Sarnoff’s Zoning

Deaths

Corrections or additions?

This article by Barbara Fox was prepared for the April 10, 2002

edition of U.S. 1 Newspaper. All rights reserved.

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

advantage

in business. The Sarnoff Corporation’s just-announced CEO transition

may serve as a lesson in planning both personal careers and corporate

succession.

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

technology

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

factor,"

he says. "The current economy and the `tech wreck’ put a pothole

in our plans, but I believe when the economy returns to normal,

Sarnoff

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

companies

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,

because

it can also do licensing and consulting for corporations and

government.

"Our government business has been growing by leaps and bounds,

which partially compensated for the commercial side of the

business,"

says Carnes.

"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

succeeding,"

he points out. "We have done a good job where we have failed early

and cheaply."

Early successes lured Cherukuri into thinking he did not need to heed

that "fail early" dictum, and he admits to an expensive

mistake.

At one point he and his team spent two years and a quantity of

resources

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

work."

"The first client, a Fortune 100 company, turned it down. We

thought,

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

painful,

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.

"Inventing

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

service

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

imagined:

Sarnoff was able to tap its own patent portfolio to invent a

disposable

hearing aid. "The positioning answer is not obvious if you are

looking only at market forces. You have to look at technology

forces,"

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

includes

inhouse departments of corporations, the federal government, and

academe.

"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

retirement,

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

role."

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

officer.

"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

naught,"

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

youngest

of two brothers, and his parents were farmers; his father and

grandfather

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

environment

where children are highly valued and everyone is related to everyone

else, the phrase "it takes a village" takes on renewed

meaning.

"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

examination,

he was admitted to Banaras Hindu University, where he earned a

bachelor’s

degree in ceramic engineering in 1978. Why that subject? "I

thought

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

science,

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

Biotechnology

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

Pharmaceutical,

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

Center,

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

right."

Carmen Catanese, his boss most of the time, was an early mentor.

"I

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

decisions.

The ecosystem discussion offers Cherukuri an opportunity to restate

his strong message, that Sarnoff must focus on the concept of

innovation

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

Cherukuri,

"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

successful.

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

innovation.

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."

Top Of Page
Sarnoff’s Zoning

Sarnoff Corporation’s prospects for developing its

campus

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

336-acre

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.

Top Of Page
Deaths

Michael J. Dorn, 61, on March 7, in Kumming, China. a

cookbook author and writing instructor, he wrote food columns and

feature stories for the Princeton Packet and also for U.S. 1

Newspaper.

Barbara Harney Norton, 73, on April 7. She had worked

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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