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25 Leaders for a Dangerous Time
Business Week, 05/14/01 USA: El Paso opens bids to expand Calif. natgas lines. Reuters English News Service, 05/11/01 Software Promises Bandwidth Broker In A Box Dow Jones Energy Service, 05/11/01 Sierra Pacific Resources Posts 1st-Quarter Loss, Blames Western Power Crisis Dow Jones Business News, 05/11/01 India Must Split Power Industry to End Debt Crisis (Update1) Bloomberg, 05/11/01 Interview: Enron Chairman Ken Lay Bloomberg TV, 05/10/01 BusinessWeek e.biz: Cover Story: The e.biz 25 25 Leaders for a Dangerous Time 05/14/2001 Business Week EB24 (Copyright 2001 McGraw-Hill, Inc.) The Internet forced a revolution in the way companies are managed. For the CEOs of upstarts and Old Economy players alike, the focus has been on making decisions in a heartbeat, innovating fast, and looking for ways to tap the Net to reach new customers and streamline operations. Now we're in the midst of what experts say could be the biggest tech slowdown in 15 years. With the pressure on to cut costs and meet quarterly earnings expectations, what's a CEO to do? Ask our e.biz 25. These are the most influential people in e-business--everybody from empire builders like AOL Time Warner Chairman Steve Case to Monica Luechtefeld, executive vice-president of e-commerce at retailer Office Depot. Those two have wisely built bridges between the worlds of bricks and clicks. Their advice is bold: Don't just hunker down and try to wait it out. Invest, build, develop new products, and prepare for the upswing. Technology and the Internet may not be growing licketysplit, but they aren't going away. Says Jeffrey K. Skilling, CEO of Enron Corp., one of our 25: ``A lot of people will pull back. They will be missing tremendous opportunities. Those with capital and talent should push forward and widen the lead.'' Doing this in the face of a trigger-happy Wall Street will require dynamic leadership and cast-iron stomachs. We've got that on our e.biz 25. These are the pioneers, the people with the new ideas, the out-of-box thinkers, and the survivors--especially the survivors--who will shape e-business for years to come. Some of our 25 have been on the list before. Michael Dell, CEO of Dell Computer Corp., for one. He's a pioneer who has used the Net to reach customers and revamp his supply chain. Now, in the midst of the downturn, Dell is turning up the heat on competitors by slashing prices ruthlessly. Thanks to his foundation of Net technologies, Dell can do this and still make a profit. The result could be a massive restructuring of the PC industry, with some of Dell's competitors losing market share at a gallop. Others land on the list because of their potential for shaking up the status quo. Example: Rick Belluzzo, Microsoft Corp.'s president. Microsoft has been ho-hum on the Net--until now. Belluzzo has turned Microsoft's MSN into the No. 2 portal on the Web, and now the company is committed to spending $2 billion this year on research & development for its .Net strategy for supercharging the Web. It may well make the Net more useful--and easier to use. And Microsoft could leapfrog from laggard to leader. Then there are the folks whose future is very much in doubt--and that makes them even more important to watch. Squarely on the e.biz hot seat sits Jeff Bezos of e-tailer Amazon.com Inc. With the online superstore's revenue growth slowing and its $15 stock off its peak by 85%, the man who scared the bejesus out of the nation's traditional retailers isn't so terrifying now. But he's still the trailblazer of e-tailing. Whether he fails miserably or triumphs in the end, how he fares will tell us much about the next episode in the Internet saga. ``This is a good time to learn, to explore, to get ready,'' says Rosabeth M. Kanter, professor at Harvard Business School. Indeed, economic slumps have been launchpads for companies who know how to take advantage of them. The outfits that are likely to pick up momentum in this downturn are the companies that create or adopt new technology, experiment with new business models, and expand aggressively. That's certainly been true in the past. During the 1990-91 recession, EMC Corp. focused on high-end storage technologies and innovated its way through hard times. Chrysler retooled its design process and began farming out component manufacturing to partners--and was the only one of the Big Three to post a profit in 1992. Arrow Electronics bought smaller competitors and expanded in Europe, emerging as the No. 1 electronics distributor in the world. ``Slowdowns can be a great opportunity for companies that are prepared. It's time for the strong to get stronger, and for the relatively weak to get stronger, too,'' says Orit Gadiesh, Chairman of consulting firm Bain & Co. The Internet's early winners focused on boosting sales. But during a downturn, that's not nearly enough. The Net can be used to supercharge every aspect of a company's operations, from market research and customer service to engineering collaboration and linking up suppliers. Consider e.biz 25 member Pradeep Sindhu, co-founder of Juniper Networks Inc. He used this wall-to-wall approach to make his four-year-old upstart the leader in high-end network routers. It was built from the ground up to capitalize on the Net. The company takes orders over the Web and automatically passes them to contract manufacturers who make and ship the products. This frees Juniper to concentrate on designing products that trounce the competition. The payoff: Juniper's operating margin hovers around 30%, nearly double the average in the hardware business. The most successful e-businesses don't just chase the latest hot idea. They figure out which technologies are really right for them. Gary M. Reiner, chief information officer at General Electric Co., one of our e.biz 25, turned up his nose when many industrial companies joined consortiums that set up public e-marketplaces. GE has instant economies of scale with its 11 different businesses, so it can reap huge savings by combining all their buying into the company's own private e-marketplace. GE expects to save $600 million on procurement over the Web in 2001. Many established companies rapidly spun off independent Internet divisions, and for some--NBC, for example--that turned out to be a mistake. The latest thinking is that companies like retailer Office Depot got it right. It set up an independent organization, run by Luechtefeld, but its bricks and clicks are cemented together. For instance, customers who need something immediately can check online to see if the item is in stock at their local Office Depot. The company logged $850 million in online sales last year, making it the No. 2 online retailer after Amazon.com In a downturn, charismatic leadership is more important than ever. With revenues sinking and stock options underwater, workers need reasons to believe. ``You have to persuade people to stay with you for the ride,'' says Haim Mendelson, a professor at the Stanford Graduate School of Business. While most companies are laying off, some, like Sun Microsystems Inc., pledge to do so only as a last resort. CEO Scott McNealy, one of our e.biz 25, believes layoffs break a social contract with employees. By holding back, ``we're protecting the long-term shareholder value,'' he says. For CEOs who have been the company's visionaries during the Net's go-go years, now is the time to buckle down and pay attention to operations. It's advice that Amazon's Bezos takes to heart. The company's goal is to post an operating profit--excluding special charges--in the fourth quarter. He's concentrating on operating efficiencies. And he's using Net technology to get there. Right now, Amazon is installing a system that will automatically route e-mails from customers to the appropriate service representative, saving time and money. Bean-counting may be back, but so is fear. And leaders who let themselves be ruled by fear won't be able to handle the balancing act that's required of them in these difficult times. ``Some people pay lip service to the principles of leadership, but they flush it away when they're running scared,'' says Raymond Miles, professor emeritus at the Haas School of Business at the University of California at Berkeley. These 25 show no sign of turning tail. Who is making money online? And how are they doing it? Watch TechTV on your cable system Monday, May 7, for an update on the state of e-business and insights from the e.biz 25. All day long, TechTV and techtv.com will feature insider reports, forecasts, products, services, and the people who are shaping the future. The List 28 EMPIRE BUILDERS Monica Luechtefeld, Office Depot Stuart Wolff, Homestore.com Meg Whitman, eBay Thomas Middelhoff, Bertelsmann Steve Case, AOL Time Warner 36 ARCHITECTS Rick Belluzzo, Microsoft Bill Coleman, BEA Systems Scott McNealy, Sun Microsystems Tony Ball, BSkyB Michael Powell, FCC Chairman Pekka Ala-Pietila, Nokia 44 VISIONAIRES LawrenceLessig,Stanford Hal Varian, U.C. Berkeley 46 INNOVATORS Ray Ozzie, Groove Networks Courtney Love, Hole Paul Bourke, Altra Energy Takeshi Natsuno, NTT DoCoMo 52 WEBSMART Michael Dell, Dell Pradeep Sindhu, Juniper Networks Jeffrey Skilling, Enron Gary Reiner, General Electric Steve Sanger, General Mills 58 ON THE HOT SEAT Jeff Bezos, Amazon.com Marty Wygod, WebMD Masayoshi Son, Softbank JEFFREY SKILLING Enron Corp., President and CEO CONTRIBUTION: Thanks to the Net, he transformed Enron into North America's largest energy marketer. He's trading everything from paper to metals online to the tune of $162 billion in the first quarter. CHALLENGE: Get new broadband Internet trading unit on solid footing by proving bandwidth can be traded like a commodity. Enron Corp. Chief Executive Officer Jeffrey K. Skilling likes to say that the nation's leading energy merchant was ready for the Internet long before there was anything.com. Enron's business of buying and selling commodities such as electricity and natural gas--by phone or fax--was a natural fit for the Web. Over the past year, Enron has taken online trading to a new level, harnessing the Web to bring Enron's risk-management prowess to everything from metals to high-speed communications. ``Our volumes are way up,'' says Skilling. Try through the roof. EnronOnline handles 5,000 transactions per day. The company posts prices on more than 1,500 products that it stands ready to buy or sell to utilities, municipalities, and other big wholesale customers. Since November, 1999, EnronOnline has traded more than $525 billion worth of commodities, making it the Web's biggest and most successful business-to-business site. Skilling's most challenging move: high-speed communications bandwidth. In the past year, Enron has spent $436 million to create its own 15,000-mile fiber-optic network to provide real-time bandwidth to customers. Because of a supply glut and falling prices, bandwidth trading is struggling. In March, Enron suffered a major blow with the abrupt cancellation of its video-on-demand pact with Blockbuster Inc. Skilling says the deal was called off because Blockbuster wasn't getting movies from Hollywood studios fast enough. Such setbacks don't faze Skilling, a former McKinsey & Co. consultant who graduated in the top 5% of his Harvard Business School class. He sees almost no limit to what Enron can trade--even ad space is a possibility. ``The Net allows you to touch lots of customers inexpensively,'' he says. Not bad for mere commodities. USA: El Paso opens bids to expand Calif. natgas lines. 05/11/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, May 11 (Reuters) - El Paso Corp. said Friday two of its units are to test the market's appetite to expand capacity on two natural gas lines into energy-starved California, where gas prices are the highest in the nation. El Paso unit El Paso Natural Gas Company started taking open bids May 1 and will close its so-called open season on May 25 for new capacity on a proposed two-way line between Daggett, Calif. and Ehrenberg, Ariz., El Paso said in a statement. El Paso unit Mojave Pipeline Co. is also holding an open season from May 10 to May 31 for its Sacramento Valley project, which would add capacity along an expanded Mojave pipeline system from Topock, Ariz., to Antioch and Sacramento in Northern California. No estimates were immediately available as to how much capacity El Paso, the largest supplier of natural gas to California, was considering adding to each system, an El Paso spokeswoman said. El Paso currently delivers more than 3 trillion cubic feet of gas a day, or about 45 percent, to California through four receiving points at the California-Arizona border. The El Paso open seasons are the latest in a flurry of market activity to expand or build new natural gas pipelines California, where demand for natural gas is expected to surge to meet demand from a growing number of gas-fired power plants being built or scheduled for construction. Natural gas is already used to generate about a third of California's electrcity. Since April 1999, the state has approved 13 major gas-fired power plant projects with a combined generation capacity of more than 8,900 megawatts. Nine gas-fired power plants, with a total generation capacity of more than 6,000 megawatts, are under construction. Over the past two months plans to build or expand gas lines serving California have been announced by Enron unit Transwestern, Sempra Energy unit Southern California Gas Co, Williams Cos' Kern River Transmission, Pacific Gas & Electric Corp. unit National Energy Group, Questar Corp. , Calpine Corp. , and Kinder Morgan . Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Software Promises Bandwidth Broker In A Box By Erwin Seba Of DOW JONES NEWSWIRES 05/11/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Call it a bandwidth broker in a box. That's perhaps the easiest way to describe the promise of Invisible Hand Networks Inc.'s Merkato software system. Merkato, which the Burlington, Mass., company is planning to roll out in the coming months, assesses the amount of bandwidth being used on a network and then electronically offers the unneeded portion to others for sale. Like existing online bandwidth trading platforms, Merkato, named for the Italian word for marketplace, can be operated manually by the network operator. Unlike other online services it can operate automatically. "Bandwidth traders are trading circuits and they're trading circuits between carriers," said Invisible Hand Chief Executive Glenn Ricketts. "True liquidity is not going to be created by carriers trading circuits." Bandwidth traders and industry analysts are skeptical about Merkato living up to its promise for real-time, scalable bandwidth provisioning. "It's a solution in search of problem," said a bandwidth brokerage founder. "Algorithms shouldn't clear trades, people should - with algorithms supporting and advising their potential decisions." Software Built On Algorithms Algorithms are at the heart of Merkato's operation. The algorithms were developed by Nemo Semret, one of the company's founders, while pursuing his Ph.D. in electrical engineering from Columbia University. Semret developed what's essentially a mathematical model using game theory and market economics for auctioning bandwidth, an instantly perishable commodity, Ricketts said. Merkato contacts other Merkato users to see if they are buying or selling bandwidth. It will then execute the trade automatically or it will come back to ask approval to execute the trade or seek more guidance if some of the conditions set for the trade aren't met. Software platforms like Enron Online or those provided by brokers require a person to set prices and execute the trade. "It'll be great if it works," said William Bandt, an analyst with Arthur Andersen L.L.P. "The devil is in the details. This dynamic allocation could be a big deal." One early user of Merkato, Thin Portals Network in New York, has been testing the software for three months. The company is a managed hosting and colocation facility. "It's a way to create an auction, a new market, very easily," said David Simon, head of Thin Portals. "It's an exchange in a box. All you need is the product and the connectivity. It's just that easy." Simon declined to say exactly how he plans to use Merkato. Invisible Hand hopes to license the Merkato software to carriers and bandwidth providers who want to sell excess capacity to their clients. -By Erwin Seba, Dow Jones Newswires, 713-547-9214 erwin.seba@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Sierra Pacific Resources Posts 1st-Quarter Loss, Blames Western Power Crisis 05/11/2001 Dow Jones Business News (Copyright © 2001, Dow Jones & Company, Inc.) LAS VEGAS, Nev. -- Sierra Pacific Resources posted a first-quarter loss, citing the effects of the Western power crisis on its utility operations, as well as deregulation and the aborted plan to acquire Portland General Electric. The holding company on Friday reported a loss of $83.5 million, or $1.06 a share, compared with net income of $18.2 million, or 23 cents a share, a year earlier. Revenue jumped 88% to $737.9 million from $392.6 million. Operating revenue for Nevada Power, one of the company's utility operations, rose 83% to $359 million on higher sales and new customers in fast-growing Las Vegas. However, the revenue gains were more than offset by increases in wholesale power and fuel costs and a write-down of uncollected accounts from power sales to California last year. Revenue for Sierra Pacific Power, its other utility operation, nearly doubled, to $376.3 million, but those gains were also largely offset by soaring wholesale power costs. Sierra Pacific (SRP) said it had to deal with "unprecedented" increases in the cost of wholesale fuel and power purchased under an old rate structure that limited its ability to recover the full costs through rates. Since then, new legislation has been passed and signed by the governor that allows Nevada Power and Sierra Pacific Power to recover the full amount of those costs through rates. Also contributing to the first-quarter loss were one-time expenses related to Nevada's decision to repeal deregulation, and expenses from the termination of the company's planned acquisition of Portland General Electric. In a decision that was widely expected, Sierra Pacific and Enron Corp. (ENE) said late last month that they had ended their $2 billion agreement for Sierra to buy Portland General, an Enron subsidiary. Enron's president and chief executive had warned in March that the transaction would be difficult to complete in the regulatory and legislative environment in California and Nevada. "These losses are significant and profound evidence of just how serious the energy crisis is in the West and the threat it could have posed to Nevada," Chairman and Chief Executive Walt Higgins said in a written statement Friday. "However, the actions by the governor, the legislature and continued focus by our public utilities commission on actions that ensure reliable energy supply can and will be a major factor in putting this dark chapter behind us and distinguishing Nevada as a favorable environment for needed energy investment," he said. "With these solutions now in place, we look forward to restoring earnings performance that reflects the true underlying strength of our operations in a growing market," Mr. Wiggins added. Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. India Must Split Power Industry to End Debt Crisis (Update1) 2001-05-11 10:48 (New York) India Must Split Power Industry to End Debt Crisis (Update1) (Adds comment from a minister in the seventh paragraph.) New Delhi, May 11 (Bloomberg) -- India must separate subsidized rural power sales from urban electricity supplies to curb mounting debts at state utilities that can't pay for purchases from generators, a government panel said. Subsidies and theft caused debts to producers at the state- run electricity boards of the country's 28 provinces and two central territories to reach 406 billion rupees ($8.7 billion) in February. Utilities must be allowed to sell bonds to raise money to clear those debts, according to a 28-page report by the Montek Singh Ahluwalia Expert Group. Forced to sell subsidized power to farmers and hurt by power thefts estimated by the World Bank at 18 percent, India's state- run electricity boards are unable to pay for electricity from generators. Dabhol Power Co., 65 percent-owned by Enron Corp., is in talks with India's Maharashtra state over 3 billion rupees in unpaid bills. Rising debts have dragged down utilities' credit ratings and discouraged power producers from investing in new power stations. Power failures lasting several hours are common in most parts of the country. ``If they don't recover their dues, how can they (power companies) survive in the business of generation,'' India's minister for power, Suresh Prabhu, said at conference called to unveil the report. Bottleneck If utilities cleared their debts to state-run producer National Thermal Power Corp., which accounts for a fourth of India's power generation, at least 8,000 megawatts of additional capacity may be built, narrowing the gap between demand and supply, the Ahluwalia panel report said. The panel, headed by Ahluwalia, until recently a member of India's Planning Commission and now selected to head the International Monetary Fund's evaluation office, was formed in March after Prime Minister Atal Bihari Vajpayee met chief ministers of all states and obtained their consensus to try to tackle the state boards' debts. The report -- titled ``On Settlement of Outstanding Dues & Capital Restructuring of the State Electricity Boards'' -- says private investors would be interested in taking a stake in the state-run business of power distribution only if provincial governments take the responsibility of selling subsidized power to farmers through a separate distribution unit. Separating urban and rural sales will also make it easier to stamp out power thefts, which are ``currently camouflaged as subsidized sales'' to farmers, the report said. --Ravil Shirodkar in the Mumbai newsroom (91-22) 233-9029, or at rshirodkar@bloomberg.net/ with Anindya Mukherjee in the New Delhi newsroom, or at amukherjee@bloomberg.net /am /rhj Interview: Enron Chairman Ken Lay Date May 10, 2001 Time 06:00 AM - 06:30 AM Station Bloomberg Information TV Location Network Program Bloomberg News Prue Lewarne, co-anchor: Well, right across the board at the political level, the corporate level, and the market level, energy is a hot story at the moment. Dean Shepherd, co-anchor: And Enron is, of course, a major player in that sector, and our Dylan Ratigan had a chance to catch up with the CEO of Enron at the CEO Summit in West Virginia. Good morning, Dylan. Dylan Ratigan reporting: Well, good morning to you. Major player, indeed. The world's largest energy trader. Ken Lay is the chairman of the firm and he did speak with us last night after the news conference, not only about Enron but also about the developing crisis in California as we move into the summer. I asked him how long it would take to get this thing turned around and how bad it'll get in California before it gets better. Kenneth Lay (Enron Corp): The higher rates, which have now finally been approved, which will go into effect in California this month, appear to be just about right in--for--in order to get the utilities, at least the--what util--SoCal Edison back on its feet and maybe PG&E out of bankruptcy. But--but then again, there are so many other pieces to that from the standpoint of--of restructuring the market where, in fact, you do have direct access, consumers can, in fact, pick other suppliers. And maybe, over time--eighteen months, two years--even the large, commercial industrial customers do their electricity the same way they do their gas. They buy it directly and buy from competitors, and, of course, buy it from people other than the utilities or other than the state. But I think, at the same token, we need to pu--be pushing very hard on peak pricing, much higher price during the peak periods this summer even, and much lower during the non-peak periods. A more aggressive demand buy-down program where, in fact-- Ratigan: What about more power generation? I mean, to--to offset the--the--the h--the extraordinarily high prices relative to any measure of history. Lay: They absolutely need more generation. I was going to come to that next. And that--and that is to streamline the process so, in fact, you can site and build power plants a lot quicker. And as you well know, through the whole decade of the 90s, there were no major new power plants built in California. Matter of fact, their power generation capacity went down somewhat at the same time the economy's growing fast. They've got to start building power plants in the state of California. Ratigan: Taking this to the purely business side of--of power and what Enron is, to what extent has Enron benefited from the--the--the demand and relative shortage of power generation, and to what extent will Enr--Enron (unintelligible) continue to benefit from th--this reality from a power generation standpoint? And to what extent? Lay: Well, now, f--first of all, we don't have any generation in the state of--of California, but we are a major supplier, one of--one of the major suppliers to California, both suppliers of natural gas and electricity. And--and obviously, there's been a lot of volatility in that market, and s--it's been a very strong market. So it--it has been of some benefit to Enron. But we're not well-served by--by a market that's that volatile and that unstable. And that's the reason we've been working very hard to see if we can come together with other people to find a way to solve it. And again, the--the-- Ratigan: But you do benefit in the short term, however, by virtue of the higher pricing that you're able to gay--get for the--what you're delivering to the state, no? Lay: We have--we have benefited somewhat, but keep in mind, we've got to buy supplies before we sell supplies since we don't have generation in the state, or even in the West, except for P--Portland General. So, in fact, we have to pay high prices to buy it, and then, of course, we sell it at high prices. So, again, we're getting the--we're getting the margin on that, a spread. The main thing that's happened to Enron over the last twelve months or so has not been California. It's been our EnronOnline activity, which has become the largest e-commerce platform in the world. We're doing ever three billion dollars of--of business a day on it. And, in fact, it's greatly increased our volume, like sixty, seventy percent worldwide. And--and--and that's the main--that's the main thing propelling Enron's wholesale growth and profitability right now. Ratigan: Is that why--is that why you were able to raise your forecast after the most recent quarter? Is--is that the--is that the--the reason? Lay: Yes. No, b--but--but that was certainly a big factor in it because we continue to see very, very strong growth and volumes and, of course, even stronger growth on a relative basis in Europe than in--in North America. But--but--but-- Ratigan: Y--are we going to see more of it? In other words, is this g--is the growth--is it coming m--still coming? Lay: Our b--our growth in EnronOnline continues to--continues to occur. And so it--it--it just continues to be a more powerful tool from the standpoint of--of the liquidity in the marketplace and allowing us to do a lot more transactions, letting our people to be a lot more productive. I mean, over the last year, in--our commercial people have--have been--done five times as much--many transactions as they did before EnronOnline. So that's just substantially increasing the overall business and profitability business. Ratigan: Last question back to California. To what extent are you concerned about legal liabilities associated with lawsuits coming out of California to those that are in the business of both delivering and generating power to that state right now? Lay: We, in fact, believe that there's absolutely nothing that we've done that is illegal or incorrect, and--and I would guess that's true of the other suppliers and the other generators. I mean, this, I think, is largely a matter, again, of trying to demagog the issue, trying to distract attention from not putting in place a very comprehensive package to solve the problem. And that--thath's what's needed right now. Ratigan: And again, just late last night, Governor Gray Davis out in California saying that he thinks that the power generators should be willing to accept thirty percent less than they are owed. He thinks that that will be necessary, he says, to keep Edison International solvent. Of course, Pacific Gas and Electric, a subsidiary of PG&E, having filed for bankruptcy just a few weeks back. Guys. Lewarne: Dylan, thank you. # # #
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