Risky business

Now one of the elder statesmen of the technology industry, James Goodnight has built SAS into the world’s biggest advanced analytics company, earning himself a huge fortune in the process
SAS has recorded positive growth every single year, which has helped make founder and CEO Dr James Goodnight an extraordinarily wealthy individual
By Daniel Shane
Sun 13 Jan 2013 09:42 AM

Every time a bank is approached by a customer for a credit card or loan, there is a gamble involved on their part. They must weigh up the odds of how long it will take the individual to pay the money back, how likely it is they will miss a payment, or if they will default altogether.

The same goes for a healthcare insurance provider. How likely is a customer to get ill? Is it likely to be a critical illness? How long are they likely to live? These are the questions insurance firms seek to answer before approving any policy.

In making these decisions, companies rely on statistical analysis, technology that allows them to sift through huge volumes of historical data looking for patterns or anomalies in customers’ behaviour, which subsequently provide insight into how they are likely to behave in the future.

One company, US-based SAS Institute, has largely been responsible for the development of proliferation of statistical analysis, sometimes referred to as ‘business intelligence’, across industries from banking, to healthcare, to telecommunications, to government.

The technology is used in everything from calculating the probability of a potential customer defaulting on credit card payments, to insurance providers seeking to detect fraudulent claims and governments to prevent tax evasion before it actually happens.

Since being founded in 1976, SAS has grown into a close-to-$3bn-per-year business and the world’s largest privately owned software firm. SAS’s technology is now used by four out of every five companies on the Fortune 500 and it employs more than 13,000 people.

In the three-and-a-half decades since its inception, SAS has recorded positive growth every single year, which has helped make founder and CEO Dr James Goodnight an extraordinarily wealthy individual. Forbes magazine estimates that his fortune currently sits at a handsome $7.3bn, making him the 43rd richest man in the US and 125th in the world. To add to this, SAS has also been voted as the world’s best multinational company to work for in the world on several occasions.

The origins of SAS can be traced back to the late 1960s, when Goodnight was studying towards a doctorate in statistics at North Carolina State University. Far from its current status as a technology for detecting exotic crimes like money laundering and fraud, SAS in its beginnings was used for the more mundane task of analysing crop treatments.

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“We were working for the statistics department and my group was in charge of analysing all of the agricultural data that was coming from all of the experimentation that was happening on the campus,” Goodnight tells Arabian Business.

“In agricultural experiments [SAS is used] primarily to determine whether a new treatment is better than the previous treatment, whether it’s a fertiliser or a new way of growing seed corn, or those sorts of things,” Goodnight explains. “You’re always experimenting to try and find something better than you have now.”

So accurate was Goodnight’s technology for recognising patterns in agricultural data, word of mouth about the software spread quickly and other universities in surrounding states also began to adopt SAS for the same purposes.

From agriculture, SAS’s application quickly expanded out into pharmaceuticals, where drug companies also used the technology to test the effectiveness of treatments. “Precisely the same thing occurs in drug experimentation [as agriculture] where they’re trying to determine whether a new drug that they’re working on is effective or not,” Goodnight adds.

Following SAS’s transition into pharmaceuticals, Goodnight realised that his company’s methodology for statistical analysis could be modified to provide insights into data used in other verticals, including telecommunications, finance and healthcare.

By the early 1990s the company had begun amassing heavyweight clients in the banking, insurance and financial services industries, including card firm American Express.

Goodnight says that by using his technology, credit card companies are able to save substantial sums of cash by forecasting the likelihood of customers defaulting or missing payments based on metrics such as current salary and prior credit history. By analysing this information, financial companies can arrive at a judgement on not only whether they should issue a customer with a new card, but also at what interest rate and how high a limit.

Financial institutions are also using SAS’s software to detect fraud faster than ever by allowing them to analyse anomalies in data. These include if a card has been used in an unusual location or if a larger than normal withdrawal has been made. In many cases SAS’s technology allows a bank or credit card company to uncover fraudulent use of a card before the customer themselves has even realised.

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Many of these innovations are familiar to anyone who owns a credit or debit card and are now seen as standard at most major banking and credit institutions.

The company has more recently moved into using its technology for targeted marketing campaigns. Businesses can use the software to analyse trends in customer behaviour to pitch specific products and services according to their requirements, as well as cross-sell and up-sell.

“One of the biggest uses is what we call customer intelligence, or marketing automation, where we try to build models that help determine which customers should be involved in which marketing campaigns,” Goodnight says.

For example, if a telecommunications company sees that a certain subscriber is nearing their download limit on their internet connection every month, they can automatically send out an email with information on how to upgrade.

This broader degree of customer insight means companies are less likely to waste time advertising to people who may already be a subscriber to a particular service or who are unlikely to be interested.

Regionally, SAS has amassed a number of high-profile clients across sectors including banking, government and telecommunications since setting up in the Middle East. “You won’t find a top tier bank in this region that is not a heavy user of SAS. The top five banks in Saudi come to mind, the top two or three banks in the UAE, the top bank in Qatar, the largest bank in Kuwait,” Goodnight says. “Every telco in the region is a massive user of SAS. They use us quite effectively to reduce their churn, to up-sell and cross-sell to their customers.”

Goodnight says other clients in the region include Abu Dhabi’s Ministry of Finance, as well as the UAE capital’s statistics centre. “This region is growing rapidly, it’s coming out of the [global] recession much faster than other regions and I think we’re seeing a very large uptake particularly in the public sector,” he says, adding that the Middle East revenue doubled in 2012 compared to the previous year.

Despite the ascension of SAS into a multi-billion-dollar-a-year company over the last 35 years, Goodnight says he has never considered an initial public offering (IPO) for the company. “A lot of the CEOs of public companies tell me they wish they were private, as there’s so much hassle you have to put up with these days, with all the Dodd-Frank rules and all the other stuff,” he explains, referring to the federal laws that govern Wall Street.

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Goodnight argues that remaining private has not impeded SAS in competing with larger rivals that have started selling similar technology. “If you look at the numbers from [market research firm] IDC, last year we had 35 percent of the advanced analytics market and our next competitor was at fifteen percent and that was IBM,” he says. “So we continue to outperform these other companies.”

He highlights the recent example of Facebook, which floated on the New York Stock Exchange in May 2012 in a $90bn offering, as how an IPO can disappoint. “I think the biggest problem [with Facebook] was that it was overhyped. Some of the forecasts were just way off in terms of the actual value of that company,” Goodnight says.

The technology industry is renowned for its appetite for mergers and acquisitions, with several multi-billion-dollar deals in this space agreed each year. In 2012, for example, hardware giant Hewlett-Packard snapped up the UK’s Autonomy, a company a third of the size of SAS but that sells similar software, for $10.3bn. Independent companies do not always stay independent for long, it seems.

Goodnight is frank when asked if he has ever had the chance to cash in and sell the company he personally founded. He says that so far he has not been made an offer he cannot refuse. “Sure, certainly [there have been offers]... But the [offer] wasn’t quite big enough. I like to put a price on it that I know they won’t touch.”

In 2012’s Great Place To Work Institute survey, SAS was ranked the number one multinational company to work for in the world, based on its generous benefits and innovation-led work ethic. Goodnight says that he is concerned any takeover of the company would erode this culture he has personally developed over the last 35 years. “Every time one of these larger corporations takes over, suddenly the innovative culture is destroyed and replaced by a corporate bureaucracy that tends to destroy innovation. I don’t want that to happen to SAS,” he says.

He highlights software giant Microsoft as an example of a technology company that has fostered in the last decade a culture that has been to the detriment of innovation. “[CEO Steve Ballmer] instituted this programme where every employee had to be ranked in the top 20 percent, the middle, or the bottom ten percent,” he explains. “They credit that one HR concept with completely stifling innovation at Microsoft for the last ten years, because instead of innovating everyone is worried about being in the bottom ten percent and spending time trying to make sure their boss likes them.”

At 70 years old, Goodnight is now one of the elder statesmen of the US high-tech industry, but he says he sees no plans to take retirement in the near future. He remains firmly in control of SAS’s direction as its top day-to-day executive, as well as reportedly keeping a tight grip on the company’s ownership.

“I’m still very much interested in innovation and creativity and a lot of the stuff we’re working on right now are initiatives I actually started myself,” he explains. “I just enjoy the challenge of running the company. I feel like I’m still the best to the best person to do it. When I feel like I’m not, I will step down. But for now, I think I’m the best choice.”

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