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Jim Whitehurst, President and CEO of Red Hat: Competing as a 21st century Enterprise among 20th century Giants

Today I'm attending the third day and last day of the Fuqua School of Business & Coach K Leadership Conference. 

I thought I would post my notes.  Disclaimer.  These are not exact transcription or exact quotes but rather just my rough notes. 

Jim Whitehurst, President and CEO of Red Hat: Competing as a 21st century enterprise among 20th century Giants

I want to lay out the problem of 20th century industrial age mentality (intellectual property laws, etc.) If it is free, how are you going to make money?

People thought: we'll use copyright laws and apply that to software.  This will create scarcity.  I will license it to you but you can't do anything with it. 

Microsoft and Oracle are the result.  It has created value for society but it has suboptimized the value for society.

Alternative examples: Wikipedia passed all of the content of every other encyclopedia. 

Linux runs nuclear submarines and the major stock exchanges.  Everything is built on top of the basic structure. 

Netflix--anyone who can come up with a better way to recommend movies, would get a million dollars. 

You get much more, when you make it open.  If we don't find a way to set ideas free, then we will suboptimize the 21st century economy. 

I am an evangelist for open source. But this also is about creating cultures around innovation, creativity and most importantly--collaboration.   

I used to run Delta--a 20th century company. 

Five things that leaders need to think about if you really want collaboration to happen.  These are a work in progress.  If we are right 60% of the time, I'm feeling really good about that. 

1. You've got to build an architecture of participation. 

At Delta, we went through a very difficult time for 2 years.  Near the bottom of customer satisfaction and ontime flights but moved to near number 1 in both.  We didn't buy new airplanes.  We told our employees--you can make a difference.  Here are all of the things you can give them: apologize, free drink, free meal, free flights.  We didn't make a manual.  Airlines are military organizations which is good so this was different.  I came come from a consulting organization and we told people, "You go figure it out--here are the general parameters."  Immediately we saw a huge improvement in customer satisfaction.  Velvet rope tour--we talked for 2 hours to everyone about the brand and spirit we are trying to build.  We threw away the script of what they should say and gave them freedom (not the safety video script).  We only innovated with 10%.  90% are the primary drivers that you can't change in the airline business.  The assets are the primary means of production.  In the information age, it is not the same. 

At Red Hat, we tore up the org chart.  We had no corporate boundaries.  Red Hat contributes 15% to Linux.  We recently called up Microsoft and Novell and worked on messaging. 

2. We need to find ways to make money around collective collaboration.

It is very hard to make money when what you make is free.  Red Hat is member of S&P 500.  The main way to make money around free is advertising--Google.  I would argue Red Hat is the second good example.  Wikipedia works on donations.  People still don't know how to make money with Facebook. 

How does Red Hat make money?  Rapid innovation with thousands of people involved is great but if you are running the NY Stock Exchange, you don't want the operating system to change every day.  You want it to run for 10 years without a change.  But you want new servers, fix bugs, and update security.  This is the more mundane thing that we do.  We're going to support every release for 10 years with an engineering team.  We don't sell technical support on top of Linux.  We are known as the trusted open source leader. 

But almost none of you use Linux on your desktop even though it is superior platform because there is no profit motive.  Linux is the best and most popular data server operating system.  But how many of you want to pay for 10 years of support for your operating system?  Therefore you can't get iTunes on your Linux operating system.  There is no profit motive.  Finding new business models built on top of freedom and innovation is important. 

3. You have got to build a culture where the best idea wins. 

Coming from a 20th century company, let me tell you that it is really hard.  Most of the companies have a hierarchy and the guy at the top wins.  At Delta, there is a very military culture.  People said "Yes sir" and did it.  At Red Hat, when people don't like my idea, they don't do it.  I hear complaints from executives about MBA grads today who don't want to follow orders.  We at Red Hat hire ambitious talented people and we never hear that.  In the 21st century, people want the best idea to win.  In the 20th century, the only way to be recognized is by moving up.  Today people want to be recognized for what they do but that does not mean they want to climb the corporate ladder.  We give people time to do what they want to do but they have to earn it--we don't do it like Google where 20% of your time is for your own projects.  But if you're good, it could be all your time. 

4. You have to be a catalyst in communities. 

Red Hat motto: To be a catalyst of communities . . .

Sustainability.  When I speak about the power of information and participation, executives think: I can get others (like Tom Sawyer) to paint the fence.  The problem is: they will do it once but not twice.

We do have a desktop team of 10 engineers.  It is because we want to give back.  I have very long arms--IBM and Oracle are both pulling me in opposite directions.  They are like: put it in the operating syste. We say "we don't control Linux but we influence it."  Because we are a good steward, they let us lead by example and build credibility.  We don't screw everyone else and please our customers.  We are not a leader of communities, we are a catalyst for communities. 

5. When all else fails, hack the system.  

All open source, is a hack.  The GPL (G. Public License). It is copy left not copy right.  If you make any changes, you also have to redistribute those changes.  Not free as in cost but free as in freedom. 

Google and Microsoft have patent warfare.  If you sue me, I'll sue you.  At Red Hat we have bought lots of patents with lots of other companies (Open Innovation Network)--which is a hack to the system.  It is not what we want to do but what we had to do. 

Why is USA so far ahead in software?  Sandhill road--venture capitalists--is the hack to the financial system.  They give to ideas.

It is not that companies needed the money but rather because it was monetization.  [I the notetaker didn't understand this sentence or concept].              

Not Chris Anderson's book Free--that is interesting idea but we are talking about freedom.

For society, we are going to squander a tremendous amount of potential if we do not tap into collaboration. 

Questions and Answers:

a. What is your solution to problematic legal system of patents? 

We are advocating for patent reform.  There used to be no patents on software.  This is an arbitrary use of the patent system.  Let the market compete between Microsoft's ideas and Linux's ideas.  But what if you came up with something on your own, but someone else came up with it before, you can't use it. 

Don't go public.  Trust me.  This is not something to look forward to.

b. Free is not necessarily free--that was good.  How are you giving incentives to your employees?  Anything different? 

No, we are not doing anything different.  We use the regular incentives.  We are trying to recognize people.  Many people want recognition in their communities outside the company.  People should earn their free time.  Our best and brightest work on what they think is important.  It seems to work.