SAS Institute: A Different Approach to Incentives and People, Management Practices in the Software Industry
Part A: Memo to CEO Jim Goodnight
SAS is one of the few companies in the software’s industry that follows best human resource practices and has an excellent customer retention rate. As the company has grown enormously in the past and made gigantic profits, it has reached a point where management and decision makers of the company have to make a wise decision to keep going as a privately owned company or become a public limited company. With a company making massive profits over the years, and enjoying the excellent reputation in its target audience, it is time for the company to analyze its key strengths and weaknesses. Why does SAS want to go public?
As a private limited company, SAS offers best customer solutions and support, with excellent customer retention rate of 98%. The company follows the best HR policies and practices and believes in maintaining relations based on trust and mutual respect. SAS currently is the only company that has successfully managed to enhance the employee’s productivity and performance and has the lowest turnover rate in the industry. The company is also contributing in welfare projects by helping building school and has a vision to educate people through technology. The company simply has the best business model and culture. SAS strongly believes in “happy employee, happy customer” culture. If, they disturb that balance, they run the risk of disturbing the whole business model." Coming towards the financial position and status, SAS hit the $1billion revenue in 1999 and was the largest privately owned company. Moreover, with most of the companies firing employees in the industry, SAS hired the employees, which reflects the strong financial position of the company. Now, while enjoying the best working conditions, why SAS should go public?
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I believe that if the company goes public at the right place and the right time, it is the best deal for the company. The company also follows best HR policies and practices, as the employee’s performance and productivity are extremely good, so by going public company can offer its share to the employees as well, so that they can become part of the organization. Furthermore, SAS needs to make its image and marketing brand. That can be possible by going public as it will draw media attention and exposure, so people will know more about the company. Also, the company can raise a lot of capital by going public only a small fraction of the company.
However, there is a cost associated if the company wants to become a public limited company. First thing is the legal fee, which is required to register the company as a public limited company. Then the company will have to update its financial reporting system to reflect the true financial position to the public. Then, the most notable thing is that they need to change the way they do business, with their customers. After going public, they cannot make every thing public, and they need to be extremely careful about the information they want to share with customers.
However, every thing does not seem to be perfect if the company goes public and there are still some questions to be answered. Will the company continues to follow the best HR policies and practices? Will the company continues to maintain the excellent customer support, providing the best solution and enabling the 98% retention rate? Will the company continue to follow its simply best culture to pamper employees and customer?
I strongly believe that the answer is no. SAS can go public an extremely small part of it after next five years. As, SAS will go public, there would be pressure from investors and Wall Street to cut the cost and prop up the stock price. SAS already has excess cash and is generating positive cash flows for last many years. The point to raise capital by going public does not make sense here. The diluted ownership will not let the Goodnight continue with their business model. The employees will not enjoy those benefits as they are enjoying now. The primary goal of the public limited company is to maximize the wealth of the share holder, and SAS may lose some of its customers and retention rate will go down as the management will now look for “profitable customers”, instead of maintaining long term trust worthy relationship with the customers. For SAS to save its culture and business model, I will strongly recommend remaining as private limited company.
Part B: Assessment of Goodnight’s Statement
SAS is the largest private software company, best known for its exceptional HR policies and practices. According to Fortune magazine SAS was the best company to work for in 2010, with lowest employee turnover rate in the industry. The company offers a friendly and informal culture based on trust and mutual respect. The company believes in pampering the employees and keep them happy and believes in the “happy employees, happy customer” culture. Although the company is not paying much to the employees, but still it has managed to get maximum productivity and best performance from the employees.
One of the key factors behind this is employee comfort and the satisfaction level that drives employee to do the work in the best possible way. To get best out of the employees keep rewarding them, treat them equally and fairly and that is what SAS is doing. Another key factor is that most of the employees at SAS has not cubicles, but has own offices at an early stage. This gives employee a sense of motivation and drive. If the employee becomes motivated and happy, things start getting better themselves. Moreover, the HR department has provided everything to employees on the floor. From best southern meal to state of the art fitness center, gym, massage center, medical facilities with highly qualified doctors, children campuses and even housing schemes next to the company. All these things help to increase the employees’ morale, loyalty and self esteem.
The philosophy of SAS HR department is exceptional and friendly. Instead of setting targets and stressing the workforce, their HR department believes in intrinsic motivation and trusting people, to get things done in a good manner. The best part of the HR policy is the way company manages the employees. Instead of controlling and monitoring, HR department at SAS believes in mentoring and coaching. This thing encourages learning in a healthy atmosphere and employee puts in his/her own efforts to grasp and learn things quickly and training employee becomes a lot easier. The company’s HR department is always looking for long term goals and objectives, and believes in the long term planning. The company has hired many sophisticated minds, train them and polish their skills and abilities. SAS has been following the bottom up decision management model. Bottom up management enables the environment the supports cross-functional teamwork and individual innovation. At the same time, it also helps bringing different product innovations that directly comes from the customer. In this way, the information moves from bottom to the top as Sales force gathers information from customers and forward it to the upper management.
Management at SAS believes in promoting the helping culture, and they gave a lot of importance to their cultural fit during recruitment. The main reason to follow the cultural reason is to hire employees of the same “you” attitude to foster a positive learning in the organization. The company also does not possess the commission culture that brings high pressure and high work stress. Rather company believes to be customer focused instead of worrying about the short term sales number. This has build confidence among the sales force to work as a collective unit. Although, the SAS employees do not have claims on the company stock, so to boost their performance, management comes with the profit sharing retirement plan, with no employee contribution.
SAS management believes that it is worthy to invest in the human resource department. As it makes employees happier and also helps them in boosting their morale. This has also resulted in the benefit of the company as the company has the most loyal employees in the industry and company can save on training the new employees. The excellent customer retention rate also reflects how pivotal role of HR policies and practices is. When employees are satisfied, then there is no need to measure and evaluate their performances. They will keep giving best results.
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