In a quiet corner of North Carolina, there's a place that contradicts most of the assumptions of modern business. In an era of relentless pressure, this place is an oasis of calm. In an age of frantic competition, this place is methodical and clearheaded. In a world of free agency, signing bonuses, and stock options, this is a place where loyalty matters more than money.
This kingdom, a secluded realm west of Raleigh, is home to an all-but-unknown group of software wizards whose output touches every aspect of life -- from what medicines get developed to who gets a mortgage. Although this company is thoroughly modern (endowed with advanced computers, the best child care, art on almost every wall, and athletic facilities that would make an NBA trainer drool), there is something fairy-tale-like about the place. The inhabitants are happy, productive, well rounded -- in short, content in a way that's almost unheard-of today. They are loyal to the kingdom and to its king, who in turn is the model of a benevolent leader. The king -- almost unbelievably -- goes by the name Goodnight.
Goodnight's land even has a gate, a kind of moat, which marks the border between the immaculately manicured grounds and the messy, hectic world beyond. It clangs shut at six each evening.
Among the many privileges accorded the kingdom's subjects, one privilege gets noticed -- one privilege gets misunderstood -- more often than any other. The curious find it puzzling; the derisive find it childish: Every Wednesday, by order of Goodnight, M&Ms -- hundreds of pounds of them, in equal amounts plain and peanut -- are distributed to every floor of every building. Altogether, these weekly allotments come to 22.5 tons of M&Ms a year.
That's 10 times as many M&Ms as Goodnight was buying 15 years ago. During that time, however, the expanse of his kingdom has increased by a factor greater than 10. What's the real source of the company's magic? M&Ms aren't a bad bet.
Sanity as Strategy
The kingdom that Jim Goodnight has created in Cary, North Carolina is SAS Institute Inc., and it is probably the least-well-known major software company in the world. In simplest terms, SAS writes software that makes it possible to gather and understand data, to sift through mountains of information in order to find patterns and meaning. SAS -- which stands for "statistical analysis software" -- started out as a tool for statisticians: Goodnight originally developed it to analyze agricultural-research data in North Carolina. These days, the product is so acrobatic that it is used for tasks that don't seem even vaguely similar: Marriott Hotels uses the software to manage a frequent-visitor program; Merck & Co. and Pfizer Inc. use it to develop new drugs; the U.S. government uses SAS to calculate the Consumer Price Index.
The software is not cheap. A charge of $50,000 a year for 50 users is typical. But it is powerful and adaptable -- and, therefore, spectacularly successful. All but 2 of the 100 largest U.S. public companies use it. In 1997, SAS had sales of $750 million -- double its revenues of five years earlier. The company now employs 5,400 people worldwide, up from 1,900 people five years ago.
What is truly unusual about SAS is not the software it creates but the contrarian way in which it does business. The freedom and exuberance associated with the new economy has a dark side: Work is so demanding, so all-consuming, that it can become unsatisfying. In that context, SAS may be the world's sanest company.
First, there's the mood of the place. SAS operates in a competitive arena choked with buzzwords -- "data mining," "knowledge management" -- and builds cutting-edge products that set the industry standard. Yet the one word that employees universally use to describe the company's work environment is "relaxed."
There's also the stability of the company. It is an article of faith in the software business that the only way to attract and keep talent is to offer stock options, along with extraordinary salaries. SAS, a private company, offers no stock, and its salaries are no better than competitive. But SAS treats its employees so well -- there is no limit on how many sick days they can take; they can even stay home to care for sick family members -- that employees remain fanatically devoted to the company. Last year, its turnover rate was 3.7%; never in the history of the company has the rate been higher than 5%.
Then there's the sense of balance to be found at SAS. At a time when confusion abounds on how to mix work and family, SAS has the largest on-site day-care operation in North Carolina. To encourage families to eat lunch together, the SAS cafeteria supplies baby seats and high chairs. To encourage families to eat dinner together, the company has adopted a seven-hour workday. Indeed, most people at SAS keep work hours that are far from typical of the new economy: They leave the office by 5 p.m.
Sanity -- the bedrock of the company's culture -- has become so unusual in the workplace that even SASers are amused by the contrast. "I'd never seen anything like this in my career," says Martin Bourque, 52, who has been at SAS for 10 years and who manages a group of programmers in the technical-support division. "Here, what you accomplish is more important than how you appear."
The Good Ship Lollipop
It's just past 6 a.m., and Larnell Lennon is loosening up with some buddies in the SAS fitness center. Despite the hour, the place is moderately busy. SAS has 36,000 square feet of gym space, which includes a large, hardwood aerobics floor; two full-length basketball courts; a private, skylit yoga room; and workout areas segregated by gender -- for people too shy to ride an exercise bike in front of coworkers of the opposite sex. Outside, there are soccer and softball fields. Massages are available several times a week, and classes are offered in golf, African dance, tennis, and tai chi.
Lennon, 31, a software tester in the display-products group, remembers the first time he saw the gym, eight years ago, when it was part of a workout complex that was only two-thirds as large as the current one. "I had heard the company's name, but nothing more," Lennon says. "I had a friend here at SAS, and he invited me over to the gym during lunch. That gym caught my attention. I saw how people related to each other." At the time, Lennon was just a year out of school, working as a programmer at Northern Telecom (now Nortel). "The professional standards there were great," he says. "But you went to your cubicle in the morning, and then you left at the end of the day. The atmosphere was tight."
That first visit to the SAS gym was in February 1991. Two months later, Lennon interviewed for the position of development tester. That June, he was hired. "I came back, and I met managers. The atmosphere went beyond the gym. I liked what I heard." How much did he like it? He took a 10% pay cut to join SAS: "It's better to be happy than to have a little more money."
Lennon had more surprises coming. In what may qualify as the most over-the-top health benefit around, SAS launders his (and other employees') sweat-soaked workout clothes and then returns them, fresh and fluffy, the next day -- a service that many people's spouses wouldn't even consider providing. "This is a no-excuses facility," says Kelli Dutrow, 33, a wellness coordinator. At SAS, you can't use grungy workout clothes as a reason not to exercise.
What's the point of this largesse? That question hardly interests Jim Goodnight anymore. He tells a story about interviewing for a computer-programming job -- a job that he didn't take -- back in the 1960s. "The programmers sat in desk after desk, lined up row after row, in a building that was like an aircraft hangar. No walls, no privacy." He gives a soft snort. "I hear that's what Cisco is like these days. And Intel."
Not in the kingdom of Goodnight. The business value of generous benefits is so self-evident that it requires just two sentences to explain: "I believe that a person's surroundings have a lot to do with how a person feels. We try to have nice surroundings here."
David Russo, 54, became SAS's head of human resources 17 years ago, when the company had just 60 employees. "To some people," says Russo, "this looks like the Good Ship Lollipop, floating down a stream. It's not. It's part of a soundly designed strategy."
The point of the strategy is to make it impossible for people not to do their work. If you're worried about finding an assisted-living center for your aging mom up in Brooklyn, call the company's elder-care coordinator, who will make calls for you. If you need allergy shots, why shouldn't you be able to get them on campus, at the SAS health clinic? Says Russo: "Jim's idea is that if you hire adults and treat them like adults, then they'll behave like adults."
The history of the company's benefits is revealing. The story begins when SAS was still a startup -- a startup with a number of women working for it. "Our women employees were two or three years into their careers -- at the top of their talent curve -- and they started deciding to stay home and have kids," says Russo. "We knew and they knew that they'd have to start from scratch if they stepped out. Jim said, 'We can't lose those people. We're too small a company.' So we started providing day care in the basement. We began with 4 or 5 kids; now we have 528" (including some who attend a nearby private facility). SAS was by no means obligated to offer day care. But it couldn't afford to lose its female employees. (And it hasn't: Today 51% of SAS managers are women.)
These days, a group at the company meets monthly to discuss proposed new benefits, evaluating them in the context of a three-part test: Would the benefit accord with SAS's culture? Would it serve a significant number of employees? And would it be cost- accountable -- that is, would its perceived value be at least as high as its cost? Every benefit has to pass all three tests. Coming soon: advice and referrals on financial planning for college and retirement.
The easy critique of all this is that since SAS is owned by just two people -- Jim Goodnight, who owns two-thirds of it, and John Sall, 50, senior vice president, who owns the rest -- and since both of them are billionaires (Goodnight, with $3 billion, is number 43 on the Forbes magazine list of the 400 richest people in the United States; Sall, with $1.5 billion, is number 110), they can do what they want. If Goodnight wants a sculpture, he opens up his wallet and buys it. (In fact, SAS has a full-time, four-person art group, headed by an artist who was originally hired to create paintings for the company.)
But that's a cheap shot, a critique that doesn't do justice to the way Jim Goodnight does business. The benefits build a foundation of loyalty that supports the bottom line. The payoff starts with turnover. A typical software company of SAS's size loses 1,000 employees per year. At SAS, the number lost is about 130 -- which translates into almost 900 employees per year whom SAS doesn't have to replace. The result: a huge reduction in expenses for recruiting candidates, for flying them in for interviews, and for moving new hires across the country, as well as a reduction in the amount of work time lost while jobs remain unfilled.
Two independent consulting companies -- Hewitt Associates and the Saratoga Institute -- have estimated that the cost of replacing a worker runs between 1 and 2.5 times the salary of the open job. The more sophisticated the job, the higher the cost. So, given a factor of 1.5 (which is conservative) and an average SAS salary of $50,000, the company arguably saves $67.5 million a year, compared with what its competitors shell out. That comes to an extra $12,500 per year per employee that SAS can spend on benefits.
Russo's division pays for many of those work-life benefits. "Is that my budget, $67 million? No way," says Russo. "That's the beauty of it. The cost of the buildings, of running the gym -- that's pretty inexpensive. There's no way I could spend all of the money we save."
A more subtle critique of the SAS corporate culture is that it might spawn unintended management problems. It might create a work atmosphere so relaxed, so playful, that urgency and quality could end up taking a back seat to finishing a workout.
David Russo seems unconcerned: "If you're out sick for six months, you'll get cards and flowers, and people will come to cook dinner for you. If you're out sick for six Mondays in a row, you'll get fired. We expect adult behavior."
John Sall, in addition to being a co-owner of SAS, runs his own small group within the company (it develops statistical-analysis software for desktop machines), and except for a summer job in the melting room of a foundry, he has never worked anywhere else. So how does SAS prevent people from taking advantage of its policies? What if people decide to spend all day playing billiards or Ping-Pong? The question has clearly never occurred to Sall. "I can't imagine that playing Ping-Pong would be more interesting than work."
Responsibility Equals Accountability
On a midsummer afternoon, Kathy Passarella is sitting in the main cafeteria at SAS. The room is airy and busy; live piano music plinks in the background. The crowd is so young and so informally dressed that the place seems more like a college campus than a corporate one. Passarella, 42, is no naif when it comes to work. She has been at SAS for a year and a half, training new R&D employees in computer skills. In one of her previous jobs, she worked as a programmer at Bell Labs, in Piscataway, New Jersey.
Unprompted, she connects SAS's approach to benefits to the performance of the people who receive them. "You're given the freedom, the flexibility, and the resources to do your job. Because you're treated well, you treat the company well." Then she makes a fascinating observation, one that perhaps only an outsider would find interesting. "When you walk down the halls here," she says, "it's rare that you hear people talking about anything but work."
The informal environment at SAS can be misleading. There is nothing lax about this company -- or about its products, its work ethic, its standards. This is a company built on accountability: SAS is managed lightly but not casually.
From his computer, Goodnight can look up detailed sales and performance information; he can track data on technical-support calls, which are sorted by product and by time-to-resolution; he can monitor bug reports in new software, noting how quickly testers and developers are eliminating flaws in products headed for release.
The sense of accountability also extends to documentation. Every SAS product manual includes the names of the developers and testers who created or updated the software. (Try to find the name of an actual human being in your Microsoft Word manual.)
In a way, the lavish benefits offered by SAS set a performance standard on which everything else is based: This is the level at which SAS respects its employees, and this is the level of respect that SAS expects in return. The sense of accountability at SAS is so ingrained, and the lines of reporting there are so simple, that the company needs no formal organization chart. As it grows, SAS tends to get wider -- spawning new divisions -- rather than taller. Indeed, the company is so brutally flat that on the Cary campus, many of the several thousand front-line employees who work there -- from housekeepers to coders with PhDs -- are just two or three steps in the corporate hierarchy from Jim Goodnight.
Larnell Lennon says that what surprised him most when he arrived at SAS -- besides getting his own office -- was how his manager spent his time. "My manager is doing what I'm doing," says Lennon. "She is in the trenches, writing code. Dr. Goodnight was once in the same group that I'm in. At my last job, my manager was just making sure that everything got done. Here, we all do that."
Xan Gregg, 33, works in John Sall's group. And Sall has plenty to say "about the details of how code is written," says Gregg. "That's unusual for an executive vice president. Usually managers are not very technical." Sall, an almost impossibly shy and unassuming billionaire, says that he sees himself primarily as "a statistician and a software developer -- not a businessperson or a manager."
Nothing corrodes respect between a boss and an employee more quickly than the sense that the boss has no idea what the employee is doing. Managers who understand the work that they oversee can make sure that details don't slide. At SAS, groups agree on deadlines, and managers understand what their groups do -- so unrealistically optimistic promises about time-tables and completion dates are relatively rare.
Bob Snyder, 45, an applications developer who was recently hired away from Texas Instruments, where he had worked on the guidance systems for Paveway bombs, says, "Here, I know everything I do has an impact on the final product. That gives you a sense of responsibility to get things done right and on time. In the bomb factory, with all its bureaucracy, if you screwed something up, you sent a letter to someone saying, 'I screwed up.' Here, a goof is a deliverable goof."
Of course, SAS is made up of ordinary mortals. It's a place where product releases run late, where sales quotas don't get met, where groups are understaffed, where people clash over both substance and style. One recent hire griped that SAS is too family-friendly: "It's hard to eat lunch without stepping on a rug-rat."
Some might even suggest that the mood at SAS -- the cheeriness, the contentment -- could become grating. The place can come across as being a bit too perfect, as if working there might mean surrendering some of your personality. Skeptical reporters and sneering outsiders have occasionally referred to SAS as "Stepford Corporation" -- a place with a sophisticated plantation mentality, where the boss lives (as Goodnight does) in a mansion adjacent to the corporate campus, and where your lunch tab is automatically deducted from your paycheck. You may not owe your salary to the company store, but what about your soul?
There are two problems with that interpretation. The first is embodied in a guy named Toby Trott. Trott, 45, has worked at SAS as a technical-support representative for 14 years. He's a big man, with shaggy hair and a shaggy beard. He wears shorts, shuns socks, and to keep comfortable in his office (equipped with Unix, Mac, and Wintel machines), he sports a pair of $1.98 flip-flops. Before coming to SAS, Trott had 15 jobs -- in places ranging from a mattress factory to a cancer-research lab. He doesn't head for greener pastures at some other tech firm, because there, he says, "they'd make me cut my hair." SAS is "a little saner" than most places where he's worked. "It takes a little wackiness to make it saner. This place is not repressed: You're free to express yourself."
The second, and in some ways more pointed, answer to the Stepford Corporation criticism is this: The people who work at SAS are the opposite of programmed drones. In the new economy, the kinds of people whom SAS employs are the most desirable assets available to an organization. They are the brains, the talent; they are the source of the growth at every growth-oriented company.
None of them -- from Toby Trott up to John Sall -- would have any trouble getting a job elsewhere. The Raleigh area is a kind of Silicon Pocket Park. IBM has more employees in the Research Triangle than it has anywhere else in the world. Nortel, Sprint, Glaxo-Wellcome, Unisys, Quintiles Transnational, Cisco -- you don't have to leave town to work at any of these companies. People who work at SAS have made a conscious decision to stay there.
Jim Goodnight is not a guy who notices management fads or worries much about outside criticism. He lives the way he wants his employees to live. He goes home around 5 p.m. (at which point SAS's automated switchboard starts answering the phone, "Most of SAS Institute is closed at this time . . ."). He refrains from checking email when he's away from the office.
A lean man with the build of a basketball player, Goodnight, 55, has a dry wit that can easily become a cutting wit, even among employees. He can also exhibit the oblivious air of a computer-obsessed 19-year-old, especially in public situations.
Recently, at the end of a day-long company presentation to customers, Goodnight took the stage and gave an auditorium full of people a tour of his "virtual office" -- the computer program that he can use to probe deeply into the performance of any aspect of SAS. Without warning, he showed the crowd his personal cache of computer games: first, a blackjack game, which he created years ago for his own entertainment; then a tic-tac-toe game; then a word-jumble game, which he completed with blazing speed. He challenged other CEOs to come to Cary and work the jumble as fast as he can.
How did a quirky guy like Jim Goodnight come to have such a well-managed company? By creating an organization that reflects his strengths, without being hindered by his weaknesses.
SAS places enormous emphasis on three things: employees, customers, and products. Employees and customers, for instance, are surveyed every year. The company says that 80% of the suggestions for product improvements that customers make most frequently eventually find their way into the software. SAS plows 30% or more of its revenue (that's revenue, not profit) back into R&D -- a higher proportion than any other software company of its size.
Goodnight is now talking about converting a chunk of SAS into a stock offering -- perhaps as early as this year. In part, his goal is to raise the company's profile and to keep competitors at bay. In part, it's to reward employees who have worked for salaries while watching their colleagues at other technology companies work to build wealth. Would the company's day care, or its private offices, or its putting green pose a problem for a public company? Not a chance, says Goodnight. "Going public is not going to change the way we operate this company. I wouldn't go public if I thought it would."
Until now, SAS has been almost completely undistracted by marketing. Outside of its customer base, the company is virtually unknown. This is partly because, as a private company in a world obsessed with investment opportunities, SAS has seemed irrelevant. But the low profile has also been very much according to plan: Goodnight wants his company to be known for its programming, not for its commercials. And by knowing about programming, and about the customers for that programming, and about the creators of that programming, Goodnight has created a model business.
"You're looking at really good businesspeople," says John Ladley, an analyst for META Group, who follows the company. Most employees, says Ladley, live in a world of "FUD -- fear, uncertainty, and doubt." All three are absent from SAS. Goodnight has "low turnover, happy employees, good cash flow, and a balance sheet with the atomic density of lead. The principles required to achieve what SAS has achieved are not very prevalent in business today. But SAS has them all: patience, hard work, vision, focus, honesty, and loyalty."
Plus 22.5 tons of M&Ms per year.
Charles Fishman (email@example.com) is a Fast Company contributing editor. You can learn more about SAS Institute inc. on the Web (www.sas.com).