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SAS CEO: Offshore outsourcing 'has been bothering me'

LAS VEGAS -- The co-founder and CEO of the world's largest privately held software firm is "perplexed" and torn by the offshore outsourcing wave. But he came to an important realization. Jim Goodnight of Cary, N.C.-based SAS Institute Inc. talked about it earlier this month at the BetterManagementLive conference. He and Jim Davis, SAS' senior vice president and chief marketing officer also weighed in on two names that make many an executive reach for the medicine cabinet: Sarbanes-Oxley.

What's your take on the offshore outsourcing trend in IT? It will continue to be a growing trend. We are perplexed...

about what extent we should expand our operations in India. We've got about 60 people there now. With the price and the quality of the people, we're thinking 'we really ought to do more of this.' But [then] there's that flag and country and all that stuff. We've lost our manufacturing jobs overseas; we've lost textiles; North Carolina is losing [its] furniture industry. I keep preaching that we've got to train our children to be knowledge workers. But guess what? That's what they're doing in India too. And the Chinese are picking up on that as well -- not only are they doing all the manufacturing, they're also getting into IT. So it's going to be a major decision over the next few years for every company how much IT should be overseas. We've already seen the migration of call centers.

I think it's [offshore outsourcing of IT] a concern, but I don't know what we can do about it. This issue has been bothering me a great deal -- about whether we should put more resources into our Indian operations or not -- it's very perplexing, Then I was reminded that SAS is a global company. We're not just an American company, and we should put resources anywhere on the globe where it makes sense. I'm slowly coming around to the idea that we really might need to put more there [India] and less in the U.S.

I don't know how that trend can stop until the IT programming salaries are globalized and there's a global salary so that it won't make any difference where you are. That basically means that the U.S. prices for software talent will have to slowly go down over the next ten years. India's will have to slowly go up as more people move there or to China, and it creates wage pressure. There's a lot of job hopping in India now.

Are there any other IT trends that are here for the long haul?
Clearly the movement of a more Webcentric degree of software is something we're seeing more of. We've invested very heavily in writing a whole mid-tier in Java so that we can react to end users who're coming in via the Web who want the reporting and analysis. Almost everything we do in the future is going to be based on [Web-enabled] technology. Are there any other IT trends that are here for the long haul?
Another thing that's really big, I think, is [the question of] what analytics are beyond just querying and reporting. They also give you predictive capacity and divide what's proactive from what's reactive. Where we are with IT budgets right now, I don't believe, is going to change anytime soon, so it's all about optimizing the organization -- making the most of what you've got. A lot of vendors dumb down the analytics into querying and reporting or something that's an OLAP cycle. You cannot do data mining on OLAP. Vendors must help customers realize that analytics can help them optimize what they've got. Are there any other IT trends that are here for the long haul?
It's not really a trend, but I think you'll see the continued expansion and use of XML in various disciplines for standardizing order forms. We're going to see companies like probably Wal-Mart saying 'OK, here's the way you're going to receive our orders from now on.' It's going to be in 'Wal-Mart markup language' –- or whatever their variety of XML will be. We'll see more and more of that. Are you seeing any ripple effects from Sarbanes-Oxley?
Sarbanes-Oxley is a driving force right now behind corporate governance. We're seeing a lot of companies looking for software that will help them be in compliance, especially the folks up on Wall Street -- they're the first mass movement we're seeing. We were fortunate that we had been working on software for the last five or six years that is very well suited for Sarbanes-Oxley. A data repository we built for the pharmaceutical industry can also be re-positioned with just a few changes to make it applicable [to Sarbanes-Oxley].

Banks are also making sure the amount of reserves that they are holding aside are sufficient to cover any operational risk elements. If you get your risk profile down then you can also lower your reserve requirement and put that money to work. A lot of companies say that they want operational risk, but they think that should be part of SOA as well -- that the CEO and executives should have an overall picture of everything that's going on in their companies and what the risk is. The next generation of the two products [one being the SAS product for pharmaceutical firms, the other a risk management product for financial firms] will be merged so we'll have a combined offering. All this complying won't be free. Do you think Sarbanes-Oxley and other orders from Uncle Sam could set back the economy's recovery?
Our revenues are up 14% so far this year, so it's going to help us. IT and software are clearly going to be some of the leaders in the recovery. We [SAS] saw the recovery start in the first quarter of this year. We're going to finish with double-digit growth this year -- somewhere between 10% and 15%. Are you seeing any ripple effects from Sarbanes-Oxley?
A lot of companies don't have large increases in IT budgets right now, yet they have to do this. Is this how they would have picked to spend their funds? Probably not. The challenge for organizations in compliance and corporate governance is 'Can I do more than just deal with the regulatory issue? If I'm going to spend money putting in infrastructure then there better be some business benefits in the long run other than satisfying the government.'

It's not a market for niche players. It's more of a market for organizations that can do something beyond regulatory reporting.

What's different about being a CEO in 2003 as opposed to 1976 when you founded SAS?
As the company has grown, we've tried to maintain a similar environment and customs: laid-back managers who hire good people and let them do their jobs without a lot of micromanaging. My main difference is that I'm doing a lot more press interviews. I used to be an 'at-home CEO' who programmed most of the day; now I tend to be on the road most of the day doing speaking engagements and meeting customers.


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