Gartner Innovation During Its Formative Years

During the 1960′s at IBM and 1970′s on Wall Street, I was a subscriber or reader of research from several firms which were predecessors to the current Advisory Industry. The firms included IDC, Computer Intelligence, Dataquest, Yankee and Input. While on Wall Street, I joined the IBM user groups “Share” and “Guide”, The CCIA (Computer and Communications Industry Association), and SIM (Society for Information Management), presumably in order to be exposed to IT users perspectives.  

After I was recruited to Wall Street’s Oppenheimer&Co. I knew of no other Wall St. technology analysts who belonged to any of these groups, to those analysts’ likely disadvantage as they missed out on the users experiences with the vendor’s hardware, software, and services. Since the user-group exposures had brought me much closer to users requirements and mentality, I managed to convince Oppenheimer to allow me to start a small internal business under its auspices, to help fund my research team’s expansion. Within a year or so, with two co-workers, we signed up fifteen major-league CIOs who met periodically with our small staff to absorb our views and G2 pertaining to the IT vendors. This activity was the catalyst which eventually evolved into Gartner Group.

During its first year or so, beginning March 1979,  Gartner was a hodgepodge of ideas which I had brainstormed onto paper and presented to the first VC’s I had ever met and who were among the best: Bessemer and Warburg Pincus, both of which jumped at the structure which presumably would create visible and meaningful differentiation compared with the existing players. A secondary motivation was that they knew the research I had been producing, and bargained for lifetime rights to Gartner’s research! I’ll briefly outline ten of our innovations, most of which were implemented within a brief period:

  1. Clients: I  proposed that our new firm would benefit from selling our services to three quite different constituencies simultaneously! Not only to “vendors” of computer products and services who were then the primary buyers of IT information services, but also to “users” of such products and services, as well as to “investors” (my post, Gartner’s Stock Brokerage Arm, Soundview describes how our investor service fared).  All three client categories would receive similar written research,  our service being differentiated when clients would call in to our analysts for personal guidance (we called out as well), or when they attended our conferences where clients would select their sessions and/or also speak privately with our analysts. At first, our VCs complained that we could not start three businesses at once! After I explained how our understanding of each constituency and its issues would be significantly enhanced by also dealing with two other points of view, the VCs capitulated. This was a gamble for them and the company, but the differentiation potential seemed significant, and so it turned out!
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  3. Hiring: Unlike our competition we would hire senior rather than junior professionals, who were peers of our clients who could demonstrate deep knowledge and articulateness in specific areas of IT, and who would have to survive a rather lengthy and difficult group interview! The VCs understood and again accepted the additional expense resulting from such an approach. As we grew, the cost and the quality of our analysts were generally more than our competitors’, again with a very positive net result.
     

  4. Reports: Soon after we launched and unlike the relatively long reports our competitors wrote, I designed a standard two-sided format for what we simply called a “research note”. It was designed to provide what I considered to be “incremental” information, broken into user-friendly categories, while being sufficiently brief to be completed within 1-2 hours (which would lead to attractive analyst productivity). Of course we produced medium-size reports as well, but the one-pagers were quite appreciated by our clients. This was a victory on two fronts: analyst productivity, and client satisfaction.
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  6. Content: Our content standard was meant to provide incremental decision-support rather than rehashed information. Many Advisories preached this, but ours was documented in detail. This apparently unique “Research Process” was detailed, taught in analyst courses and preached by research management at all of our weekly meetings which involved all analysts and quite a few salespeople as well!  What evidence was there that our worked? Just one example, the famous research head at Morgan Stanley during the ‘70s and ‘80s, Barton Biggs, who would periodically publish his personal “must-read list” amazingly wrote: “I read Gartner research content because it’s at the margin!”.
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  8. Conferences: When we had more than several different services (we began with only one) I designed a replacement for our initial conference format, which presented 5-year “scenarios” of each service sector. It listed the sector’s macro trends followed by key issues to be faced and of course our projections. We constantly improved but mainly expanded our format to include competitive challenges, new technologies to expect, and so forth. The point was to create an evolving structure which clients could get used to, and hopefully grow to love. I was most proud when once after attending the WEF (World Economic Forum) I was inspired to design yet a new format, this time called the Gartner Symposium, evolving again to be Gartner’s IT Expo managed by Karen Healy. Employee Kathy Kane has written: “little did we know at that time (when the Symposium was designed) that I (Kathy) was part of something very big that would become a true ‘Industry Defining’ event and would carry so much clout and weight that it would bring in many, many luminaries, that at its height would attract over 13,000 people to Orlando plus over 500 exhibitors, that it would become an international brand with events in Japan, Australia, France, Spain, South Africa and other locations…that it would have a community of over 30,000 people annually…”. But Kathy thinks the best part of it was the camaraderie that the events inspired within Gartner.
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  10. Sales: we gambled on both quantity and quality of sales and marketing personnel. Most of our competitors had begun their business with relatively little capital, while we (by chance or intent) raised sufficient funds (from the original VC’s investment, then Bank Paribas, then going public) to build a very substantial end-user sales organization. Perhaps other firms models did not warrant the risks involved (for example Giga arguably built up its salesforce too quickly). From a quality perspective we sought experienced salespeople from Xerox, HP, and similar sophisticated sources where sales training was taken ultra-seriously and where new sales recruits became steeped in technology and could “speak the language”. Many of these men and women left their name firms for Gartner because they strove for more visibility and more action in a young high-growth company, let alone stock ownership, and the resulting powerful large force was critical to our growth.
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  12. Culture: The name we picked for one aspect of our research process was called the “Stalking Horse”, and my post Culture Case Study addresses it in more detail. The name Stalking Horse later catalyzed my idea that we should have a mascot, obviously the horse!  I hired an art consultant and together we selected and I purchased an extensive collection, over a dozen pieces of horse-related paintings and sculptures which were placed throughout our building. I include this rather small point as one of many Gartner practices which had a demonstrable and strengthening effect on our culture, some of which were explicitly designed, and others implicitly discovered. For example we believed in “work hard, play hard”;  we fielded sports teams which competed hard; our cafeteria was converted from the usual fare, to serving health food; we had free fruit shipped to us daily, spread throughout the building; our telephone answering system played Chopin when clients were on hold; and we partied frequently, from our bashes every Friday, over over-the-top annual and holiday parties, and the “any excuse” parties (like my 50th birthday party the staff created). There’s likely a theoretical downside to all this, but at least it led to quite a few internal marriages!
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  14. Business Measurements: While all our competition measured its financial progress by measuring revenue, we changed the game from our early beginnings, focusing internally on both the “annualized” dollar value of our installed base at a given point in time, and more importantly on the growth of this dollar value during periods of time  (monthly, quarterly, and yearly). After all, this was essentially a rental business, and our obvious goal was to create client satisfaction so that clients would not cancel, and we took the position that while research shortfalls or the economy could cause dissatisfaction or cancellations for any reason it was the salesperson’s duty to be on top of every shaky situation even if a combination of new sign-ups, positive renewals, but also cancellations, would result in small, flat or even negative “contract value” which would result in no commission at all! Amazingly, this also became part of our culture, see below for more detail!
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  16. NCVI: Our net growth was called NCVI (Net Contract Value Increase) and affected both 100% of sales commissions, and some much lower percent of the bonus awards. It was measured explicitly for every individual territory, region, sales team, research service, and industry. Of course our total NCVI was also used for bonus calculations, from senior executive functions down to the mail room. All sales commissions and company-wide bonuses were based almost entirely on appropriate growth increments, not on revenues for the period. The toughest aspect was that clients signed annual contracts which could be cancelled at contract expiration which would result in a debit to the salespersons account regardless of the reason for cancellation (there were some special situations, but not many). Salespeople who who could not show net growth in their territory would earn less, probably try harder, but with quite a few eventually leaving. Sales turnover is always a critical cost factor, but this strategy assured a stronger overall staff. This measurement scheme is explicitly why we had a strong growth culture, side by side with our research culture; all our employees were given NCVI front license plates, and most mounted them on their autos. (Admission: I borrowed the essence of this technique from the way IBM compensated its salespeople while I worked there and until the early-1970s, when IBM rented rather than sold its hardware, thus creating an incredible growth engine).
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  18. Shareholders: I must add that virtually all early Gartner employees were shareholders, all the way down through administration. We had a tough option program: 5 years linear vesting (four years vesting was and is typical) and when employees left the business for any reason, we could buy back all their vested stock at “Fair Market Value” (FMV). But while FMV was determined by the board, it was calculated very conservatively until we went public in 1986, and for this among other reasons employees who were contributing were clearly motivated to stay. Except for the 5-year vesting, the option plan was generous and we depleted the available shares for issuance more than once and had to introduce new plans, but I do not recall the VCs ever complaining about too much dilution. It was ultimately this policy which led to the 150+ employee millionaires who were created when Gartner went public for the second time in 1993.

To summarize, Gartner research’s client offerings which we postured as “decision support”, plus the excellence of most of our people, was seen by our IT market as an overhaul of the industry status quo which helped us to leapfrog our competitors. Any one or several of our innovations might have resulted in success, but what most of us saw as simply a creative business model combined with individual initiatives, resulted in our startup dominating its field within just a few years.

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