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This article by Barbara Fox was prepared for the April 10, 2002
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Life in the Fast Lane
If you "know when to hold and you know when to
fold," as the poker players say, you can gain a competitive
in business. The Sarnoff Corporation’s just-announced CEO transition
may serve as a lesson in planning both personal careers and corporate
James E. Carnes, 62, is retiring from Sarnoff after 33 years as an
employee, nearly 12 years in the top job. Satyam Cherukuri, 44, who
had been the heir apparent for the last several years, will become
president and CEO on June 1.
The news leaked out last week, just three days before Cherukuri’s
wife gave birth to their second child and first son, named Bharat.
Carnes officially announced his retirement this week at the company’s
15th "birthday" party, when it celebrated its release from
its parent, General Electric, and its launch as a for-profit firm.
Though the timing might seem keyed to the economy (like most
organizations, Sarnoff is going through an austere business cycle)
it has more to do with Carnes’ personal life. In June his wife, Nancy,
will retire from her job as assistant to the dean of the graduate
school at Princeton University. And Carnes, who is in good health
but whose family has a history of cardiac problems, recently lost
his younger brother to heart disease. "I wanted to make sure I
did get a chance to retire while I still had the health and
energy to do some things," says Carnes. "I thought it was
a good time for somebody else to bring new energy and new ideas."
Carnes maintains that neither the brouhaha over the development of
Sarnoff’s West Windsor campus nor last year’s downsizing contributed
to his decision. "I am certainly disappointed with the lack of
cooperation in some quarters of the township, but that was not a
he says. "The current economy and the `tech wreck’ put a pothole
in our plans, but I believe when the economy returns to normal,
will be roaring."
Carnes is known for instituting a business model that keeps Sarnoff
workers at home yet lets them reap the fruits of their inventions.
For instance, those who worked on the Orchid Biocomputer spinoff got
equity shares when it went public. Cherukuri, for instance, cashed
in 29,000 shares of Orchid BioScience last April, and though the stock
had dropped from its all time high of $58 to only $5, he was able
to realize $145,000 from the sale.
Yet both Cherukuri and Carnes admit that Sarnoff was among the
that got fooled by the dot com bubble. "We were spending a lot
of energy looking at ventures, and when the venture money dried up,
that was a slap in the side of the head," says Carnes. "We
let the 1999-2000 bubble get us distracted. There is a finite amount
of energy in every organization. If you let it get out of whack you
pay the price. We are getting it back into whack."
Fortunately Sarnoff is not dependent on venture capital funding,
it can also do licensing and consulting for corporations and
"Our government business has been growing by leaps and bounds,
which partially compensated for the commercial side of the
"The technology we develop here, out of the brains of our people,
is a source of energy that we can use in different ways. So when the
market turns around, a lot of things are ready," he says. Some
of the previous spinoffs are waiting for their IPOs, and a brand-new
spinoff is ready to be unveiled in the next couple of weeks.
Another of Carnes’ reforms was to institute the crucial disciplines
of return on investment and client context.
Says Cherukuri: "What Jim Carnes accomplished was to take a bunch
of researchers, in many respects arrogant and self-absorbed, coming
from a captive research lab where they didn’t have to worry about
the money of clients, and transformed that organization into one that
worried about the money of clients and one that worked in a context
created by somebody else."
Cherukuri has taken these lessons to heart. "Where
the context was created by our clients, we have succeeded," he
says. "Where the context was created by ourselves, we have not
succeeded. If we are chasing 100 different business activities, 15
will be based on context created by our clients, and 85 will be based
on what we think is the right thing for them to do. Those 85 will
fail, but they will help us understand the context a little better
next time. By understanding where we succeeded, we want to move that
balance to 50-50."
Cherukuri also says that Sarnoff has tried to be thrifty with its
funds: "Fail early, fail cheap," has been a useful mantra.
And "most of our learning came from mistakes, from not
he points out. "We have done a good job where we have failed early
Early successes lured Cherukuri into thinking he did not need to heed
that "fail early" dictum, and he admits to an expensive
At one point he and his team spent two years and a quantity of
on a project they were passionate about. "We were not creating
in the context of a client’s vested interest — we conjured up
the context ourselves. We were absorbed with the idea that, someday,
someone would come to their senses and see the real value in our
"The first client, a Fortune 100 company, turned it down. We
the client doesn’t get it. The second client turned it down. They
still didn’t get it," says Cherukuri. "Then the third client
rejected it. And we had to make a decision to hang it up. It was
and we felt terrible. It was a very harsh lesson."
That a couple of researchers refused to admit defeat and tried to
continue work surreptitiously was another bitter lesson in "when
to hold and when to fold." Cherukuri attributes such misplaced
persistence to standard business folklore about individuals who keep
on going and, despite all odds, achieve spectacular success. "In
a business context we use those anecdotes to misguide us," he
says. "There is so much of this `conventional wisdom’ that it
is hard to break through it."
Fifteen years ago Sarnoff was launched with almost no cash, and now
Sarnoff has little cash. But Cherukuri, undaunted, looks forward to
continuing "innovation." "We learned many things, and
we are going to build on what we learned. It has been a tremendous
success in many respects. We have products that changed the quality
of our lives and will continue to do so."
"What we did for the last 15 years and what we will continue to
do for the next 15 years is to keep getting better at the process
of innovation," says Cherukuri. There’s that word again. What,
exactly, does he mean?
It’s not R&D. R&D is subjective, he says, and innovation is not.
something does not mean we have `innovated’ or proven its usefulness.
The market and the client tells us whether we have been innovative.
The result of innovation is the introduction of a new product or
into the market."
Introducing a new product requires many steps: conceptualizing what
will make an impact in the marketplace, making it in small quantities,
taking it to third-party manufacturing, distributing it, and marketing
it. Sarnoff can work on most of these steps: feasibility studies,
R&D, engineering, tech transfer, and manufacturing. "We can help
with any or all stages of it," says Cherukuri. "There are
not that many companies that you can go to, to do that."
A good example is Songbird Hearing, the hearing aid spinoff. Cherukuri
tells how Sarnoff’s clients, venture capitalists, had identified the
hearing aid market as likely to boom with aging of the baby boomers,
but Siemens already had a big share of the market for traditional
hearing aids. "The question was, how do you position them? Should
we compete with Siemens to make a better $2,000 hearing aid?"
The solution that Sarnoff came up with was not what the VCs had
Sarnoff was able to tap its own patent portfolio to invent a
hearing aid. "The positioning answer is not obvious if you are
looking only at market forces. You have to look at technology
says Cherukuri. "If you bring us the market information, we add
our element that isn’t obvious to others. We consider the dynamics
that come from invention."
The potential market for innovation, he claims, is $300 billion a
year, the amount that Sarnoff’s competitors and its potential clients
invest to come up with new products. This client/competitor pool
inhouse departments of corporations, the federal government, and
"It is a huge market, larger than pharmaceuticals, a $300 billion
market where there are no clear winners, no companies that have a
market share." Someone will be the world leader, says Cherukuri,
and he plans for it to be Sarnoff. "Innovation is a horizontal
market, much like financial services and management consulting. And
it is our core competency."
Neither CEO was born to privilege. Carnes was the son of a gas station
owner who went to Penn State, Class of 1961, on an NROTC scholarship.
After serving in the Navy, he earned a doctoral degree at Princeton
(working at Sarnoff as a summer job) and joined Sarnoff in 1969. He
left Princeton to work for RCA for 10 years and returned in 1987 to
be vice president.
Carnes had set up his succession plan at least by last year but was
not ready to admit that then. In January, 2001, when asked about
he hedged: "Whether I plan to leave or not, it is important for
all kinds of reasons to have people who can step into the lead
Cherukuri had one of the three top jobs, along with Anne Van Lent
and Carmen Catanese. Later in the year Sarnoff downsized, Van Lent
left, and in the reorganization Cherukuri became chief operating
"Carmen is highly supportive of our choice and will be one of
the main helpers of Satyam," says Carnes.
From Carnes’ new home on the edge of a golf course in State College,
near his alma mater, Penn State, the retiring CEO plans to spend the
summer playing golf, traveling, and flying airplanes. In the fall
he will do some executive coaching, sit on a couple of boards, and
work part-time as Sarnoff’s senior advisor on such continuing projects
as the negotiations with West Windsor on Sarnoff’s development plan.
"All that scar tissue that I have gathered won’t go to
he says. "It’s been a great run here."
As for Cherukuri, early in life he learned to propel himself over
amazingly difficult obstacles. He grew up in Andhra, a small village
in South India where the Telugu language is spoken. He was the
of two brothers, and his parents were farmers; his father and
were literate, and they provided his early schooling, because the
village had no school.
But if, as experts now say, effective learning depends on emotional
intelligence, the village gave him a excellent start. In an
where children are highly valued and everyone is related to everyone
else, the phrase "it takes a village" takes on renewed
"Growing up in a village is an amazing thing," says Cherukuri.
"We were materially really poor by any standard, but I never felt
that. It was a very warm atmosphere. And my father and my grandparents
had an appreciation for education and learning."
Cherukuri had to learn quickly. At age eight he started school in
a nearby village — at the sixth grade level, because that is where
that village’s school began. Then, by doing well on a national
he was admitted to Banaras Hindu University, where he earned a
degree in ceramic engineering in 1978. Why that subject? "I
it sounded cool."
When he came to the United States for graduate study,
the obvious choice was Alfred University, the college in upstate New
York that receives much of its funding from Corning and is a hotbed
for ceramics and glass research. He earned a doctorate in glass
then did post-doctoral work at Siemens in Cherry Hill and Germany,
coming home between assignments to get married. (Two years ago he
and his wife moved from Cranbury to Hopewell, where they live with
their eight-year-old daughter and their newborn son.)
"My first real job was at Olin Corporation, where I developed
expertise in electronic packaging and silicon devices," he says.
"But after five years I was bored. In 1989 Sarnoff was looking
for an individual to help start its packaging thrust. It intrigued
me to check it out."
Though he had no education in biology and the life sciences, when
those areas showed promise, he took the challenge: He taught himself
the basics,and became managing director of the Life Sciences and
business unit at Sarnoff. His study and energy paid off, most notably
with four spinoffs. A bioinformatics company, Locus Discovery, was
successfully sold and has moved to Philadelphia. Delsys
with electrostatic deposition technology for making and delivering
drugs, was sold to Elan and is operating at Princeton Corporate Plaza.
Orchid BioComputer has gone public and is operating at Route 1 North
and Forrestal Drive. Songbird Hearing, at Cedar Brook Corporate
is manufacturing and shipping inexpensive, replaceable hearing aids.
Because he is only too ready to speak out, Cherukuri has been, as
he describes himself, a difficult employee. "I was always a pain
in the neck for my boss," he says. "I joined here as a staff
member and have always aggravated my supervisor about the tone and
direction of where we have to go. It helps if you turn out to be
Carmen Catanese, his boss most of the time, was an early mentor.
learned some things from him that were not obvious to me — how
to create value for the client. Earlier than others, he learned the
art of listening to a client, to piece together the `ecosystem’ of
the client." The ecosystem, he explains, is how the client works
with the dynamic of the market, including its competition, and how
the client responds to the environment that shapes individual
The ecosystem discussion offers Cherukuri an opportunity to restate
his strong message, that Sarnoff must focus on the concept of
in the client’s context. "At Sarnoff, you really do not know what
it is you want to sell. You want to understand what the client would
use and provide a path to that client for how we can make it."
"What we have been doing in the last 15 years," says
"and especially in the last seven years with our spinoffs, has
given me the conviction that we are truly one of very few companies
in the world that can claim innovation as core competency and take
that to the next level of sophistication."
"As a COO, as I look at my own experience and my peers, that is
the most compelling lesson: If we are creating in the context of the
client — and we are very good at it — we are 85 percent
Otherwise, success is almost nonexistent."
He predicts, "We will be a billion dollar company in eight years,
and we will achieve that growth by honing in on the practice of
We will still use the genius of individuals, but in the context of
the client. For most companies, client context is still an abstract
notion. If there is one leverage point for us to go the next level,
it is that leverage point. The genius is always there."
Sarnoff Corporation’s prospects for developing its
took one step forward on Monday, April 8, when West Windsor Council
killed one Route 1 downzoning measure. It introduced another less
stringent one that has the support of Mayor Shing-Fu Hsueh and the
majority of the council.
On Monday, April 22, there will be a public hearing for the ordinance
that would reduce the allowable density of construction on the
Sarnoff property in Penns Neck from 30 percent to 21 percent. The
law also includes mandatory traffic-reduction elements.
In approving this ordinance, the council defeated a measure that would
have downzoned Sarnoff and the 640-acre Cyanamid site at the corner
of Route 1 and Quakerbridge Road to 18 percent. This ordinance did
not have the four votes necessary to overcome a challenge filed by
Sarnoff. The 21 percent downzoning applies only to Sarnoff, leaving
the Cyanamid site, owned by Wyeth Inc., for future consideration.
Sarnoff has proposed construction of a 3 million square-foot complex.
"The new ordinance would help to encourage a 21st-century research
and technology hub that will serve the interests of West Windsor and
New Jersey," says Mayor Hsueh.
cookbook author and writing instructor, he wrote food columns and
feature stories for the Princeton Packet and also for U.S. 1
in the personnel department at Princeton Plasma Physics Laboratory.
A services will be on Thursday, April 11, at 10 a.m. at St. James
Roman Catholic Church, Red Bank.
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