RENEWAL, LEADERSHIP
How Do You RENEW a Successful Company? Intuit, one of the world's great software firms,
was on the verge of losing its leadership position. Until it vowed to RENEW itself by unleashing
a series of PHOENIX LEADERS. "Isn't it amazing," asks CEO Bill Harris, "how quickly you
can become a company of the past - or a company of the future?"
Fast Company, October, 1998, issue 18 page 182.
Conspiracy Of Change
by Pat Dillon
Photographs by Chris Buck
September 1996: The Assignment
It was one of those don't-pinch-me-I-might-wake-up moments that
people move to Silicon Valley to write home about. Alison Berkley,
then a freshly minted MBA from the Harvard Business School, had been
working for Intuit Inc., headquartered in Mountain View, California
and one of the world's leading software companies, for just six
weeks. She'd been summoned to a conference room adjacent the office
of Scott Cook, Intuit's legendary cofounder. Just outside the room,
Berkley met Carl Reese, a vice president from Intuit's tax group.
Reese had joined Intuit four years earlier, a few months before
Intuit bought the company where he worked, ChipSoft Inc., creator of
TurboTax, the best-selling tax-preparation program.
Reese had a perplexed look on his face. Berkley was equally puzzled.
Why had they been summoned? She'd been a Baker Scholar at HBS; she'd
worked in mergers and acquisitions for Morgan Stanley; she'd spent a
summer at Microsoft. She signed on with Intuit because recruiters
persuaded her that she could blend her interests in finance and
software, and that she could look forward to becoming a product
manager.
But when she arrived at the company, Berkley found herself assigned
to work as an associate product manager with Quicken, Intuit's
oldest, and in her view, stodgiest product. "It was not the premise
under which I took the job,'' she says. "Immediately, I was
frustrated.'' She expressed her frustration to coworkers, to
supervisors, and to former colleagues at Microsoft. One day, a
colleague, Lisa Jean Borden, dropped by Berkley's cubicle to say
that she was about to leave Intuit to join a startup. Borden had
heard that Berkley wanted a different project, Borden decided to
hand off an idea that she'd begun investigating with Reese. She
dropped three files on Berkley's lap - sketchy data on the nascent
world of online mortgages.
That brief encounter was a precursor to this session. The meeting
began in a low-key tone, as did most meetings chaired by Cook,
Intuit's soft-spoken, deliberate visionary. But there was no
mistaking his sense of urgency. The market for Quicken, Intuit's
wildly popular personal-finance software, with 10.6 million users,
was flattening out. Intuit's stock, which had hit an all-time high
in November 1995, was dropping fast. No one was questioning the
company's survival. But there were doubts, inside and outside
Intuit, about its future as a leader and innovator.
Cook wanted Berkley and Reese to do something about those doubts. He
challenged them to build a business from scratch - and not just any
business. Creating a Web-based service to help customers compare and
apply for home mortgages - analyze their financing needs, evaluate
terms from lenders, get prequalified online - would be a crucial
test of Intuit's capacity to reinvent itself in the Internet era.
"The Net was forcing us to learn fast, change fast, even fail
fast,'' says Cook. "The only thing wrong with making mistakes would
be not learning from them.''
The company's unwavering commitment to product quality, its keen
understanding of consumer brands, its dominance of retail channels,
its deliberate style of decision making - these skills had worked
wonders in the market for shrink-wrapped software. But they were
less relevant - sometimes even counterproductive - in the
fast-paced, freewheeling, make-it-up-as-you-go-along world of the
Net. QuickenMortgage would be a test of whether one of the defining
software companies of the 1980s could handle the new competitive
realities of the 21st century.
To be sure, Cook's actual invitation was more subdued than all that.
"Is there a business here?'' he asked. "Could you guys spend some
time on this - on your own?" Reese hesitated. He was still running
an important arm of Intuit's business. Berkley was more outwardly
enthusiastic. "For me it was a big WOW!'' she says. "Here we were
being asked by Scott Cook to galvanize our thinking about the Net
and explore a completely new venture.''
She looked imploringly at Reese. He agreed to go along. On the way
out, they bumped into Bill Harris, then the executive vice president
for Intuit's consumer and tax divisions. The encounter was not
coincidental. Harris, Reese's former boss, had been evangelizing for
Intuit to develop its Web presence. Harris had become the company's
point man for the Net, its most senior change agent. "At this point,
we had no real models, only muddles,'' Harris admits. "But you have
to test the company's willingness to try new things, to break its
own mold, to reevaluate its traditions. You have to test its
willingness to fail."
Over the next four months, Berkley and Reese worked to create
QuickenMortgage as part of a conspiracy of change - sanctioned from
the top and drawing on more than 70 people from a variety of
functions and ranks - to reinvent one of the world's most successful
software companies. The conclusion to this story has yet to be
written: No one knows if Intuit will be as prosperous on the Web as
it's been on retail shelves. But no one doubts that Intuit is a real
player again. "Isn't it amazing," asks Harris, now Intuit's
president and CEO, "how quickly you can become a company of the past
- or a company of the future?"
What's Changing?
Lots of software companies have won big over the last 15 years -
generating huge sales, employing lots of people, introducing
products that became signposts of the new economic landscape. But
few have won with the sense of simple elegance that has
characterized Intuit since its founding in 1983. Intuit isn't just
one of the most compelling success stories in software history. It's
one of the classiest software companies in history.
Behind every great leap forward for Intuit has been a simple - but
powerful - idea about how to meet customer needs. Cook is fond of
saying that Quicken, his company's best-known product, never took
off until Intuit figured out how to make it so easy to use that it
could "beat the pen" as a tool for managing personal finances.
QuickBooks, Intuit's software for small-business accounting, was
designed around two simple insights: that the "accountants" for most
small companies were the owners themselves, and that these owners
did not understand the basic principles of double-entry bookkeeping.
A truly useful accounting package was one that did not treat its
users like professional accountants.
The result of these simple insights, and the products that grew out
of them, was absolute dominance of the financial-software market.
Intuit has 10.6 million users for Quicken, 2 million users for
QuickBooks, and 3 million users for TurboTax - and a stunning 80%
market share in each of these three product lines. It remains one of
the very few companies that has faced Microsoft head-on in a major
product category and emerged with its head above water. Indeed, back
in October 1994, Microsoft grew so frustrated with its inability to
unseat Quicken ( with Microsoft Money ) that it offered to buy
Intuit for $2 billion - what would have been, at the time, the
biggest software deal ever. Seven months later, after meeting with
opposition from the U.S. Department of Justice, Microsoft withdrew
the offer. Intuit was now back on its own - and facing one of its
most severe business challenges ever.
That challenge wasn't Microsoft's sudden move from ( nearly ) friend
to foe in retail software. It was the rise of the Internet as the
next great competitive playing field - and unfortunately, Intuit
failed to recognize this seismic shift. "We'd become arrogant,''
Harris says. "Then, after the Microsoft deal fell through, we lost
confidence. During the highs, we were giddy. During the lows, the
situation was depressing. It felt like we were heading into a long,
slow, enervating decline. Look at Apple, Novell. It was becoming
clear that even successful companies can stumble."
Avoiding a downward spiral meant facing up to the Net, which had
huge implications for Intuit's strategy. The company had always
generated revenue directly from retail customers. And it had always
operated as a proud, stand-alone entity. But doing business on the
Web meant discovering indirect sources of revenue - selling ads,
collecting origination fees from mortgage lenders, or licensing
software to banks. And growing fast meant striking partnerships and
alliances, an acquired skill with which Intuit had limited
experience.
The company, says Harris, had demonstrated "a collective lack of
urgency" on strategy. "We'd seen Netscape's beta test - it was a
brilliant advertisement for itself. We'd watched Yahoo!, Excite, and
Amazon introduce businesses. We were suffering a corporate midlife
crisis. We had to rethink our entire business model.''
Intuit also had to rethink how it operated. Intuit's dominance of
the market for financial software had been built around an obsession
with customers. In one form or another, at least half of the
company's employees worked in customer-service roles. Cook liked to
say that word of mouth on Intuit's products was so strong that the
company's customers were its best salespeople. Its "Follow Me Home''
program, in which Intuit reps from product development met new
customers in retail stores and visited their homes to watch them
install the software, became a case study in market research.
Intuit's famous "Usability Lab," filled with customers trying out
new products while engineers watched their every move, symbolized
its commitment to developing reliable, easy-to-use software.
But the Net challenged much of that tradition. The Web demanded a
faster pace, a more directly interactive approach. "We had always
thought of ourselves as fast and schedule-driven, with predictable
cycles," says Harris. "But suddenly everyone was fast. That's why
the struggle to change from within was so important. The question we
had was, Can we execute? Adapting to new business cycles meant
rethinking certain processes we had grown comfortable with."
Intuit was already feeling the effects of Web culture on its core
business. When Brian Ascher joined the company in 1995, he recalls,
"I didn't even have the Internet on my desktop." A year later,
Ascher was named senior product manager for the upgraded Windows
version of Quicken. In 1997, he moved to the Internet group. He was
told to work with a team of engineers to relaunch a new expanded
version of Quicken.com that would be a resource center, offering
information such as stock quotes and market analysis. What's more,
he was told to do it within three months - faster than Intuit had
ever revised Quicken. "We had always made consensus-driven
decisions,'' Ascher recalls. "Now you could feel the urging to move
ahead. Things were beginning to happen like lightning.''
Cook and Harris understood that the company was at a crossroads.
"Our integrity was never at stake,'' Cook says. "The best companies
stand for something. In our case, it is to do right by the
customer.'' ( See the sidebar, Values Dont Change ) But Intuit's
leadership position was at stake. This was a company that was late
to "get" the Net - and wasn't sure how to behave once it did get it.
"We had to ask ourselves some basic questions," says Harris. "How
good are we? Are we as good as we thought we were?"
January 1997: Green Light
Alison Berkley and Carl Reese had not been at intuit for much of its
remarkable history. But they had been tapped to help create its
future. They returned to their home bases - Berkley in Mountain
View, Reese in San Diego - and conferred three or four times a day.
It took them only two weeks to return to Cook's conference room,
armed with a single sheet of paper hypothesizing the principles
behind a Web-based mortgage site. The Web could offer loan
comparisons and approvals faster and cheaper than could existing
channels, including brokers and banks, they argued. Intuit could
collect origination fees when customers found lenders online. The
Quicken brand name would be a huge advantage in a confused market.
There were no major regulatory barriers.
Cook and Harris challenged the duo to prove that they were right.
But Berkley and Reese had no doubts. Their concern was how to do
justice to their "day jobs" and find the time to create a business
model to tap this enormous opportunity. Cook and Harris knew that
they were overloading Berkley and Reese. But that was the new
reality of doing business on the Internet. The pace of this world
didn't allow for big teams and comfortable project schedules - the
finely tuned ways of working for which Intuit had become famous.
Berkley and Reese made a list of lenders and divided up the cold
calls. "The Quicken name opened doors,'' Berkley says. "We found
that some banks were suspicious of Intuit going into the lending
business. I remember one banker saying, in no uncertain terms: 'We
build our customers one way: face-to-face.'" But after calling 20
major lenders, she and Reese were able to report some institutional
warmth for Intuit's online mortgage concept. Through intermediaries,
they set up focus groups comprising Quicken customers and
non-Quicken customers, and explored consumer experiences in
obtaining mortgages the conventional way. They asked mortgage
customers about the Web: Did they trust it? Would they pay to use
it?
Berkley and Reese assembled a 45-page business plan and presented it
to Cook and Harris in December 1996. The bosses challenged some of
the plan's assertions and shot down a few of its conclusions, but
expressed enough encouragement that Berkley took it to heart. "If
they don't approve it," she thought to herself, "I leave the
company. There are going to be 15 zillion Internet startups, and one
of them is bound to be interested.''
Cook was comfortable with that attitude: "The way to make change is
to do it entrepreneurially, not when the chairman thinks it should
happen. The day companies stop upholding entrepreneurial standards
to benefit customers is the day they start to die."
Cook and Harris invited Berkley and Reese to present their plan to
Intuit's executive committee, at a meeting scheduled for January 18.
They got 30 minutes. Berkley showed up wearing a lucky red sweater
over a black turtleneck and remembered suddenly feeling "kinda young
- and pretty new to the company.'' Reese showed up wearing his game
face.
They had decided to ask for between $1.5 million and $2 million in
seed money, even though they had learned in advance that the company
had earmarked only about $500,000 for unnamed projects. Reese
remembers the session. "People seemed interested and asked good
questions: Can we pull it off? How soon? Can we make a deal with
technology companies to provide connections between customers and
lenders?'' The presentation lasted under 30 minutes. As the two
walked through the parking lot, they debriefed each other: They
hadn't heard any no's. "Well, then, was that a yes?" said Berkley.
"Yeah, let's assume so,'' Reese answered.
When Reese returned to his office, he called Jim Heeger, then
Intuit's CFO. Early on, Reese had cultivated Heeger's support. He
left a voice mail thanking Heeger, concluding with an oh-by-the-way:
He was calling to confirm that he and Berkley had the company's
formal backing and the money they needed. Heeger ( who today is a
senior vice president in charge of QuickBooks ) called back to
confirm Reese's read on the meeting. QuickenMortgage had a green
light.
It was, argues Harris, a step in Intuit's comeback journey: "Here,
at a time when we were beginning to doubt ourselves, Carl Reese and
Alison Berkley raised their hands. Carl had no fears of what he
might be giving up, and neither did Alison. As a company, we had to
accommodate them.''
Who's in Charge?
To be sure, one project does not a comeback make. as berkley and
Reese worked on inventing QuickenMortgage, Cook, Harris, and Bill
Campbell, then president and CEO, worked on reinventing Intuit. What
would drive profits on the Web? What investments ( people,
technology ) would the company need to deliver on its strategy? How
could they galvanize the troops around Intuit's long-term promise,
when Wall Street was pummeling the company for disappointing
short-term results?
Their answer: a grassroots approach to strategy making that drew on
Intuit staffers from a variety of backgrounds, functions, and
hierarchical positions. Cook and Harris formed a 70-person team in
the spring of 1997, then divided it into five working groups, each
charged with wrestling with a different strategic challenge. The
small teams convened at least once a week. The full group met every
six weeks. "Our culture encourages inclusive decision making,''
Harris says. "The embarrassing part was dealing with the
company-wide notion that we had no well-articulated strategic
mission. We put 70 people in a room and began sessions to devise a
new strategy.''
The sessions ran close to six months. Software engineers teamed up (
and sometimes argued ) with Webmasters, marketing managers with
operations people; Intuit's long-standing obsession with product
quality jostled against the Net's speed-to-market ethos. "It was
com-plete chaos,'' says Brian Ascher, one of the 70 participants.
Adds Bill Campbell, now Intuit's chairman, "It was nothing short of
traumatic."
Over time, though, an Internet strategy did emerge. Intuit paid
about $40 million for 19% of Excite, the Web-navigation company that
garners millions of daily visitors. It identified the new services
it would offer on Quicken.com, its Web site, and announced a launch
date of October 24, 1997 for the site. It paid $30 million to secure
a high-profile presence on America Online. It announced a joint
development effort with a consortium of banks to allow Intuit
customers to connect with financial institutions over the Internet.
All told, the company now has more than 140 programmers, producers,
editors, engineers, technicians, and salespeople working on
Web-related services.
Still, skepticism persisted. So a second key role for the grassroots
strategy team was to evangelize on behalf of the changes. Intuit did
not rely on technology - email blasts, intranet sites - to persuade
employees that the company was back on track. It relied on
old-fashioned, face-to-face persuasion - including revival-style
mass meetings. "We did rolling 'tent meetings,''' says Mari Baker,
Intuit's senior vice president of human resources and corporate
communications. "We put up a big tent in the parking lot and
gathered all the employees. People went out to pitch their new piece
of the strategy. Scott Cook, Bill Harris, and Bill Campbell gave the
overall picture."
These were not your run-of-the-mill off-sites. In August 1997, just
two months before the launch of Quicken.com, Fortune published a
damning article about Intuit's future titled "Is Intuit Headed for a
Meltdown?" The article led with a quote from an industry analyst:
"Quicken is over! It's done. It's almost a nonfactor." Harris
addressed the article head-on at a tent meeting. A bit of a ham ( he
does a cool Letterman ), he whipped himself into a frenzy - and
urged his colleagues to do the same. "Are we going to melt down?''
Harris hollered. "Hell no!'' came the reply.
NOVEMBER 1997: The Launch
Berkley and Reese weren't concerned about melting down. They were
more concerned about booting up. They agreed to launch
QuickenMortgage to coincide with the launch of Quicken 98, an
upgrade of Intuit's flagship consumer software, and the launch of
Quicken.com, its all-purpose Web site. Reese was named vice
president of Intuit's online mortgage market space, Berkley its
senior product manager. ( She has since become group product
manager. ) "It was like we were working in a startup inside the
company, with Bill Harris and Scott Cook as our board of
directors,'' she says. "I was elated with the opportunity to pull
together a team and ramp up.''
The team was seeded with engineers from Reese's tax division and
marketing types from company headquarters at Mountain View. It also
drew on Intuit tradition. The team recruited potential customers to
help test the Web site for usability, paying them $50 each to
point-and-click their way through shopping and prequalifying for
loans, while Intuit researchers watched and learned from what they
did.
Cook's role was to keep the team focused on the only constituency
that mattered. "Scott would ask us: 'What does the customer
think?''' Berkley remembers. "He didn't understand anything unless
it was from a customer's point of view.''
Most potential customers were impressed; most skepticism came from
inside. "I remember one colleague telling me that I was crazy
because our whole venture was still so ill-defined," Berkley says.
"Another said: 'You just got out of business school. Why don't you
cut your teeth on Quicken for Macintosh?'"
The team fine-tuned QuickenMortgage through September. The week of
the launch, Berkley did a press tour while another band of Intuit
marketers undertook a nationwide road show to promote the service -
even as it was undergoing tests. Revisions continued right up to the
launch, which had been rescheduled from late
October to November 4. By Intuit standards, a one-week delay -
especially in the name of quality - was no big deal. But by Web
standards, even a short delay can be a sign of weakness - especially
in a company launching its first major Web service.
The site went up. Reese and Berkley counted hits ( about 10,000 on
the first day ). More important, they counted how many visitors
worked their way through the questionnaire to prequalify for a
mortgage. At the end of the first day, more than 100 people had
prequalified. "We have customers!'' Berkley shouted.
The next day, the numbers were down. And then the numbers started
building - and building. "This is what the Web is all about,''
Berkley says now, as she and Reese get ready to launch a third
generation of QuickenMortgage - only a year after the service's
debut. On the new site, customers can fully qualify and apply online
for mortgages from at least 11 major lenders. Intuit is licensed in
48 states as a broker to collect an origination fee when loans
close, and will collect ad revenues from companies eager to reach
customers in the market for a new home.
QuickenMortgage has become one of the most high-profile features of
Quicken.com, which has become the most-visited personal-finance site
on the Web. Last April, less than six months after the launch, page
views on Quicken.com exceeded 76 million, up 25% from the month
before. Advertisers on Quicken.com now pay as much as $1.5 million
per year.
"The whole time we were building our site, I never had the feeling
that someone was holding me back,'' says Berkley, savoring the taste
of entrepreneurial freedom that Cook and Harris granted her. "It was
almost extreme - the freedom and executive support we had. The doors
were always open. We'd ask for input or feedback, and it would come
back within 24 hours. There was a strong degree of trust, and that
creates even greater expectations. On the other hand, we knew we
were building value. We knew it was going to be good business for
the company.''
What's Next?
Good business, indeed. over the last 12 months, intuit shares have
traded as high as nearly $68 - almost triple their price during the
depth of Wall Street's doubts about the company's prospects. The
very same analyst who had told Fortune in August 1997 that Quicken
was "over" recently estimated that Quicken.com can generate $45
million of revenue in fiscal 1999 and contribute a full one-third of
the company's profits in five years.
None of which guarantees such results, of course. That requires an
ongoing commitment to wrestle with what President and CEO Harris
calls "the multiple faces of change." What new Web services should
Intuit offer? How can the company best integrate its
well-established consumer and business software with its
still-evolving online capabilities? How does it continue to balance
its traditional passion for quality with the need for speed?
"It's rare," Harris says, "when people arrive in the morning and
know what they're going to be working on."
Of course, there's nothing like a taste of success to whet people's
appetite for change. Last March, to celebrate its 15th anniversary,
Intuit pitched a tent in the very same spot that Bill Harris had led
the defiant cheers during one of the company's "revival" meetings.
This time, the mood in the tent was palpably cheerier than it had
been seven months earlier. And this time, Cook, not Harris, was
master of ceremonies. But the "meltdown" article did make one last
appearance. Cook simply held it up for everyone to see - and then
crumpled it in his hands.
Intuit was a company of the future again.
Pat Dillon ( pdwolf@aol.com ), a regular contributor to Fast
Company, wrote The Next Small Thing, the untold story of the
PalmPilot, for the June:July 1998 issue. His new book, Lost at Sea:
An American Tragedy, is being published in 1998 by The Dial
Press.