BM2103 Tutorials: Week 3

SAS Institute

The SAS Institute is a successful software firm founded in 1976 by Dr James Goodnight and
three other colleagues. It specialises in data analytics software and is one of the largest
privately-owned software businesses in the world. Its analytical software is used by many
large companies to access, manage, analyse and report on data for corporate decision-
making. Currently, at least 90 of the top 100 companies in the Fortune 500 are SAS
customers. Competitors include SPSS and Microsoft.
SAS was among the first to pioneer the ‘licensing’ model for software distribution.
Traditionally, companies would sell their software outright to the customer, who would then
be required to pay again if they wished to upgrade to a newer version. Under the licensing
model, which most companies now follow, SAS charges an annual licensing fee that gives
the customer access to free upgrades and customer support. Although new data analytics
solutions are now emerging, some of which are free to use (such as R), many organisations
continue to use SAS because of its good customer service.
SAS also stands out in the way that it manages its employees. Many firms in the software
industry have a reputation for their intensive and insecure working environment. Many
employ a core of permanent staff, who are expected to work extremely hard, and then
outsource project work to contract programmers who enjoy little job security and few
‘perks’.
SAS has a different approach. It sees the attraction and retention of talent as a key factor in
ensuring the company’s continued success. It has three key principles that guide its
approach.
First, it seeks to follow an egalitarian approach, where everyone is treated fairly and equally.
Jim Goodnight explains that:
“When we started [the business] there were no employees, we were all principals.
What we tried to do was to treat people who joined the company as we ourselves
wanted to be treated. We wanted nice offices and an attractive place to work, so we
tried to provide that for everyone … Everyone, for instance, has private offices.
That’s fairly different, I know for a fact. So many companies just have cubicles for
people.”
The second principle is an emphasis on intrinsic motivation and trusting people to do a good
job. Several people have commented on the absence of bureaucracy in the company and
the fact that people “aren’t managed to death”. Barrett Joyner, VP of Sales and Marketing,
stated that:
“the emphasis is on coaching and mentoring rather than monitoring and controlling.
Trust and respect – it’s amazing how far you can go with that.”
Another manager commented that that basic philosophy “is one of trickle down – if you
treat people well, things will take care of themselves.”
A third principle is bottom-up decision-making. The company puts great efforts into listening
to its employees and its customers. Employees are encouraged to attend regional users’
groups and to bring back customer feedback. The insights that employees bring from these
meetings – and the additional suggestions that employees provide themselves – then guide
the product development process.
SAS Institute receives a high volume of job applications because of its reputation as a good
place to work. Cultural fit is important in the hiring and retention process, however. John
Boling, a Divisional Director at the company, commented on what would make a bad
employee as follows: “… someone not willing to help others – colleagues and customers –
and someone who needed a lot of direction.” The company culture is one of co-operation,
teamwork and mutual respect, and the company takes great care to hire people who will fit
into this culture. Partly for this reason, there is a strong emphasis on internal promotion.
Several people have commented that around half of SAS employees have never worked
anywhere else or have had, at most, one other job outside the company.
Rates of pay are competitive for the industry and adjusted regularly. The company has a
system of merit increases, which are given once a year based on a supervisor’s assessment
of the employee’s performance over the previous 12 months. The company also contributes
the maximum permitted by the US tax system into employees’ pension plans, and it
operates a bonus system in which all employees receive an end-of-year bonus (typically 5-
8%) based on the company’s performance over the year. This company-wide bonus reflects
a desire to de-emphasise individual financial incentives. Sales representatives, for instance,
are not paid on the basis of sales commissions. Jim Goodnight believes that “sales
commissions do not encourage an orientation towards taking care of the customer and
building long-term relationships.” Also, he believes that a commission-culture is too high
pressure. Barrett Joyner comments: “I want to make the numbers, but I want to make the
numbers the right way.” Asked about free-riding, another manager comments that “It’s
hard to slide when you are working in a team”.
SAS Institute uses generous employee benefits and a comfortable work setting to create a
healthy and fun working environment. The company policy is for people to work 35 hours,
or a 9-5 work day, with one manager contrasting this with a competitor firm where “the
system of flexi-time just means that they don’t care which 18 hours in a day you work!”.
Goodnight does not believe that people work well under conditions of exhaustion: “I’ve
seen some of the code that people produce after long nights and it’s garbage. I’d rather
have sharp focused people that write good code that doesn’t need as much testing.”
The company has a medical facility on site at its headquarters, which provides free medical
care to staff and their families. There is also day care facility for employees’ children and,
whilst employees do pay for that service, charges are around one-third of market rates. The
firm uses very few contract workers. Even those working in the company’s medical facilities,
day care facilities and food service outlets are full-time SAS employees. Barrett Joyner
considers that most companies contract out activities to save on costs, but end up getting
lower quality.
In terms of training, all new employees receive an orientation program on the company
history and vision. They subsequently receive a great deal of technical training, most of it
provided internally. The company’s approach to performance management is then based on
ongoing conversations. Instead of formal, annual appraisals and performance planning,
managers commit to spending time talking to their staff and providing feedback on
performance at least three times each year, as well as committing time to more informal
conversations on a regular basis.
Finally, the organisation has a relatively flat structure. There are only four levels in the
organization, and Goodnight’s preference is to “let people manage their own departments
and divisions with as little interference from me as possible”. Relationships are important,
however, with Goodnight being visible in the company and often dropping into departments
to see how people are doing. The limited hierarchy is exemplified by the company’s norm of
“working managers”: all managers are expected to carry out technical work as well as
managing other staff. This even extends to Goodnight, who spends a significant amount of
his time programming and leading product development teams.

Questions
1. What aspects of a high-commitment management approach are evident from the
discussion of the SAS Institute’s approach to people management?
2. How could the company’s approach to people management help to deliver the
employee behaviours that support competitive success for the business?
3. What risks are present in the SAS approach? And how does the “internal fit”
between HR practices help to reduce these risks?
4. The case notes that the HR approach taken by SAS differs from that taken by many
other firms in its sector. Would it be easy to replicate in other firms?

Case text: Adapted from Pfeffer J (1998) The SAS Institute: A Different Approach to Incentives and People
Management Practices in the Software Industry, Graduate School of Business, Stanford University. Questions
written by John Forth.

To understand more about what SAS does, watch SAS Inside Out.