “An error has occurred; do you wish to send to Microsoft, yes or no?” Anybody ever get one of those? If you don’t stick your hand up, you’re statistically not telling the truth, because I know the number that we get.

Now, why did we do that? We can now tell you quantitatively, systematically every day the experience our customers are having with our products, at least an aspect of the experience our customers are having with our products. When we do a fix or an update or a patch or a new release, we can tell you systematically we have fixed 85 percent of the problems our customers encounter with our products.

We know where to apply our responsiveness and the more we can instrument, the more we can let you tell us in as vivid a way as possible what’s right, what’s wrong — we’re trying to figure out how we do this next with usability, how do we let you tell us, “Hey, maybe nothing crashed, but I couldn’t figure out how to accomplish my task” in a way that we can take that data, act on it, think about it, process it and then take an appropriate action. You couldn’t find what you were looking for in the Help system; we ought to be able to have that Help system dynamically modify itself based upon what you’re telling us every minute, every day.

So innovation and responsiveness certainly for us are, let me say, the twin pillars we think about for success and I think as business and technology leaders, most of us could apply that same kind of basic principle to say how do we innovate, how persistent are we, how do we get data, how do we respond and how do we do all of these things systematically as opposed to simply by story and anecdote. Everybody has always got an anecdote about some customer problem; it helps to be able to systematically collect and understand the kinds of problems that we’re having.

The CEO – CIO Dialogue

So for us that’s kind of the starting point. Then we say, OK — now I’m going to switch gears on you a little bit — how do we take those technologies, work with the IT staffs and the CIOs of the world and go out and make sure that they are really working for the CEOs and the businesspeople of the world.

Most CEOs don’t really think they understand their CIOs very well and most CIOs don’t think their CEOs listen to them very well. There’s no statistical data behind that but if I was to do a poll — we did this with 150 CEOs of some of the biggest companies in the world last May and they all said, “Yeah, you’re really right, we really don’t get what those CIO guys are talking about, let’s have a dialogue about that.” And we get more CIOs who say, “Look, I really get it, but I can’t get the businesspeople to understand this. All the guy wants to talk to me about or all the gal wants to talk to me about is cost, cost, cost, cost, cost, cost, cost.” So the dialogue tends to be quite narrow.
And I think part of what we have to say is, how can the technology people and the businesspeople really intersect interests in a way that the innovation can move forward the overall business agenda?

I’m a CEO, so I said to myself, well, shoot, I ought to at least start by trying to share my agenda with other CEOs, the kinds of things I worry about as a CEO and maybe it’s interesting since I come from a high tech company to ask how does IT help me and how does IT help Microsoft with its broad CEO agenda. CIOs say, well, isn’t it interesting the CEO doesn’t come to work all day just worried about IT.

So what is the agenda of most CEOs, and I’m sure it’s different for everybody in the room, but I’ll bet some of the things I have up here will resonate. Most CEOs worry a lot about growth, where are we going to get growth, is it going to be new products, how do we create the new products, how do we design the new products, how do we get them to market products, services, whatever it is; how are we going to grow, our mergers, acquisitions, how are we going to get it done, how are we going to grow; how are we going to compete, what is it going to take to compete; how do we have strong customer connection; how do we make sure that we do the processing of the business well, inventory management, manufacturing, whatever it is; what’s our culture look like, who are our key people, are we growing them, are we developing them all in the right ways.

Am I running the business? I always say to people, “I’ve got to really run this business,” and people say, “Well, what does it mean to you you’ve got to really run this business?” And I say, “Oh, I’m not really sure what it means but I know it means I want to know what’s going on every day, so I want to see the numbers, be able to delve in, understand and ask questions every day, every day, every day. I don’t want to get surprised someplace down the road.”

And I don’t care what aspect of the agenda I just laid out, IT is an important part of my agenda across the board. I need IT innovation in all of these areas to help me run Microsoft.

Most CEOs and most CIOs talk primarily about what I might call that little green triangle or pie piece that says “process excellence.” So if you’re running McDonald’s, you want to talk about the systems that go in the stores because that’s processing excellence in the context of McDonald’s. Or if you’re running Sears, it has to do with the store and distribution systems and how those things work. That tends to be very much a focal point for the dialogue and it’s a very appropriate thing. It’s an important part of the CEO-CIO dialogue. But IT innovation can help on a much broader piece of this pie, and as CEOs and as IT people we ought to recognize that.

Let me give some examples. I talked about our little feedback system, remember, with the errors that you send in to us. That’s part of how we connect with our customers. We have millions of people who visit our Web site every day. Every second of every day I can tell you what’s on our customers’ minds and so can all of our marketing people: Web site, go, hmm, what was interesting today, what did people view on our Web site, how did they get there.

Understanding Customers via Technology

Our ability to understand our customers — and everybody has this — is higher today than it’s ever been. People talk a lot about the fact they can use the Internet as a channel, a place to do distribution. People do lose sight of some of the fact that the Internet is also a place where you can serve your customers, you can do market research — market research used to be a very expensive, time consuming, lengthy process. It doesn’t have to be anymore. Customer understanding can come more quickly, more inexpensively, more real-time than it has ever come before.

Culture — culture, culture. The key tool for me in setting cultural tone at Microsoft is our intranet. I can’t reach 57,000 people. There’s no way to reach 57,000 people except with an e-mail or a webcast. And so the e-mails, the webcasts do more to set the tone of the place than ever before, and yet I think a lot of CEOs and CIOs wouldn’t have that as part of their innovation agenda.

I think about the issues ofI do a lot of external speeches and representation. I could not do my job unless I had the personal tool to be able to make a speech like this, and, yeah, sure, you could say a slide is a slide but the way we do these things is so different. I can make a change up to the last minute. I can get a briefing, as we did here before, and tell my people, “OK, we’re going to change the speech a little bit.” Now, some people don’t feel as comfortable doing that as I do but at least we’ve got the tools that will support a CEO in being much more real-time. And all CEOs are involved doing speeches, shareholder presentations, customer presentations; it’s a mission-critical tool to me.

Production development, innovation, growth: A lot of that doesn’t come top-down, it comes from ad-hoc collaboration. How do you let your salespeople and your R & D people and your marketing people all really get together on a problem? If they’re all physically distributed how do you do that? How do you let your customers participate in, let me say, the brainstorming process around new products and new ideas? We view the fundamental collaboration tools and infrastructure as an important part of how IT supports our innovation and growth objectives.

If you actually ask in a lot of companies what’s their No. 1 tool, it’s the product design tool. If you go to BMW, manufacturing is important, but the one tool — and I know because the CEO of BMW is my boss, he’s on our board of directors — the most important tool, the most important tool is the tool that you give the design engineer to design the next generation car and get it into production and the cycle time is two and a half years instead of five years. That’s the most important tool.

At Microsoft, what’s the most important tools that we have? It’s the tools we give our engineers to work together to build software, to collaborate, to get customer feedback, to understand that.

And it’s different in a bank and it’s different in a healthcare company. What’s the most important tool you give the doctor? It’s the customer service tool. Now, you might not think about it that way but it’s the tool that has your medical record on it. It’s a woefully under-IT’d industry, but it would help a lot with the innovation and cost and quality agenda in that particular industry.

So I think the agenda between CEO and CIO, and how innovation plugs in, needs to be much broader than it has ever, ever been in the past. Now, most CEOs when you talk to them about manufacturing, distribution, processing, they’re interested but they’re not the user. If you talk to most CEOs about the screen that they use daily to get information about the numbers in the business, they’re the user. If you talk to the CEO about their Blackberry — not one of our products, but the product people love in this community — people will tell you I love these kinds of capabilities, I need the things that make me personally more productive, but me is not just me the business leader, me is me the head of marketing, the head of sales, the head of product development. I need personal productivity, we need collaboration, we need tools to communicate, we need ways to bring together numbers so we can analyze them and take care of them, and we need the tools that let us process claims, do manufacturing, do retail, all of the things that, if you will, are the processing elements of the business.

So I think there needs to be a much broader dialogue about how technology plays into and can enable innovation across a broad spectrum of the business agenda. And certainly when we talk to CEOs, they say, “Yeah, I kind of get that, that kind of resonates with me.” And it means a lot to the technical types that go, “Oh well, we’ve got to do this, got to do that, got to do the other thing; it needs better e-mail and communication tools, it needs better information sharing tools, it needs better video broadcast services.”

Powering Business Improvement

There’s a guy, see that guy right there, he’s got the video going. I used to really feel bad for these video guys because people are always shooting videos and I know nobody ever used to watch those videos. I mean, how many speeches you see there’s always a video guy? How is anybody ever going to watch that video? Today you can watch those videos. You can go to the Web site, they’re up there, they’re available. But how much better could we make it? Why is that video not being broadcast over the wireless network in this room? Why don’t you all have Tablet-sized computers so that my PowerPoint slides are there, the video, the audio is all being captured and you can write a note that says, “Boy, it got a little bit thick here, he wasn’t making any sense” and then e-mail it directly to one of your people and they just click on it and it takes them exactly to the PowerPoint and exactly to what I was saying and talking about at the time.

That’s how bosses want to share information with their people. You don’t want to go back and say, “Oh, now I’ve got to go write a page of e-mail about what the guy had to say.” You want to make a small annotation and let your people jump immediately into what you thought was interesting at this meeting or a customer meeting or whatever the case may be.

So there is a broad spectrum of opportunity for IT to sit underneath and IT innovation to power business improvement and business information in all of your companies.

One of the big challenges, one of the other things I think we hear a lot from CEOs is, “Steve, kind of explain this to me: We want to be an agile, innovative company. We want to move fast, we want to get products to market quickly. I sit down and talk to my CIO and one of the most common things our CIO says to us is, ‘That’s going to take 18 months.’ And I say, look, I want to be fast moving, I want to be agile. So I say to my CIO, no way, we’re going to get that done in six months. And my CIO then comes back to me and says, ‘Don’t you understand, ma’am, sir, whatever, don’t you understand; I have to get these two systems to talk to one another, that’s at least an 18 month project.'” CEO’s don’t really get that. They say, “You mean we’ve got this piece of information and this piece of information and we can’t just sort of get them together; that’s an 18-month process for an agile, innovative, progressive company? How could that possibly be?”

It’s true, it is an 18-month process today, and this notion of really letting systems connect and speak together in a higher level way, that’s kind of, I would say, the new Holy Grail of the IT industry.

We still talk about this thing called XML. It’s becoming kind of the lingua franca for computer systems to talk to one another. But there’s a range of things that need to happen to really facilitate this CEO-CIO type dialogue and agenda.

So it’s an important part of what’s going on and certainly an important area for us. We have a new technology — not so new anymore — but a technology called .NET that we’ve invested in that’s tried to help facilitate interoperability. We’ve done these amazingly unusual partnerships; we compete with IBM and we’re partnered on XML standards. We compete with Sun, I think that’s pretty well documented in the press — (laughter) — but now we’re cooperating on a set of — well, we had to pay a few billion bucks first but now we’re cooperating — (laughter) — maybe that should have been off the record, who knows — (laughter) — we’re now cooperating on a variety of things to try to get systems to really plug together and work together.

Because if you’re a CEO and you want this process to talk to that, or if you’re a CEO who says, look, I really want to see these numbers integrated, or I was speaking with one of our customers here in the Chicago area, they have people who provide customer service that use 91 different applications to get their job done, 91, and they’re trying to bring those together in a more integrated fashion. And they’re not a bad company, these things have just happened over time. We really need to drive the connected systems agenda.

Information Visibility
The second area that I think we really need technical innovation is in making information more visible to people. The most vivid memory I ever had of something that happened to me in my job was sitting next to a person on an airplane one time in the auto insurance business, and I’m reading computer magazines on the airplane, the guy looks over at me and says, “Are you in the computer business?” Of course, I don’t know how the rest of you are, I kind of like to be by myself when I’m on the plane, so I kind of look over and, “Yeah, I’m in the computer business.” And he says, “Well, that’s great; we’ve got a lot of computers in our company.” “That’s good,” I said, “That’s really good, I really like that.” I really like that and I know this is going somewhere but I’m not quite sure where. And he says, “But I’ve got a question for you. My job is setting the price of automotive insurance in the state of Colorado and I have a theory. I have a theory that we should charge more for auto insurance that’s bought on December 31st than any other day in the year. My theory is you only buy auto insurance on December 31st if you’re planning on going out drinking that night for New Year’s Eve.” He says, “It’s a plausible theory, my gut tells me it’s right, but the computers know, the computers actually someplace in there, they know what our experience is with people who buy auto insurance on December 31st. Why can’t I see that information?”

That’s what it means to run the business. That’s what it means to give good information visibility. And part of that is connecting the systems, but part of it is having good — and people will talk about portals and business intelligence and there’s a bunch of technical blah, blah, blah we’ll talk about, but that’s really in a sense part of how we think of the future of our Office product. It’s got to be the thing that makes you more productive but it’s also got to be the thing that lets you get at that darn information to unlock it as business leaders, to use it, to take advantage of it, so it’s another important theme.

Enabling users. A lot of the dialogue is about the company, some of the dialogue needs to be not only about the company but individuals. If you went to most individuals today and said, “I’m going to take away your cell phone,” they would tell you, “You are crazy.” If you asked somebody to do a business justification on why a company should pay for cell phones for its employees, it would never be able to write down the return on investment analysis. PCs had some of that same characteristic. Some of the new tools that people use for communication, collaboration have the same characteristic. So we have to think about empowering not only the organization but every one of the people in the organization as a smart person with a good brain who deserves the tools to let them innovate and be productive.

And this list goes on and on.

Security and Reliability

There’s one other thing I want to touch on before I wrap and that’s the downside, the thing a CEO does care about that needs to be on the CEO-CIO agenda and that’s security and reliability, particularly with as vivid as these issues have been in the press. And these evil hackers are not going away anytime soon, they’re really not.

We recognize that we as a company and our industry has to step up and really be in a position to let business leaders know with some confidence, my systems are up, they are running, they are secure, data is protected and we can operate, and that’s an area for us of great innovation. We’re in a better position, we understand more the threat models, the attack models and we’re able to do better innovation as a result.

When Bill Gates was out here, he was at the University of Illinois and he was down to see some faculty and he was just expecting them to beat the heck out of him on the topic of security, and they say, “You’re doing a good job, Bill.” Bill looked at them and said, “Have you read the newspapers lately?” And they said, “Yeah, but we’ve also talked to your researchers and you guys just know things that nobody else knows at this stage and that’s really a helpful and valuable thing.”

So we need to optimize with innovation on the high side, but we need to also protect — we all in the technology industry need to protect CEOs on the downside and make sure that we have the kind of security and reliability that people are looking to.

Grants to IT Resource Center, National Urban League

I’m going to wrap up with just a couple comments about Chicago. Chicago is a high-tech town. People don’t necessarily think about it that way, I do. We’ve got 2,500 business partners in the high-tech business of Microsoft’s here in Chicago; big, little, broad, narrow, Motorola to small, three-person shops here in town, big resellers, CDW, ASAP; this is really quite a high-tech community and it’s a community that we want to invest in as part of efforts that we take on as an industry leader to help with a variety of societal issues including bridging the digital divide.

And so we’re announcing today a couple of grants of cash and software to the National Urban League here in Chicago as well as to the IT Resource Center here in Chicago, which helps promote appropriate computerization, computer literacy amongst other nonprofits here in the Chicago area.

It’s a pleasure to have a chance to participate in that kind of thing, particularly in a city like Chicago, which has such a vibrant and alive technology community and I think there’s a bit of responsibility burden back not only on us but on everybody who benefits from technology here in this area to try to do a bit, so to speak, to help the nonprofits and to help the disadvantaged part of the population here in Chicago really have access to technology in a different way. (Applause.)