Business 101: Setting the Roadmap

Dr. Wally Rhines, Chairman and CEO of Mentor Graphics, has served in that role since 1993. Rhines and his team run a complex organization out of Wilsonville, Oregon, with 4,400 employees worldwide. Although an extremely busy executive, Rhines agreed to field a recent phone call, providing answers to a fundamental set of questions related to setting the corporate roadmap.

Business 101: Setting the Roadmap

Ideally everything happens by design in a company, but who decides what that design will be? How does the corporation set the roadmap, and how do they convince the team to execute on the vision? In this interview, Mentor CEO Wally Rhines addresses these questions:

* Q – Where does management begin when setting the roadmap for the next quarter, the next year, or the next decade? With the technology – looking at promising internal initiatives, or predicting what the customer will need months or years down the road? Or is it on the business side – figuring out how to compete with emerging offerings from the competition?

* Rhines – Let me parse the question. Because there are extreme differences here and the answer is different if we are looking out to the next quarter, to the next year, or the next decade.

The plans for next quarter are based on known opportunities, and a business analysis of which ones can be closed at what level. Knowing where those opportunities exist is mainly based on both customer and financial analysis on a quarterly level, or even for the current year. If a product is not perceived to be salable at the beginning of the year, [it will not appear on the short-term roadmap].

For the question directed out 10 years – how to set the roadmap for the next decade – that answer comes from a combination of considerations.

There are evolutionary things, anticipating what the current users will need going forward. We have a wealth of information here, but there’s also uncertainty regarding the direction of the technology, and understanding how your existing customers will evolve and what they’ll need 10 years out.

It’s also challenging to know what new capabilities and customers will enter the market in that time frame, with problems that you will effectively be able to solve.

Then, of course, there’s that aspect out 10 years we think about a great deal: Where are the problems that no one is currently trying to solve? Where will critical problems and totally new applications and industries emerge between now and then? These are the questions we operate on the most, working to do what others don’t do in those areas!

One problem in the EDA industry has always been that companies spend far too much time looking at each other, and figuring out how to take market share from each other, rather than growing the market with new problems and expanding the customer base. Mentor Graphics does more towards market expansion than anyone else I know of in this industry.

For example: If you look back 10 years, there was no such thing as resolution enhancement or optical proximity correction. You had to be in the verification business as we were back then, to figure out where things were going. We knew the wafer fabs were going to have to modify their facilities to print at smaller geometries, and we asked: How can we develop the capacity to do that?

Fundamentally, we created a total addressable market worth millions of dollars that did not even exist 10 years ago. Since that time, we’ve been number one, or owned at least half of that market.

Another example: 10 years ago, ESL was a $50 million to $80 million market, while today it’s over $200 million. We have invested steadily all along the way in ESL, developing products, doing acquisitions, and developing broad capacity in ESL for analysis, synthesis, hardware/software verification, embedded software creation, and so on. These are all things we didn’t have to worry about from our competition in EDA, because none of the other big companies in EDA were investing in these technologies in any substantial way.

We could look out toward these new markets 10 years ago, and see where there was really a big impact to come – as opposed to just evolving our offerings to hold on to, or gain, market share in existing technologies. Clearly, this type of anticipation of totally new markets is the most important part of what we do.

* Q – Once management has set out a list of signposts for the roadmap, how do they go about getting the organization to execute on the plan?

* Rhines – Once again, Mentor’s approach is different from that of other large companies in the industry. We do a great deal of delegation; we’re the most decentralized of all the EDA companies.

We put the power in the hand of the division managers, who are fundamentally responsible for their business units – physical verification, functional verification, ESL design, simulation, or whatever. We push the responsibility for the strategy and the business down to that level, within the framework of a corporate vision that is repeatedly communicated.

At the corporate level, we do try to set the basic, broad direction and restrictions. We have a blue book for the way we operate that we communicate and re-communicate through messages, at employee meetings, and all sorts of gatherings.

That vision covers the areas where Mentor is number one, but we also enthusiastically foster open standards, so we can integrate into flows where we are not number one – as opposed to forcing our customers to buy the full flow.

We have managers who can independently develop things that are unique to their areas of responsibility. That may be perceived as chaotic – you may not look like the same company, division to division, to your customers. Again, it’s here where open standards serve us well, and reflect a philosophy that is pursued at Mentor to the highest level within the organization.

Another example of the vision that we set at a high level: Integrity. There have been at least two times in our past where someone, somewhere has said that we had come under investigation for unethical behavior, making threats that if we pursued things, they would make it public. In both cases, we published a paper saying that we were suspected of fraud and didn’t know what the outcome would be, totally emasculating the extortionists.

We have set our standards publicly for ethics and integrity, which is far more than just saying it in internal meetings. It requires the courage to disclose things that you would rather not see disclosed, and strongly affects the broader strategy of the way our people operate in the corporate setting.

Getting back to delegating: we depend on the division managers to not only understand their current customers, but to identity future opportunities. And, we encourage skunk works!

Anyone who has a credible idea around Mentor, anyone with a track record that’s credible – we fund them. And that happens pretty frequently. We do restrict them when they go to market and become an obligation for us; that requires scrutiny. But, we definitely allow individuals to innovate at that level, and also at the individual division level.

In addition, we recognize individual contributions, in particular, technical contributions. We present awards to individual engineers, sometimes on the order of $500,000, for achievements that are truly out of the ordinary. We publicize those awards a lot. We also give quality awards to the outstanding teams each year, which come with recognition and financial awards, as well.

Lastly, while we do call upon our divisions for customer direction, we also do things at the management level to track the market. Our vice presidents and general managers go out and seek totally new business opportunities, in addition to the skunk works. We keep our ears to the ground.

Greg Hinkley [Mentor President] and I regularly talk with individual designers. We are constantly mixing with the people who do the actual work, trying to get a feel for the real problems that might be solved, and how our existing technology can be improved to address those problems.

* Q – What recourse does management have if the division or departmental heads are unwilling to agree to the roadmap?

* Rhines – In general, it’s those people who are laying out the roadmap for us! We may add to the roadmap through new business opportunities, but in general our division managers have the responsibility for identifying new things. And, the metrics are quite clear; they are measured on growing their business units.

* Q – Are these management concepts you developed during your years at Texas Instruments?

* Rhines – Yes, I developed these types of ideas at TI, but Greg was elsewhere and developing similar ideas interdependently, so we have a great deal of common understanding between the two of us in this area. If you look at companies like TI, HP, and others, they have all delegated P&L down to very low levels in the organization.

The first business I ran at TI was an $8 million per year unit. After my next big promotion, I was running a $100 million business unit, and then a $1 billion unit, and so on. I was trained all along the way, and was given opportunities to have a great deal of independence with my business decisions.

That not only helped to grow a good general manager, but convinced me that if decisions are made a a lower level, with actual authority, there is more flexibility in the organization in anticipating the needs of the customer and responding. You get a more nimble organization when if it’s delegated and decentralized.

It’s true you get the advantages of cost efficiency and coordination when things are centrally managed, but you lose the critical elements of flexibility and responsiveness.

* Q – What are the rewards and risks for the division and departmental head for success or failure in delivering on the roadmap?

* Rhines – First and foremost, unlike most others in the industry, our variable compensation is all numerically determined. We do not give bonuses unless people follow through. At my level, for instance, variable compensation only comes every 3 years, or so. It’s truly variable, and it’s the same throughout the organization.

We have qualified metrics in terms of what goals were actually achieved, versus the plan.. You don’t have to suck up to anyone to get a bigger bonus; you can sit down with a pencil and calculate it. Everybody at Mentor knows someone who got a lot of additional salary because they did well. Our variable compensation is truly variable! It’s very performance based.

* Q – Besides investing in an Ouija Board, or listening to futurists, what is the best way for management to know how to set the roadmap?

* Rhines – You’ll recall that I said: We do what others don’t do! We only look at the competition for the reason of not doing what they’re doing?

If you find that your strategy looks like your competitor’s strategy, one of you better change. In other words, do what others don’t do, and that permeates more than just the technical strategy.

How many EDA companies have operations in Pakistan, or Poland, or Egypt? We go where other aren’t. We can hire the top 1% of the grads there, and are not poached by the competition. We also go in and invest in areas like transportation, where others are not.

Whether you use the Ouija Board or published analysis, the thing is to get involved directly by talking with the people who are doing design, and managing design – to see what their problems are.

If you can get your people to really understand your complete bag of tricks, and get them together with the real thought leaders in the customer base, the conversation goes way beyond just hearing: “I want better, faster, cheaper tools.”

It moves to: “I know you can’t run it fast enough doing it the normal way, but if we parallelize it, or buffer it this way or that, maybe we would have better success.”

If you the thought leaders on both sides, the user and the tool creator, that’s where the real innovation occurs. That when, rather than simply evolving tools to be just a little bit better than the year before, you can do products that really make a difference.

And, that’s what we all strive for primarily in our careers: To do good things for people and to create real value.

April 15, 2010

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Editor's Note: This interview is the first in the Business 101 Series, set be posted in EDGE on EDA here on GABEonEDA. Future topics in the series will include, among others:

* The CEO as Servant Leader
* VC Funding: 10% of nothing versus 100% of something
* After the M&A: Integrating the new team and technology
* Patent Prosecution: Is the answer always yes?

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Peggy Aycinena is Editor of EDA Confidential and a Founding Partner of EDAMarket, hosted on GABEonEDA.