Keeping the Mac On Track
An interview with Frank Sanda, President of Apple JapanFrank Seiji Sanda joined Apple Japan, Inc., in July 1994. In addition to his post as president of Apple Japan, Sanda is a vice president and general manager of Apple Computer, Inc. Sanda holds a BS (1972) in Mechanical Engineering and an MS (1976) and PhD (1978) in Electrical Engineering from the University of Detroit. He began his career in the railroad industry with Canadian National Railways. He moved to Consolidated Rail Corporation in 1981, and then to the Long Island Railroad Company as vice president of planning, systems, and engineering. Sanda changed industries in 1985 to become Citibank's vice president of consumer banking in Tokyo, later moving to Hong Kong and Macau. He left banking in 1990 to return to Japan as vice president and general manager of the Japan Cellular Subscriber Division of Motorola, Inc.
interviewed by Terrie Lloyd
Computing Japan: Your biographical data shows that you have an unusual background. After you graduated, you stayed in the States?
Frank Sanda: My first job was in Canada ó on the railroads as a mechanical engineer. At the time, that was about all the work a mechanical engineer could get. When you're a salaryman, you go where the work is, to support your family. So I stayed with Canadian National for 8 years, and, all told, in the rail industry for 12 years. Eventually, my job was doing "turn-arounds" [turning poorly performing companies or divisions into profitable concernsóEd.]. My first real encounter with a turnaround was at Conrail, which was a concatenation of 14 bankrupt railroad companies in the US Northeast. As the US's manufacturing base moved to the Southwest, the historic railroads went bankrupt ó companies like the Pennsylvania Railroad, the New York Railroad ó and it was affecting the economy of the region. So the United States government formed a US rail association, and a number of us were hired to turn the company around.
CJ: Were you successful?
Sanda: Oh yes. It went public about 15 years ago, and is still trading very well on the New York stock market today.
CJ: What were your main strategies in turning that company around?
Sanda: Recapitalizing and cutting costs. We cut everything. I'd been doing that for a long time, and that is the main reason I decided to change industry. The rail industry was going through a rough time. It was the first industry to be deregulated in the United States, and with deregulation came more setbacks. Even with all the cutting, I got tired of the constant pressure to cut more, and take care of those who were affected. One time we closed a repair plant and caused almost the whole city to shut down. So I had to go around and find someone who could use the facilities ó otherwise, they all would have been out of work. The social effects are pretty significant. I can say, with some satisfaction, that the facility is now repairing New York City subway cars under contract.
CJ: After the railroad industry, you went into banking and joined Citibank in the States ó correct?
Sanda: Yes, but the reason I joined them was so I could come to Japan. It was time for a change. I was still in my 30's, and this was a chance for us to make our way to Japan. What you have is a family with five Irish-Japanese children (my wife is Irish). We decided that we wanted to give our children a background that included the Japanese culture.
I was lucky enough to be part of a process in Citibank where they were hiring people who were juxtaposed to traditional banking. In my class there were people like Jim Johnston, who now is the CEO of RJR, on the tobacco side. He came in the same time as I did ó and we were both wondering what the hell we were doing there. Rick Braddick came from General Foods and became the COO (Chief Operating Officer). They recognized ó well, I hope they did anyway ó that management skill is required for banking.
Banking is generally run on the spread, not on P&Ls (profits and losses). That's why, when the spread got squeezed, they didn't know what to do. There was no basis on which they could take action to reverse their situation. So we brought things like P&L thinking, management, and discipline into banking. Citibank has now taken a direction that focuses on the consumer, including consumer marketing techniques, advertising ó all the things they didn't know about until people like Rick Braddick came in. I think that Walter Riston and John Reed saw this strength, and that's the direction they took. Subsequent to that, I got sent to Hong Kong. That wasn't where I wanted to land, so then I came to Japan. Originally, I was going to come with Merrill Lynch, and I was sent to the United States to take the examinations that would allow me to become a dealer. I was on the point of taking them when the market crashed.
I then spent some time restructuring Merrill Lynch. They don't run on P&Ls ó they run on revenues, on fees. Again, like Citibank, there wasn't the balance of management. We totally restructured about two billion dollars worth of mixed assets.
CJ: Was this Merrill Lynch in Japan?
Sanda: No, the US; I still hadn't come to Japan. I was slated to come as head of investment banking of another securities company, but then through a friend I met George Fisher, the CEO of Motorola at the time. We got into discussions: he wanted to get into the telephone business in Japan, but was getting tremendous resistance, despite the fact that they had a product, called the Microtac, which had absolutely no competitors. The conversation was along the lines of "could I make a difference to their efforts?" and I said, "yes I could."
I have to admit I didn't know exactly what the problems were ó but I always shoot from the hip and say "yes." I figured the project would take five years, but it actually took four-and-a-half years to not only build the business for Motorola's organization, but also to change the marketplace so that the business could be built in the first place and survive ó to be able to compete on a level playing ground.
With the April start of deregulation, that part of my organization building was over. The reallocation of spectrum for the Tokyo metropolitan market, agreed to at the last US trade negotiations in February, made the playing field level for cellular telephones.
CJ: So were you largely responsible for the behind-the-scenes negotiations with the Japanese government?
Sanda: I can't comment on that. Let me just say that I cooperated in ensuring a level playing field for everybody, which also benefited Japanese companies. Right now, the primary beneficiaries of the actions that the US government took in the negotiations with Japan are the Japanese manufacturers and the Japanese people. Motorola is realizing sales (because that is how we build infrastructure), but the real direct beneficiaries are companies like Nippon Denso, Kyocera ó companies that had never sold cellular telephones until the February announcement. Now, they have the ability to sell into the market. Motorola played the "bad guy" role to a certain extent, but I think that overall, people in the industry understand how beneficial it was to the entire industry, as well as for Japan.
CJ: Is this a classic case of "gaiatsu" (foreign pressure on the Japanese to make them change)?
Sanda: In Japan, all major changes have to be induced from outside. Whether we feel the pressure or we induce the change, the feeling of pressure ó the input ó has to come from outside. We are an insular culture. By virtue of that, we are also not confident as a people. We develop super technology, but we don't want to export it because we think that it might not work outside Japan.
On the other hand, the Americans and other people overseas think, "Oh, those guys developed this technology and they don't want to share it with us." So there is a fundamental misunderstanding. We have got to get our act together and start communicating.
To answer your question: gaiatsu imparts a pejorative context, but we need to take different ways of thinking, which would enable our partners ó not just trading partners, but also integrating partners, whether it be technology or otherwise ó to understand us. Our behaviors are too juxtaposed to the norms that people expect the standards to be.
I think that in human (international) terms, we understand those standards, such as human rights, where people feel that we have normal views. But when we get into anything that affects our country ó the economy and other things ó we tend to look inward and say, "Well, I don't know if we should act. We lost the war, and this happened before when we did this."
I think that we need to re-establish our pride a little bit ó but not to the point where we become cocky ó and begin to share and also to incorporate in our ideas things that are standard outside Japan. For example, just within our industry, Japan doesn't really recognize software as a technology. So that's a fundamental disconnection. It means that people who value technology and put a price on it will not be able to do that in Japan. That's one of the reasons that if Apple were not a hardware company, along with the software, we would not succeed.
You know, we have copyright laws, but that is tatemae (something done visibly because it is expected, not because it is really felt). Whereas patents are something that people really appreciate and treat as intellectual property, there is a general cultural lack of discipline in not copying software that you buy. Intellectual rights just aren't given the same degree of appreciation.
CJ: Would you say that this cultural slant also affects people's buying behavior? For example, when buying computer hardware, you buy the essentials that you need to get the job done. In buying software, the reason is to in some way enhance your performance. Perhaps the Japanese are not used to buying tools to enhance their performance?
Sanda: That's right. Hopefully, we'll see the understanding of the marketplace and the culture of the Japanese people reflected in the policies of Japan.
CJ: Perhaps the recession is the best thing that could have happened to Japan, in terms of shaking up business thinking?
Sanda: It always is, in any economy. Any economy that gets heated then goes through a recession ó well, that's the best medicine for it. It's a reset; it forms a new platform from which we can rebuild. No balloon can take in an unlimited amount of air.
CJ: So far, you have been talking from the point of view of a Japanese. However, you spent a large part of your life in North America. Do you see yourself as an international "no borders" person, or do you identify more heavily with your Japanese side?
Sanda: I'm a "ninjin." That's a play on words. Ninjin actually means "carrot," but if you write it, it can mean "people." There was a time, when I was younger, that I tried to find my identity: who I was. I've become at peace with myself given the fact that I know I can come back to Japan and feel as at home here as I do anyplace in the world.
It was very intimidating coming back. This is my home, where I was born and raised. But still, could I come back after all these years and be accepted? I was, and now I'm at peace. I used to get offended when someone would say I was too American, or in the US that I was too Japanese. What I am is a global person. I have an Irish wife (we were married in Dublin), and I have two Canadian kids and three American kidsó all of whom are also Japanese citizens. My younger kids can't write and read English; my older kids can't write and read Japanese.
But I am fundamentally Japanese. That is the reason I can step into a situation where there are clear misunderstandings that are culturally related. For human beings, the bigger [higher up in status] they are, the bigger the misunderstandings and possible problems. And it will take a human being to fix those problems.
Just because someone is a big guy politically, he can be just as naive and as easy to hurt as the rest of us. It takes a human being to go up to him, at the same level, and say, "Look, you, this is what we have to do; listen to me now."
I have been lucky enough to work with top-level management in the United States as well as here. For some reason, I have the ability to know what to say and when to say it. That is not something I proactively went out to try and build. I am a practicing Catholic, and was born one, but I feel that we have attributes that are God-given, and we need to develop them. So I try as best I can within the confines of the universe that I am in. I try to look for a win-win solution for both sides, because that's the type of solution that will stick.
There are ways to solve a problem. Neither side will get 100%, which is everyone's expectation. But if both sides get 80%, to me that's still a good result.
CJ: What are your long-term objectives for Apple Japan?
Sanda: I don't know what my next objectives are, other than to make the company successful here. But I would never do something to make Apple Japan successful "at the expense of " ó I mean, you have to make it successful because of something positive. I don't want to sound over-confident, but I don't look at competition as anything negative at all. I look at it as very positive. I say to myself, "That's fine; that's a barometer of what I have to work around to get ahead."
Some members of the press have tried to incite me to say things about Microsoft or NEC. But I say that the situation is great. Microsoft is not a competitor; they are in the sense of an operating system, but we in Japan are a hardware maker. At least, we're perceived as that in Japan. If anything, more of the competition comes from NEC. But, in any case, they're both terrific players in the market. It's all still civilized, and I don't believe in denigrating other companies in the marketplace. In the long term, you'll lose if you do that.
CJ: It's the consumers that decide whether they like a product or not....
Sanda: That's right. Image in Japan is a fundamental point, and in projecting that image you can't be "bothersome" ("meiwaku" in Japanese) to others. There is a very strong feeling about this. Apple projects a warm and positive image; we don't want to be doing things in the market that would damage that. We want to be seen as a company that can also give something value-added ó seen helping the Japanese computer market, be it in education, economically, or technically.
Personally what I bring to Apple Japan is experience in "guerrilla warfare." We can't hope to compete with NEC in the manner in which Fujitsu or others can, because we're not a "Japanese company." We're a small band of "bandits" in a manner of speaking; but, as we have seen in real wars, market intelligence and business/technology know-how can overcome massive institutional-type forces. That is a tactic I have inherited from the Vietnam war.
CJ: Does that mean that you read The Art of War by Sun Tsu?
Sanda: No, I don't read any of that stuff; then I can't blame somebody else for a wrong strategy. I like thinking it up on my own!
CJ: Let's turn to boardroom politics. Over the past six months, I've talked to many people about what they think of Apple. The common thread is that while the company has done amazingly well in the last two years, it has had a high turnover of presidents: both foreigners and Japanese. Is Cupertino holding on too tightly to Japan and pulling all the strings? How are you going to deal with it?
Sanda: Image is always hard to deal with. In fact, the only way to deal with it is to respond with a strong performance. In this case, there is nothing that we can say or do to change people's perceptions.
CJ: Have you been given a charter to run the company as you see fit? Or is there still a strong level of executive guidance from the US?
Sanda: I haven't been given a mandate other than to succeed. To be asked to succeed has broad ramifications, and in fact I recently returned from giving the people in Cupertino an assessment of what I thought my job was. Clearly, they have not told me, "This is what you do, and this is how you do it." One possible reason for the public perception of Apple is that for foreign companies, when they come to Japan, language and communication is an important issue. And by its very nature, that communication has to be bilingual. So, I'd suggest that one of the reasons I'm here is because I can speak English.
I have three constituencies that I answer to as CEO of the company: my customers, my employees, and my shareholders. You have to maintain balance between these groups. If you're a publicly held company, you have a different set of priorities than if you're privately held. In Apple Japan's case, we're privately held, so the owners are the Cupertino executives. I try to meet the needs of my constituencies by communication and showing results; you have to understand the agenda of your constituencies.
CJ: Obviously the agenda of Cupertino is to increase market share. But another common thread that I have come across in talking to other market leaders is a feeling that Apple's market growth will top out this year, and in fact Apple may see sales decrease from next year ó because you've reached all the yuppies, and the remaining market is a lot harder to access. What is your strategy for the next three years?
Sanda: You've got to understand what the public needs. I think we'd all agree that we hit on a gold mine here. We have a terrific product, and we are a product-driven company. Our people have worked hard to position the product properly; you've got to respect the people behind putting the Mac into Japan. Nevertheless, in addition, the sales of the Macintosh have been demand driven. The marketplace has changed a lot since the introduction of the first Mac; the market dynamics are changing. Japan is still not as mature a market as the US, and so as you would understand, the market behaviors are different. The distribution in Japan is more the commercial distribution mechanism as we all know it. However, because of the recession, I believe, the consumer distribution organization will change.
I think that the people you have talked to are reading the situation correctly. If we go into the next period looking for more demand-driven growth, if we rest on our laurels and coast along, they will indeed be right. I'd say that typically in a market like this, you can get 10% to 15% of the market just with good-looking products, and if you execute a few good ideas then you get a little more incrementally. But from there on out, you need strategic value-added products. Each marketshare percentage point beyond that level is harder to get to. We have to identify strategic value-added products that match specific areas of the market. We haven't needed to do this up until now, but we do need it from now on.
CJ: Macs seem to have made it so far with sales to designers, DTP users, and musicians, along with the "yuppie" crowd. I've heard that Apple now has a strategy to go into the low-cost education market. Is that correct?
Sanda: We are looking at all segments of the industry. You can't retain leadership by being a niche player. Niche players don't become market leaders.
CJ: You mentioned earlier that your customers get a "warm fuzzy feeling" from buying a Mac. Surely in selling to these people you identify a group to which you can relate to in a unique way. Doesn't that imply niche marketing?
Sanda: No, because that warm and fuzzy feeling is something that can be induced in every individual, whether they are a businessman or a child. Our mission is to identify the segment of your being that responds to warmth and ease of use ó the part of you that says, "Boy, that's really nice." That can be in an office, the classroom, or the home.
Apple is not so much looking at a business where we go make money out of market segments as we are genuinely asking ourselves, "What can we do for individuals in that segment of the market to convince them that it is better for them by using an Apple." That means we have to make sure that the applications are in place, and that the networks and MIS guys are satisfied.
CJ: There is a lot of speculation about how well Apple is doing right now. What is your market share at the moment?
Sanda: IDC says that we're about 15% or so. Japan is our second biggest market in the world, with about 10% of the overall Apple sales.
CJ: Do you see any special problems in Japan?
Sanda: One of the problems I see in Japan, which is kind of unique, is that we've got three technological segments: Windows OS, Mac OS, and NEC 9800 OS. That's unusual compared to the rest of the world, where usually Windows dominates. But here Windows doesn't dominate. That causes a problem for the Japanese consumer. It's a hindrance, one we've got to think about. One of my personal objectives is to address this issue. It means that we'll have the capability to cross the platforms. Now, this is not Apple Inc. policy ó it is just my desire to fix the problem of separate OSes. Customers should be able to buy a computer in Japan and use whichever application they need to use. You may not be able to use all of them at the same level of efficiency óthe Japanese will accept a little bit of a performance penalty, but the fact that you're trying to accommodate them in an area where somebody else hasn't is a very important factor in understanding the Japanese consumer's mind.
The Japanese customer is a force to be reckoned with. They can drive out of the market companies who have been successful all over the world ó that's how powerful an influence they have. Businesses outside Japan have to understand this and be able to respond. There are companies that can meet this challenge, such as my former company where quality was a major focus and was headlined as being a "Motorola advantage." Japan had an impact on Motorola's thinking ó because Motorola was so committed to Japan and was ready to be influenced.
CJ: Many of our readers have the additional hurdle of handling two languages. Does Apple have any plans to open up to multinational accounts, providing bilingual support?
Sanda: It is true that we don't spend a lot of time on the multinationals -- the global accounts. However, I think that users must understand our primary focus is on the majority market, which for us is the Japanese.
Having said that, we do need to go back and make sure that the minority is satisfied. Global clients are now an important issue for us; we are trying. As an example, recently there was a problem with monitors at one of the securities firms. The problem was initially raised by the client in the US, since that is where the purchasing decision was made. Anyway, the problem came back to Japan, to us, and we were able to solve it quickly. We solved it to the level of expectation of our other Japanese clients, and the company was most pleased. So pleased in fact that they went back to their head office and said, "Well, we should be getting this level of service all over the world." We had exceeded their expectations.
