The 1995 Business Week Symposium of Chief Executive Officers
Sept. 27-29, 1995
The Willard Hotel
Washington, D.C.
Thurs, Sept. 28 9:30 - 10:30 am
Thinking Globally: Leadership in a Converging World
Panel: Joseph Neubauer, chairman and chief executive officer, Aramark
Jorma Ollila, chairman, president, and chief executive officer, Nokia Corp.
Edward F. Staiano, Ph.D., exec. vice-president, Motorola Inc.; president and general manager, Motorola General Systems Sector; general manager, Motorola Computer Group
David R. Whitwam, chairman and chief executive officer, Whirlpool
Scott Shuster:
As you take your seats, I want to reflect for a moment on a panel on internationalization that we held in at our first Business Week Symposium of Chief Executive Officers. At that time, being active outside of your native country was viewed as an opportunity that the most forward looking businesses should perhaps be considering. Most U.S. international business was still being conducted by a surprisingly small number of large firms that frankly pumped up the numbers on U.S. international trade. Archer-Daniels-Midland, IBM, companies like that. Even the firm the size of Whirlpool here, which is now a major global player, was very, very domestic in 1988.
And the scene in Europe was surprisingly similar. They too had their international giants, but most European firms were strictly domestic and quite small at that time -- just eight years ago.
Today, being wholly domestic is really hardly an option in most sectors of the economy. The boom in growth is not here. It is in Latin America, it is in East Asia, it is in formerly Soviet Block countries, we hope. We don't have it here, and there is very little sign that we're going to get booming growth at any point in North American markets. If you want your company to have booming growth regardless of what happens here, you've got to be part of what's happening outside. So that's the why.
And now let's discover the how by meeting four championship leaders, each of whom has taken their company to new heights via new markets.
I'm going to start with David Whitwam. He's chairman of the board and chief executive officer of Whirlpool, the world's leading manufacturer and marketer of major home appliances. Whirlpool manufactures in 11 countries, markets in more than 120. He's been part of the Whirlpool team since 1968. Business Week has taken to calling his company "Worldpool" because of what he has achieved. Ladies and gentlemen, David Whitwam of Whirlpool
Whitwam:
Good morning ladies and gentlemen. I'm delighted to participate in this symposium with you. It seems to be widely and sometimes tritely said that most if not all large publicly held companies must globalize to grow and to prosper. Each of us sees the abounding evidence around us as we in America and really all of the developed economies in the world find that we have ever-increasingly relative smaller home markets to serve. Thirty years ago the developing economies of the world represented about 10% of the world's GDP. Ten years ago just about 15%. But 10 years from now, they will explode, by nearly everyone's projections, to nearly 25% of the world's total economic activity. A compelling case for globalization of our businesses? Probably just on the surface.
Each company and each industry must painstakingly decide whether globalization is possible and the right thing to do for your organizations, our organizations, as well as our shareholders. And that really is the starting point of my comments this morning, as well as the aspects of the Whirlpool story that may be a bit different than some others.
Our process started with a year-long, very intense analysis of not only whether to globalize our company, but I think, more importantly, if we did, how would we do it. How would we do it to really assure competitive advantage, success as well as continuous value creation?
Now I'd like to take a few minutes and step back to the mid 1980's. At that time, as we've just heard, the major home appliance industry wasn't a global industry, and Whirlpool wasn't a global company. We sold our products only in the U.S. marketplace. In North America, our home market, the industry was concentrated, mature, and exceptionally competitive, and we were the leaders in that market. At the same time, in Europe there were hundreds of locally producing companies. Additionally, there were a few large players, but the industry had not begun really to consolidate and to concentrate. The Asian marketplace was controlled by the Japanese and Korean companies, but none of them had more than a 6% share of the total Asian region. At the same time, the two potentially largest markets in Asia, India and China, were very fragmented and contained hundreds of small producers as well as lots of barriers to entry that all of you are familiar with. In Latin America, trade investment restrictions protected a large number of inefficient producers.
Well from this quick prospective that I've provided you, that we all saw back in the middle of the 1980's, I will tell you that almost everyone in our industry, and everyone in Wall Street who followed our businesses, concluded that this industry wouldn't globalize. They believed that customer tastes and preferences in appliances varied too widely, that cultures were too unique, that local requirements for such things as electrical codes and product sizes, amongst others, were far too diverse. It was perceived that all of these factors, and the resulting wide differences in regional and global products, combined in a way so that globalization in fact would not work, and was not the right thing for our businesses to be looking at.
I will tell you that when our management team sat back and took this year-long, intense look at the industry in the mid 1980's, we saw these facts, after this intense analysis, in a far different light. We saw a world wherein 75% of our markets were outside the U.S., and those were the markets that would be growing, not the one that we were serving. We saw customers tastes appear to be converging after lots of analysis, not diverging. Where the product and process technologies that go into our products, and the raw materials that we use, are exactly the same no matter where they're employed in the world. And we saw that the essentials of how products were distributed and marketed had more similarities than dissimilarities.
Based on this extensive, year-long analysis, we made an important decision. Unlike most others, we decided that globalization was in fact possible. Moreover, we decided that globalization offered great opportunities for Whirlpool to create growth, as well as value, if we did it successfully, and that our future might only be bright if we indeed globalized our company as well as our opportunities.
So we set out at that time not to join a globalization drive, but rather to start one: to lead the globalization process in our industry, or as we said back in 1988, to shape the very nature of the emerging global home appliance market.
So in the late 1980's we began to execute this strategy. And our first big step in 1989 was a big step. A billion-dollar purchase of a $2.5 billion white goods company in Europe gave us manufacturing and marketing presence across Europe. We've since supplemented that presence in Europe with expansion into Central Europe. The Whirlpool brand, which was unknown in 1989 in Europe, has since become the single largest-selling white goods brand in Europe. Most said at the time that we couldn't introduce a single brand, one positioning, one advertising message across all the countries of Europe, that the region wasn't ready for that. But our people did it, and they did it successfully.
In Latin America, we've attained a number one position with a strong manufacturing and marketing base in Brazil. We've added an Argentine manufacturing and marketing subsidiary, and formed a South American sales company to serve the rest of the market out of these manufacturing facilities. Today in Latin America, our total business amounts to some 5 million major appliances a year, and about a billion and a half dollars in revenue.
More recently we've been rapidly expanding and building our base throughout Asia. With majority joint ventures, six of them in India and China, and we've expanded sales operations throughout that important region. Last year we employed just 800 people in Asia, and sold about 600,000 major appliances. As I stand here today we have 11,000 Whirlpool employees in Asia, and this year we will sell about 2 million major appliances. We are the largest Western producer and marketer of appliances in Asia, and we've only begun the growth opportunities that we see for the future.
Now this quick world tour that I've just taken you on of Whirlpool's expansion, first may sound a bit boastful and it's not meant to be, but rather instructive. But it only may sound like lots of international flag planting. There are two important points that I would like to make about this growth in globalization. And it really goes back to the second question we asked ourselves back in the mid 1980's. How would we globalize to assure the creation of competitive advantage and sustainable value creation?
First, we've always seen globalization as a great deal more than planting flags. In fact, in the beginning we decided that if all we were going to do was plant flags we shouldn't do it, because we'd never be any stronger than the local competitor. Planting flags in our minds in fairly easy to do, but seldom creates real competitive advantage. From the beginning we said we wanted to build a truly integrated business, not a collection of independent regional businesses. We had the philosophy based on the analysis we did and the belief that we had that this essentially was the same business all over the world.
Thus we set out to build this truly integrated global business, where we could leverage not just in theory, but in practice, things like global procurement, where we could leverage product design and technology process design around the world. Where we could build global business teams to enhance and implement strategies. Globalization, we think provided these and other profitable and competitively advantageous opportunities. Most of which, if you think about it, can't be duplicated by the local competitors.
Second, we chose, consciously and very purposely, to implement our strategy not through a classic centralized approach, as so often happens with companies from America that reach out and do business in other lands, but rather through the creation of a one company mindset, vision and culture. A common business process system around the world. We have found that these can lead to enhanced regional capabilities, and to the creation of both global and regional sustainable competitive advantage. Each of our regional businesses today that I've described to you have only a handful of Americans working in them. Instead of transplanting people, we have worked to develop common systems, processes and practices that work to our global and regional advantage. How have we done this?
We've done it largely through the extensive and intensive use of cross-functional and cross-cultural teams. Such teams, have developed our common global quality system, our product development process, our global logistics systems, our global manufacturing and logistics process and control system, an integrated strategic planning process, etc., etc. Today, through these common business practices and systems, Whirlpool does in fact speak one business language all over the world, albeit in lots of different national tongues. Unlike some companies, and I really do think this was an advantage, we didn't have these global processes in place when we started because we were a domestic company. We had to create them as we went along, and we believed that they could best be created, and most effectively implemented, if we involved all from the expanded Whirlpool family worldwide. I think there are several important lessons that we learned in this process that I just described.
First, it takes longer. It would have happened much more quickly if we had centrally directed it. But on the other side, I will tell you that it creates buy in much faster. You build internal capability and confidence faster, and you blend capabilities from around the world to produce true leverage. In addition, we think we've accelerated the integration of the many new businesses and acquisitions much more rapidly than we would have if we had taken a directed, centralized approach to this integration.
Now I don't want to leave you with the impression that we at Whirlpool believe that we've mastered everything, and surely in this globalization area because we haven't. We've made lots of mistakes. We are learning every single day, and we still have light years, we think, yet to travel. We tell our people every day that we have far more yet to accomplish in this globalization journey than we have thus far achieved.
Yet so far we have discovered, or I should say we've rediscovered again and again, that you can't mandate cultural change or this one company vision or this one company mind set. This is where this approach, with these cross-cultural teams and continuous communication are especially important. Indeed the people side of this expansion is really the hardest side, the soft side as I sometimes call it, because there's lots of skepticism about change across the many cultures that make up Whirlpool today and they are often many barriers.
We've also learned that the training requirements are huge, and that persistence and risk taking are absolutely vital. In the end we absolutely must trust our people around the world, even as we expect them to trust us as leaders.
Today, Whirlpool continues to grow globally, and to build this integrated enterprise. We're not done and we're not there yet. Was the choice the right one that we made? You can tell from my remarks that I surely think so. There are few today in our industry that this can't be or won't be a global industry. In fact, all or most of our global competitors around the world are doing just the same. The issues today are no longer if and when, but what approach you will take, how fast, and how successfully?
Thank you very much.
Scott Shuster:
They said it couldn't be done. That's really the quintessential aspect of this. Everyone said this industry can't be like that. And then you did this one-year study etc. But talk to us just for a minute about that first moment when somebody said that the conventional wisdom is wrong. Perhaps the real achievement of Whirlpool is actually turning that on its head.
Whitwam:
Well it didn't happen all of a sudden. There wasn't one magical moment that someone said, Eureka, this is a new company that will embark on this strategy. I think most importantly, we found that it took two to three years internally after the leadership was convinced to convince the organization. In 1989 when we went off and spent a billion dollars in Europe to buy a $2.5 billion white goods business, the old domestic organization said, Why are they doing that? They're diverting resources from what we need to successfully continue to build our business.
And so there was lots of internal resistance. We spent, I think, more time communicating in the U.S. for the first six months after we made that acquisition why it was important to the future of the company than we did with the acquisition itself.
Shuster:
I think it's striking that even after this tremendous success some of your competitors say, no, you can't globalize this industry. The conventional wisdom is that strong.
Motorola, the name is synonymous with quality and success, and high technology. And our next speaker is responsible for Motorola's world-standard-setting achievements in the manufacture of cellular phones and computers, computer networks, and dozens of other gee whiz technological marvels, Dr. Ed Staiano, executive vice-president of Motorola Inc., and president of the Motorola General Systems Sector, including the phones, the computers, this fabulous Iridium [satellite] project, network ventures, personal communication systems. He's a mechanical engineer, also a doctor of high-speed aerodynamics and a graduate of the Institute of Rocket Propulsion. Although he does not work on rockets today, I think he tries to rocket in the speed with which he carries forth the Motorola organization to new success. Dr. Ed Staiano.
Staiano:
Thank you. It's been a while since I heard all that stuff in my resume. I think my secretary has been bolstering it lately or something. I don't feel like a doctor. I haven't done any operations lately. It's been a long time since I left academia for industry and stopped using that term. But somehow or another it does come back to haunt me once in a while.
I'd like to talk a little bit about the telecommunications side of the business, particularly to the issue of thinking globally and what happened with us. Let me just give you a quick characterization of the kind of business environment we've been in, and I know my friend from Nokia will verify that we're in one of the most exciting businesses in the world. Hanging on to this thing as it moves through like a rocket is our most difficult thing to do. The segment of business that I'm in has been growing now in Motorola compounded in excess of 30% for six years in a row. We have moved from being just slightly over $2 billion, to well in excess of $10 billion in less than five years. Adding that kind of growth every year to a business doesn't sound bad when you're 30% growing from $200 million to $260 million. When you grow from $2.8 billion to $5.2 billion in one year, it presents some unique challenges, especially when that growth takes place all over the world, not in the U.S.
Another characteristic of this business is that today about 70% of our revenue comes from outside the U.S., not in the U.S., so we are considerably more of a global enterprise than a U.S.-based enterprise.
We've had a lot of difficulty changing terminologies, because our friends now, from around the world, who work in the organization don't understand the word domestic. Domestic is a whole different characterization when 70% of your business comes from outside the U.S.. To someone living in Germany, domestic is Germany. To someone living in China, domestic is China, it's not the U.S.. International, in fact, could be the U.S. to someone in France. Changing the way in which we think has been fundamental in the organization, far beyond simply taking a domestic U.S. corporation and saying we're international.
The other thing that's kind of phenomenal about the business we're in, and I use this because it kind of shocks people, is that 50% of the world has never made a phone call. 50% of the population of the planet has never made a phone call. So when we look at the opportunity that we have for communications in the world, it's absolutely phenomenal.
So we were faced with new technology, wireless technology spreading much more rapidly and growing more rapidly than wired technology. It instantly was a global business. It wasn't a business that started in the U.S. In fact, one could argue that Europe, and particularly in the Scandinavian countries, with the Nordic mobile telephone system, actually was ahead of the U.S. in implementing modern, wireless technology. So we -- unlike American companies thinking that they are an American company and then the challenge of moving outward to the rest of the planet, as Whirlpool has done for example -- we had a completely different situation. We had to start instantly all over the world. And I'd like to pick just two things from our experience that I think might be valuable to you, for those of you who are either an American company today and thinking globally, or who are entering some brand new business that is going to be an instant turn-on to a global market.
We had to learn that every single country has to be treated separately and differently, and that every country takes a great deal of study and thought as to how you want to do business in that country. We found that painting segments of the planet with a regional brush doesn't always suffice, and in fact causes great difficulties if you think you can simply regionalize.
Some things lend themselves to regional thinking. Many things do not lend themselves to regional think. Some examples. The European Common Market has a certain set of things that they agree in common, a standard for their mobile systems, called their GSM. But in each country, each country has its own special agenda for how they choose to implement their telecommunications strategy. How they want to introduce competition, what they have as an agenda for that company in terms of its manufacturing, whether or not they see this as a problem for companies that are situated in that country, whether they want to bias things towards those internal companies, whether they expect you to do joint ventures in that country.
Telecommunications, being such a fabric of the infrastructure of every country, different from a consumer product in that country, there is an agenda that the government has. And each country, as it turns out, has a somewhat unique agenda. So we end up today with business now in some 132 countries around the world. Every one of those is a unique challenge to us to figure our how can we adapt our products, our way of doing business, to that country's agenda for the country. Is it necessary to form joint ventures? Can we operate as a simple consumer products company, for example, with respect to our subscriber handsets? Is that a different problem than we face with selling cellular infrastructure equipment into that country?
So, our challenge, and I think a challenge many will face in businesses that have a relationship to the political agenda of the country, is understanding the agenda of the country and how you can adapt your strategy and plan to fit so you can be successful in that country. One of the great successes Motorola has enjoyed has been in China. Today, our sales in China as a corporation are well in excess of $2 billion a year and growing rapidly. I think we have four factories under construction now. We just recently announced starting construction for a wafer fabrication facility in China. An enormous amount of work done by our prior Chairman, Bob Galvin, in the very early days of the China market opening, meeting with the leaders, flying the senior Motorola management into China to meet, and to understand more about what was happening with China as a country, has given us a tremendous start in doing business in what's likely to be one of the largest markets in the world.
But we had to adapt to the China agenda. We could do certain things in ways that we would do them in the U.S. or other countries, but there were a considerable number of things that we had to find common ground to. And we had to do this in an environment of a centrally planned economy, a communist political system with a capitalist bent for the future. And it's a very complicated and delicate role and continually one that we have to reassess as to how we can continue to be successful. One of the great dangers of a centrally planned economy like that, and there are many of them that are still out there, they can turn off the spigot to the country very quick, as we found out on occasion.
So, as we moved around the world, the two things that I think have been the most critical things for us in being able to deal with this very rapid expansion instantly, globally, has been number one, recognition that you have to deal with each country separately, and have a separate plan that meets that country's agenda. And secondly, the organizational structure that it takes to support that has to be incredibly decentralized and entrepreneurial, and has to use talent in each one of those countries in a way to help optimize what you do in that country.
And so we have today, I would characterize it by, I spend most of my time trying to make sure that this high-growth machine doesn't fly out of control. Fortunately, we aren't finding too many new countries on the planet, so we have already moved into most of the areas we want to be in. We have a basic structure of management now in place. But the challenge continues, for us, to adapt our agendas in each country, to meet those that are consistent with the government. And secondly, to keep an entrepreneurial, decentralized organizational structure that will allow us to respond quickly to those countries.
Shuster:
Ed, you mentioned the GSM standard, and how every country approaches these things a little bit differently. I know this has been a point of division between Motorola and Nokia, Jorma Ollila, our next speaker. Let me ask you, to what degree does this standards issue limit the rate at which that other 50% of the population can make a phone call? How serious is this problem of international standards to your growth?
Staiano:
Let me start with a comment. First of all, I don't think we have a problem between Nokia and Motorola in terms of standards. GSM happens to be the standard that Europe chose, designed because of the specific characteristics that the European community wanted to achieve. It's an excellent standard. We're one of the largest suppliers of GSM product in the world, as is Nokia. We have no difference really.
The U.S. is currently dealing between TDMA and CDMA as to which is going to be the standard. It really doesn't make any difference. Whichever one it is we'll build and ship. Japan has PDC; they chose to do that for their specific reasons. Nokia and Motorola both build and supply product into Japan. So I don't think there's ever going to be a single world standard. We're going to see a diversity of product for a lot of different reasons. One is just simply technology innovation. The systems don't all come on the air at the same time. GSM was a marvelous technology innovation at its time. It's still under development. CDMA it turns out is about 5 years later. GSM in terms of its technology innovation is going to offer new opportunities in the world. So I don't think there's a conflicting issue with standards.
And I think that more and more, what we will find are the glue to tie all these differential standards together is in fact Iridium. So, since my friend Jorma is going to be building Iridium units, and Nokia is working already with us closely on building Iridium units. The way to tie all these disparate units together is to buy either his or my Iridium phone.
Shuster:
Jorma Ollila is president and CEO of Nokia Group. He's also chairman of the board. He was featured in a Business Week article about the best managers in the world. He came to Nokia from Citibank 10 years ago, spearheaded a tremendously successful turn-around bringing this focus on mobile phones. Before that, Nokia used to make, among many other products, toilet paper. This was a national conglomerate. Well, toilet paper's loss was cellular technology's gain, and since Jorma took over, Nokia's stock has gone up 500%. A member of the Competitiveness Advisory Group of the European Council, ladies and gentlemen, the chairman of the crown jewel of Finnish industry, Jorma Ollila.
Ollila:
Well thank you Mr. Chairman for your kind words. It's a big honor to be among one of the very few non-Americans, I gather, in this conference, speaking to this esteemed audience. I had a very good introduction certainly, not only from Mr. Chairman but also from my friend Ed Staiano, to the business that we are in today.
But let me give a little bit background, and then go to the one or two things that I've been requested to note to you on globalization from my personal point of view. First of all, I think Nokia is an interesting animal, because we are an example of what Europe was like 10 - 15 years ago in business world. It was a group of, a national conglomerate, each trying to figure out what to do in a changing world which was being liberalized. For instance, many of the technology businesses were being affected by deregulation, certainly by the globalization of the different businesses.
What happened to Nokia was that in 1984 we had 50% of our sales outside our small home country. This year more than 90% of our revenues will be generated outside Finland. So that means that instead of having to be outside my home base, I have to do it every week. Every single week I will be out at least two or three working days. If we then look at the business portfolio, and this is really my first point, about where do I see the challenges of a globalization.
It's a question about the focus. There is no way that a conglomerate that is in businesses which are very diverse in terms of their dynamics and in terms of their management challenge could go global and be competitive in a global marketplace. So being focused in what you do, being focused in your view of what the proper portfolio will be, goes along with globalization of the marketplace. And there, the question simply is the question of the excessive complexity which comes for the management if you are globalizing with a multitude of very different businesses.
So certainly it was no surprise to us, and I can underline every single word of Bob Allen when he spoke about focus as the key driving forces of the slipping up of one of the major corporations of this country. Because what we did in Nokia was that about five years ago we sat down and looked at the markets and realized that we had certain core competencies in the areas of telecommunications. But that in order to be able to invest, to put our energizes into that business, we had to divest a number of other businesses, and to defocus from a third set of businesses.
The second challenge which comes is the one that Ed referred to. I would call that challenge the understanding and exploiting the culture of diversity. There is no way you can use one recipe to attack different markets in the world.
This then leads into an issue of how you set up your organization. And even if it's a management guru's buzzword, I dare to use it. I think empowering people is another necessity of the global world. Because you cannot have a uniform solution for each country. Neither can you run your organization based on manuals or centrally driven campaigns and programs. What you have to do is, you have to have capable people whom you empower to do their thing in the field.
What is then the glue that holds the whole of your corporation together? It is the corporate culture, it is the way of operating, it is the values which have been buried under the leadership of CEO as it always has to be, throughout the organization. All this means that if you don't have, if you don't base your organization on bureaucracy, on manuals, on a high level of complexity, but actually on a federation of units globally, you have to have a particularly high intensity of communication within the organization.
I went through this trying to figure out how do our people actually communicate. We are a $9 billion U.S. this year in revenue, with about 32,000 people, and I figured that we have at least 100 people in fairly senior positions who all have an average of 40-50 e-mail messages a day. And they actually communicate, they respond. Not like some of us, who have a lot of incoming but not so many outgoing ones. A very high communication intensity which is online, is a necessary ingredient of a successful corporation in a globalized market.
And I think I would like to conclude here underlining the three points -- focus in terms of your business portfolio, understanding the culture of diversity, and making sure that you have the corporate culture in place to glue together the federation of your units globally.
Thank you.
Shuster:
Jorma, being 90% international and only 10% domestic, that's probably a number that very few American companies are every going to reach because our market is so huge. But speak to us about what it means anymore to be a Finnish company. There is the example of ABD, a company which I'm sure we all know well, that is trying to escape altogether from nationality. How important is it to you to have this nationality?
Ollila:
Well how did you guess. This is the stuff we visit with almost every day in our management discussions. Obviously, if more than 90% of our revenue is outside our own country, we still have about 50% of our manufacturing, even if the number is going down, in our home country. Because a lot of international sales is European countries even if the growth is from Asia, Pacific and U.S. So we still have a fair amount of manufacturing in Finland, less so in the future. And more importantly, about 60% of our R&D power, our R&D manpower is in our home country.
So clearly there is a heritage, the ingredients of the corporate culture from Finland, and we are having major programs to make sure that we will understand and exploit the cultural diversity better, that we would accept and use the cultural diversity to our benefit. But certainly the corporate cultural elements stem from the Nordic environment. We think it's a strength for us, because the Scandinavian mentality is very suitable to the research and development intensity that our business carries.
But since out of our ownership, more than 50% is held by U.S. institutions, and only about 25% - 30% by Finnish institutions, yes we are working very hard to be mentally less and less stuck to our home country. We have to think as if we were sort of moving a little bit out from our home base. And that is a major point on how you challenge the good bits about your heritage and the necessity about thinking globally.
Shuster:
Joseph Neubauer was the youngest vice-president in the history of the Chase Manhattan Bank, 27 years old. In 1971, he joined Pepsico and was the youngest treasurer of a Fortune 500 company there. Joseph Neubauer is now older, and he is chairman and CEO of Aramark, one of the world's most recognized managed service companies. Aramark offers all kinds of services. Food service, child care service, uniform services, medical services, correctional medical services, a remarkable variety that somehow share a certain management aspect. Joe's been at Aramark since 1979, started as CFO. Ladies and gentlemen, Joe Neubauer of Aramark.
Neubauer:
I was younger once upon a time. I'm glad to be with you today. It's remarkable that we share so many similarities with the panelists, yet we have many, many differences. The services that we provide, we have no products to begin with, most governments don't have any interest in them, by the way. 100% of the consumers have used them before, and therefore provides totally different challenges for us as we operate in a global environment.
My principal focus this morning, as it is all mornings, and afternoons and evenings, too, I might add, is the impact of globalization on customer expectations all around the world. Specifically, the kinds of things that Aramark does, the services that we provide, in our culture we have to anticipate what we call the global rippling of these expectations once they begin forming in certain parts of the world. And how we have to recognize them and train our managers to address them in other parts of the world.
Just the accelerating pace of global change presents a unique set of management challenges to a $6 billion company such as ours, with 150,000 employees who serve 15 million people every day. Let me note that we have no patents, we have no trademarks, we have no natural resources to control. And to boot, we have no brand equity driving demand, or even preferences, around the world. So at the end of every day, if we do our job well around the country, we get to keep about a nickel of every dollar that we generate. It's a very slim margin to operate under. And like you, we have competitors all around the world, global as well as niche competitors, from Asia, Europe, Latin America. I don't need to remind you that they try to take our business away from us day in and day out.
So our challenge is not just anticipating global and regional trends and making sure that we have an operating model that can deliver quality service around the world. The larger challenge that we face really is differentiating our services, so we can charge a premium for quality when and if we can demonstrate it, of course. And it's indeed a challenge for us. As you've heard, we're in lots of different businesses. We're in the food service business, the work apparel business, the conference center and prison management business, the health care business, the child care business, and the sports and entertainment business. All services, no products at all.
And we find it's difficult to point to a noticeable difference. For example, our ability to prepare a plate of sukiyaki for bankers in Japan, or embroidery for uniforms of flight crews in the U.K., or child care curriculum for the Pentagon here in Washington, or for that matter, how to differentiate a ballpark hot dog for the fans at Dodger Stadium. I'm going to tell you a story about that. Last summer I got a call from Peter O'Malley, who asked me to fly out and visit with him -- we've known him for a while -- and he asked us to take over the food operations at Dodger Stadium. When I arrived I was somewhat taken aback by the sense of urgency. It was spring, and he wanted us to take over the operation right after the All Star break in mid-July. And I said I was sure we would be able to meet this time table, but I was curious to know what was driving his sense of urgency. Well, he explained that they had attendance problems, and the two most serious problems that his fans told him they had, once he polled them, were a problem with the Dodger Dog, at Dodger Stadium, and they had a problem with Darryl Strawberry. I told him we could take care of the Dodger Dog. Strawberry was his problem. He passed that one on to Steinbrenner, as you know.
The real point here is about customer expectations. The fact that the political change is so enormous, that it simultaneously raises expectations and standards even in consumers, even in mundane things such as we do, all around the world. And people all around the world, I contend, have the needs and wants that ultimately will be met, one way or another, which forces change in political, social and business systems all around the world. Let me give you an illustration that I found very, very enlightening. The Kobe earthquake, earlier this year, shook Japan. As you know it left 5,000 dead, 25,000 injured and 300,000 homeless. It left the rest of the country really in doubt about itself.
And I propose to you that a year earlier, the Japanese watched America and its people and its government deal with a major earthquake in Los Angeles. Sure the Northridge earthquake measured 6.6 on the Richter scale and Kobe was stronger, it was 7.2. But people in Japan saw how quickly and effectively the American government moved in to help. FEMA officials claimed to have mobilized literally as the shaking stopped. Red Cross relief supplies flowed in L.A. within minutes. And that raised expectations all around the world about how governments have to behave when a disaster happens.
So in Kobe a year later, it took Tokyo a week to declare a disaster area. And the government came under strong criticism from the victims, the media, the relief workers. And some people contend that's really the lingering challenge of Kobe to the government. And we as a service management company have to respond to that.
I was in Berlin two weeks ago -- I'm from Philadelphia and involved with the Philadelphia Orchestra -- and I was walking to a concert I saw a little kid who was about 7 or 8 years old walking around with an Oakland Raiders cap, put on backwards. And I thought to myself, how does a 7-year-old kid know that you're supposed to wear the cap backwards? I made a mistake of offering to trade him for an Eagles cap. He wisely said no, he wanted to keep his, he's not going to trade for the other one. But this little fellow, without saying a word, really, is telling us something very important.
The challenge in global marketeers is to hear it and understand it. At Aramark, what we try to do is have an exportable blueprint, to transfer our best ideas and practices, when necessary, to our 5,000 managers around the world. We don't have major production facilities. What we have is very, very decentralized operating units. We have these 5,000 managers who then manage these 150,000 people that work for us. So what we do is have world-class systems and support programs to help them regionalize and ultimately customize the services to meet the constant demand of this faster and better and newer demand that customers have around the world.
Let me give you a couple of quick examples of what we do. A few years ago, we entered Spain. We bought a company there with holdings in Mexico. We quickly discovered that people in Spain and Mexico have very much the same expectations. I'm not talking about the delivery, I'm talking about a set of expectations, as people in the U.S. That shouldn't have surprised us, because we discovered that operating in Japan, in a food service business, 20 years ago. Sure they expect to be served food that they like in their local country. But uniformly, they expected it to be served to them prepared in front of their eyes, in a clean environment. They expect managers and employees who care about what they think, and they really demand value. They want us to deliver the service in their local country at a value that they perceive reasonable.
We found the same thing in other businesses in other countries. We have a catalog company, for example, that markets work apparel under the trade name of WearGuard. It's done very well for us here in the U.S., and last year they entered the U.K. Everyone told us we couldn't do it. We ran some focus groups there and discovered that indeed we had to make some changes from the U.S. to the U.K. There wasn't a lot of snow there, so we had to take out the heavy boots and parkas that we do here. They didn't like bullet-like descriptions of the product; they wanted more elaborate descriptions. They wanted features and benefits that were a little longer. But the larger issue of marketing this line of apparel in the U.K., mostly sourced in the Far East, from a warehouse outside of Boston, showed us how globally you can really supply the different demands of customers throughout the world.
We're seeing the same things now in the sports business. We were approached this year by the owner of a professional soccer team. They recently bought the stadium from the municipal government, and like team owners everywhere, they had a need to drive ancillary revenues in order to sign again, in a globally competitive world, the best soccer players that they can find for their team. They heard and perhaps saw what we had done with the food and merchandise concessions at Camden Yards. And I'm happy to say our people today are working with theirs to put together a state-of-the-art program that we think we serves to raise soccer fans' expectations throughout Europe, Latin America, Asia, and throughout the whole world.
And we contend that that's because they saw the impact of Oriole Park, and that lifted the level of expectation of the industry in the U.S. to totally higher levels. We saw that again when we opened up the next stadium, Coors Stadium, in Denver last spring. The fans there wanted, and demanded, a four-star restaurant, and even their very own microbrewery right on the premises. So we know from experience that it won't take very long for things to go from state-of-the-art to the price-of-entry all around the world.
We have a group of blue-chip, multinational U.S. corporations asking us to supply a portfolio of services for them throughout the world. We're working very hard on worldwide delivery systems. The execution is done by local nationals. We have less than a handful of Americans working in our overseas operations. So in other words, what we're doing, in the managed service industry, we're trying to fill, actually we're racing to fill, the holes in the global network in much the same way that the financial service and communication industries have done in the past. But none of this is really leverageable unto itself. The only thing that we find that we can leverage at the end of the day is our managers' ability to help meet their customers' expectations. And they're rising expectations as I said before.
Because in our world there's no such thing as command and control. Because our service is created and consumed at the same time. We benefited because we never had a central bureaucracy that we had to dismantle. We just scrambled every day to develop this very decentralized operation that now manages 5,000 profit centers throughout the world. So our managers are really trained to think, and to accommodate their own customers. To solve problems, to continuously create new and better, and to meet these rising customer expectations. Quality, in our opinion, is never an accident. It is just the result of intelligent, very hard work day in and day out.
So one of my principal tasks, as a CEO, is really create an organization that is prepared for these challenges, that is continuously learning and continuously changing. But three years ago, we set out to produce what we called the Aramark executive learning institute. We bring in top faculty from major business schools to lead our top managers from around the world in interdisciplinary exercises. What we do really is go through a portfolio of real Aramark business cases. Off and on the program lasts about nine months. At the end of it, the teams present specific recommendations to the senior management.
We've had about 150 of our global managers go through this, and we're delighted with the results. The principal objective of this really is to equip the managers around the world to create better partnerships with our customers, partnerships that drive our customers' growth and create new opportunities for us. So at the end of the day, we believe the customer spending will prove even more decisive in our success than market share. And that we do, and we manage one customer at a time. So tomorrow, assuming everything goes well today, we'll have the privilege of serving another 15,000,000 people, one at a time, all over the world. And one thing is for certain. Overnight somehow, in some way, their expectations will have been changed. And our task is to make sure we know how.
Thank you very much.
Shuster:
I'm dying to know what exactly was wrong with the Dodger Dog, but maybe we should save that. Let me ask you something. We were talking about nationality as an issue. It sounds to me that being American is probably a positive thing for you because of this image of America as a place where service is much better than elsewhere. Do you find that?
Neubauer:
Absolutely. We find that throughout the world because the standards for service that we expect in this country, despite the fact that we could always improve, are very high, much higher than anywhere else in the world. And we really look at our customer base more by age than by nationality. We find that if you take populations and divide them by age categories, as opposed to by countries, if you look at the 20-25 year olds around the world, they have more in common than sometimes the 20-25 year olds have with the 45-50 year olds within their own country. So that really is what carries us throughout the world.
Shuster:
You know, Senator Dole is going to be joining us in about 20 minutes, but we're just told he's going to be a few minutes late, so let's take a few questions here. Go ahead.
Question:
All of you have global organizations, and some of you I know have global lines of businesses within your organizations. And one of the things that we've been challenged by, that I haven't heard you speak to, is the whole issue of measurements, and the computing systems that really bind the things on a true global basis, so that you can get global measurements, as quickly as you can get your vertical countrywide P&Ls. Could I hear some comments on that?
Shuster:
Systems. David?
Whitwam:
Well, one of the things we did early on, we issued an edict that there would be no information systems developed that weren't global as well. They had to pass that screen. Because every unit around the world has a natural tendency to want to design their own solution.
Having said that, we do have some regional or national solutions. But we started from the premise that if we really were going to build this integrated business, the most important element, was in fact, the information technology and its use and application. We apply the same metrics no matter where we are. And those metrics fall from very quantifiable goals we have as a company, both long term and short term. I talked about developing these common business systems in this one language around the world, and the metrics really drive that. Everyone has the same expectation of performance, wherever we operate in the world. So, I think you're absolutely right.
Shuster:
Ed?
Staiano:
I might just add, we were fortunate enough to go through our most explosive growth after the mainframe had already been declared a dinosaur, and I had come out of the MIS segment of the company. So we started out with a very decentralized structure for our whole computer network. In fact we operate our entire MIS activity within my segment of the business globally at about 0.7% of sales. A very decentralized client/server-based architecture.
The second rule we had was, don't write any software you can buy. Change the way you do business to adapt to the software wherever possible, and only make rare exceptions of changing that. So we're on pretty much all standard third-party software to operate the entire business. It turns out to be very cost-effective. We have very small MIS staffs, almost nonexistent, and it gives us the opportunity to quickly change to new third-party products as better products for managing and operating our business come along.
Shuster:
Ed and Jorma, I want to go back to the standardizing issue for a second. I know you both say, we have different standards, but we're buying them from one another, so we're happy. But I'm sure you'd have to admit that you'd be happier if it was just your CDMA or if it was just your CSM on a global basis. And I think the standards issue is something that we should be paying attention to in a lot of different sectors of the economy as we talk about globalization. I'm wondering if you can say, in any general way, what aspects of market difference should be viewed from a harmonization of standards perspective? Can we delineate for this audience, the standards issue on globalization?
Staiano:
Well, let me make an attempt first, and then we'll let Jorma have at it. We really do not have a problem with different standards. I mean lots of people keep trying to stir up this soup, but the fact of the matter is that the amount of technology and the volume of the products we're delivering really do not make it a big problem to do with three or four or five different standards in the world. There's a long history of emotional attachment to standards, that you really can't go upstream against it at this time.
So I think what we're more concerned with than a multitude of standards is really are we evolving technology that is going to allow us to grow the number of subscribers that we can put on a single megahertz spectrum? Because the limiting factor that the world has is spectrum limitation. And so whether it's CSM or whether its CDMA or whether its PDC doesn't really make a lot of difference, and I don't think it does to Jorma, although I'll let him speak. What is important to us is that we get better and better utilization of each megahertz spectrum so that can sell more product.
Ollila:
I think Ed is absolutely correct. I don't think it is right to say that there would be a problem. I don't think it is right to say that we would be a GSM house or that Motorola would be something else, and not so much a GSM house. I think a good example of all of this is that we started in 1991 developing a CDMA phone, and we will be there in the marketplace with a phone when the systems will be ready.
We have taken a view, starting in 1991, that CDMA will be one of the viable systems which will be commercially accepted and in operation in the second half of the 1990's. We have had a slight disagreement with some of the U.S. players and competitors and operators on what is a viable time table. That's a minor issue. We have been looking at a further date; some people have been a bit more aggressive. We'll see what happens.
I think we were less aggressive on the GSM timetable than we were with our products. Later, people who promised earlier timetables didn't have that. But that's a matter of how you look at the world in terms of timing and so on. We have made our choices, we will be all set with our CDM products.
I think the problem, if you want to dig out a problems, comes in the first instance as Ed said, and we would agree with him, and secondly how does a customer see this? If a customer is confused and is not convinced that there will be a service which will give him good coverage, enough spectrums, so that capacity is not an issue, we have a problem because we can not convince the customer base that there is a solution to telecommunication needs through the wireless route. And I think in the U.S. you have a little bit of this situation with the PCS question marks, a little bit of uncertainty on what will happen in which part of the country, and how will the technologies evolve. But other than that, I don't see a problem between the two companies or more generally.
Question:
I'd like to follow that up with just another question, and that is, as we globalize the corporations, I know that all of us are thinking about thinking globally and acting locally, generally through decentralization. But as we globalize, most of that is done through acquisitions. David, you talked about standard processes, practices, etc. Jorma, you talked about corporate culture, beliefs and values. And we all have checklists as we acquire these companies -- where we have fits and where we don't have fits. Where you have those incompatible checkmarks, how do you integrate these companies into the things you hold near and dear, which you believe have to be standardized?
Whitwam:
Most of the companies we acquired were incompatible. And most of the people there didn't want to come and work for Whirlpool Corp. Now that's an overstatement. But I will tell you that early on when we made some of these acquisitions, especially the very large one in Europe, we took the time to deal with those issues before we fixed the business. And we spent an inordinate amount of time when we bought NB Phillips of the Netherlands, a white goods business in Europe, it was a business that hadn't made money for several years. There were great expectations in Wall Street that we were going to turn it around immediately.
Now we turned in a profit every year since we've owned it and proved it. But we could have done it much faster. Yet we took almost the first year creating this common vision. They really did participate with us in refining our corporate vision. We worked intensely on global value systems that every one in the world could identify with as being a member of the Whirlpool Corp. We put a lot of work into developing these common business systems so that when we talked about metrics, everybody knew what we were talking about. That's the largest of the examples. We're doing the same things with the majority-owned businesses we have in China today. We're willing to not improve the results too rapidly and give up the real integration which we think is absolutely necessary for the long haul.
Neubauer:
I think that most companies that we acquired around the world, if you take the time and delve into people's desires and expectations, they're very much the same. I think that most of the time U.S. managements don't spend the time setting expectations up front. And I don't think the dialogue should be about what the partnership is going to be like. Because once you set that, the execution might be different. But the metrics are very much the same, and the desires of the people to succeed are very much the same. And I think what we found most of the time as managers is not to be explicit about our sets of expectations.
