|BUSINESSWEEK ONLINE : FEBRUARY 1, 1999 ISSUE|
What Makes Rick Belluzzo Run?
Why the heir apparent left the catbird seat at Hewlett-Packard for beleaguered SGI
Sitting in the front row of the company auditorium soon after his arrival as CEO last January, Silicon Graphics' (SGI) Richard E. Belluzzo saw stark evidence of the problems he had taken on. There to unveil his grand turnaround plan, he watched as Chief Financial Officer Steven J. Gomo asked the top 50 execs: ''How many of you run profit-and-loss centers?'' Most of the hands shot up. Then Gomo asked: ''How many of you are profitable?'' The same hands were raised. But when Gomo asked: ''So who's responsible for all the money we've been losing?'' not a single hand surfaced. Belluzzo sat rolling his eyes in amazement.
Rather than running for the exits, though, it was exactly the kind of Herculean challenge Belluzzo had been looking for. A working-class kid who had become the quintessential company man during a 22-year stint at Hewlett-Packard (HWP), Belluzzo felt he had outgrown his post as HP's No. 2. It was time to take on a job that would prove his mettle in the toughest of circumstances. ''I had to decide if I wanted to be a career guy or return a troubled company to glory,'' he says. ''What will Lou Gerstner be known for--American Express or IBM?''
''SITTING DUCK.'' Belluzzo has gotten just what he asked for. Today he works up to 17 hours a day trying to fix one of the worst operations records in techdom: $450 million in losses over the past 10 quarters triggered by product delays, production shortfalls, and a shocking lack of controls. SGI's stock has barely budged since he arrived, languishing at 15--down 73% from its high in 1995. Worse, 75% of SGI's $3.1 billion in sales come from shrinking markets such as Unix workstations and supercomputers. ''We think they're a sitting duck,'' says Janice Chaffin, a general manager at rival Hewlett-Packard Co.'s computer unit.
That's why Belluzzo is overhauling almost every aspect of the company. Like a one-man wrecking crew, he has refined SGI's strategy, remade its operating processes, and tirelessly jetted around the world to keep nervous customers from bolting. On Jan. 11, Belluzzo gave customers another reason to stick around: The Visual Workstation, a Windows NT machine that carries SGI's trademark slick design and dazzling graphics--but not its premium pricing. Instead, he's plunging SGI smack into the rough-and-tumble business of making high-volume workstations based on Intel (INTC) and Microsoft (MSFT) standards. He's betting this will kick-start revenues and help return SGI to profitability.
On the surface, Belluzzo hardly seems the type to build billion-dollar businesses. Unlike his well-schooled peers, his resume shows only an undergraduate accounting degree from Golden Gate University in San Francisco. He hates ostentation, preferring family ski trips to yachts or planes. And last spring he stunned SGI board members by asking that they scrap a clause in his contract that guaranteed him $10 million even if he couldn't lift SGI's shares over the next few years. ''He just didn't feel good that other people had things to lose and he didn't,'' says SGI board member C. Richard Kramlich, a venture capitalist.
That's not surprising when you consider Belluzzo's upbringing. He is the son of a machinist, who was captured during World War II while serving in the Italian Army. Belluzzo began working at age 11, sometimes to help support his family, doing everything from sweeping floors to picking prunes at orchards near his boyhood home in Santa Rosa, Calif. ''I had immigrant parents who worked hard,'' he says. ''I was just brought up that way, to carry your weight.''
But it was only after his humbling encounter with a high-school guidance counselor that Belluzzo--then an overweight, shy, mediocre student--also developed ambition. The counselor told Belluzzo he wasn't college material. ''That motivated me to go to school, and do something more than manual labor,'' he says. Soon after, he dropped 50 pounds, hit the books, and traded in a job hauling furniture to sell shoes during his senior year. ''That was a big deal for me, since it forced me to deal with people,'' he says. ''It was the start of my confidence.''
It also was the launching of Belluzzo's career. HP's printer business was a tiny backwater operation based in Boise, Idaho, when Belluzzo arrived in 1977. The young executive quickly made HP's printers easily available and affordable by lowering manufacturing costs and by getting them on the shelves of retailers. Today, the business is a $17 billion empire. ''Rick always saw the details as well as the bigger picture,'' says HP board member Richard A. Hackborn, Belluzzo's longtime mentor.
NEVER SAY DIE. True to his blue-collar roots, Belluzzo credits hard work. ''I was always the hustle guy,'' he says. His closest friend Terry Copple, a lawyer, says Belluzzo is ''extremely smart, but he's not scary smart. What's scary about him is his intensity.'' Copple recalls a recent jog when Belluzzo fell, badly bloodying his knee but refusing to stop and ruin Copple's run. ''He wouldn't even slow down.''
Belluzzo has brought that never-say-die approach to SGI. Within two months of his arrival, he completed a previously planned spin-off of SGI's MIPS chip subsidiary and raised $71.6 million by selling a 15% stake. He sold two of SGI's four factories as part of a cost-cutting plan to save $200 million in 1999. And he streamlined SGI's operating structure, replacing a gaggle of 26 profit-and-loss entities with five product groups. ''If he can get 95% of what he wants in five minutes, he'll do that, as opposed to dickering around for four hours to get 96%,'' says Intel CEO Craig Barrett.
Indeed, it took Belluzzo less than a day to put to rest the debate that had paralyzed SGI for half a decade. It happened last January at Belluzzo's first board meeting as the CEO. SGI workstation chief Thomas C. Furlong outlined an existing plan that would put a toE into the market for machines based on Intel chips and Microsoft's Windows NT software. Furlong braced himself for tempers to ignite, but Belluzzo wanted to go whole hog. ''You're doing exactly the right thing,'' he told Furlong. ''But let's not just change a piece of the company. Let's drive those changes across the entire company.''
Belluzzo is doing just that. He's pounding away at SGI's freewheeling culture. Engineers, for instance, had long pursued costly pet projecTs. But after a quick analysis, Belluzzo axed six of them, including a high-risk effort to make a gizmo code-named ''NetBook,'' an electronic book. The moves saved more than $40 million, says Gomo.
And, just as he did at HP, Belluzzo understands the importance of spending time with customers. Larry Smarr, a longtime customer and director of a supercomputer lab at the University of Illinois, says former SGI execs criticized him for keeping a database of customer complaints about the company. But Belluzzo invited Smarr to meet with him just weeks after joining SGI, asked to see the data, and immediately told SGI engineers to work on the problems.
WORK, WORK. Belluzzo works fast, but not because he's in a rush to get home. Outside of jogging and working out a few times a week, he has few pastimes. It's work, more work, and lots more work. His friend Coppell recalls an instance a few years ago when Belluzzo asked him to pull the car over during a family trip to Disneyland so he could run into the local CompUSA Inc. to check on printer sales. After he got back in the car, he fussed for 15 minutes over something a sales clerk had told him.
Such devotion to HP already was straining Belluzzo's marriage. His wife, Claudia, had come to resent his hectic travel schedule and never-ending responsibilities--especially after he took the No. 2 post at HP in 1995, friends say. The couple, who have two teenage boys, are separated, and the divorce should be final next month. ''Clearly, this lifestyle over multiple years takes a toll on a relationship,'' says Belluzzo.
Even his mom, Doris, worries about her son's workaholic ways. While he's clearly enjoying the challenge of fixing SGI, ''he's gotten much older-looking,'' she says. ''Sometimes, I think his success came about too fast. He used to be a lot of fun, but now it's business, business, business.''
It's just that addiction that may be what the doctor ordered for SGI. Can Belluzzo return the outfit to its high-flying days? The Windows NT-based Visual Workstation is a start. Priced as low as $3,400, the workstation offers far better graphics than similarly priced machines and could help reel in SGI's first new customers in years.
But Belluzzo may also pay a price for seeking growth the Wintel way. Analysts say only a small percentage of the Windows NT market--say, computer animators or special-effects houses--really care about cutting-edge graphics. ''I don't know of any company that has made the jump [from proprietary to industry-standard technology] successfully,'' says Sun Microsystems Inc. (SUNW) CEO Scott G. McNealy.
The desktop market is only part of Belluzzo's problems. SGI's future rests primarily on its Unix servers and supercomputers, which bring in roughly 50% of sales and profit margins twice as fat as the new NT machines. But since former CEO Edward R. McCracken purchased Cray Research Inc. in 1995, sales of Cray's supercomputers have plummeted 40% annually as customers moved to cheaper machines. And while SGI's superfast Origin servers are beloved by customers, SGI remains mired in small markets such as academia while rivals Sun and HP tap into huge commercial markets. Merrill Lynch analyst Steven Milunovich expects SGI will lose $89 million on sales of nearly $3 billion for fiscal 1999, ending June 30.
Belluzzo's plan: rather than go head to head with stronger rivals in existing high-end server markets, leverage SGI's strengths in graphics to create new uses for these $20,000-plus servers. He has launched a 200-person group that will work closely with customers in six core industries, including entertainment and energy. This already has yielded some wins. SGI, for example, edged out IBM in September when Pacific Life Insurance Co. opted to spend $3 million on an Origin 2000 server that turns mind-numbing spreadsheets into graphics. ''It has a very powerful capability that no one else has,'' says Pacific Assistant Vice-President Lisa H. Skinner.
That's the kind of talk Belluzzo hopes to hear from more customers. He has traveled worldwide, sometimes embarking on country-a-day swings through Europe and Asia. That's a pace Belluzzo hopes he won't have to keep up. ''I don't want to retire and look back and see that I never took a two-week vacation,'' he says. So he took his two teenage sons scuba diving in Key West over Thanksgiving break. But ask him when he's really likely to ease up and he is--per usual--brutally honest. ''Business is what I know how to do. It's my strength and my weakness.'' Or rather, SGI's strength and his weakness.
By Peter Burrows in Mountain View, Calif., with Andy Reinhardt in San Mateo, Calif., and bureau reports
To read a letter to the editor about this story, click here.
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TABLE: How Belluzzo Aims to Refocus Ailing SGI
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