Scott G. McNealy
1954–



Cofounder, chairman, and chief executive officer, Sun Microsystems

Nationality: American.

Born: November 13, 1954, in Columbus, Indiana.

Education: Harvard University, BA, 1976; Stanford University, MBA, 1980.

Family: Son of Raymond William McNealy (business executive) and Marmaline (maiden name unknown; homemaker); married Susan Ingemanson, 1994; children: four.

Career: Sun Microsystems, 1982–1984, vice president, manufacturing and operations; 1984–1999, chairman, president, and chief executive officer; 1999–2002, chairman and chief executive officer; 2002–2004, chairman, president, and chief executive officer; 2004–, chairman and chief executive officer.

Address: Sun Microsystems, 4150 Network Circle, Santa Clara, California 95054; http://www.sun.com.

■ With three other young entrepreneurs, Scott G. McNealy founded Sun Microsystems in 1982. Despite having no technical background, McNealy's leadership helped to develop Sun into one of the world's leading computer companies. The success of the business rested upon McNealy's determination, business acumen, and ability to motivate those who worked around him. Many analysts commented on McNealy's willingness to take risks and reinvent the company in order to adjust to changing industry conditions. In particular, McNealy's dedication to the company vision, "the network is the computer," meant that Sun was ideally placed to take advantage of the rise of the Internet in the mid-1990s.

McNealy gained a reputation as a brash and aggressive CEO, notorious for his outspoken comments about his business rivals. McNealy was Microsoft's harshest and most vocal critic throughout the 1990s, and he was called on to testify during congressional hearings into competition in the software industry. His willingness to poke fun at himself and his rivals

Scott G. McNealy. AP/Wide World Photos.
Scott G. McNealy.
AP/Wide World Photos
.

resulted in memorable wisecracks and some colorful publicity stunts, making him one of the more unconventional CEOs in corporate America. However, despite the loud public persona, those who worked closely with McNealy emphasized his business insight, his appreciation of his coworkers, and his ability to relate to many different types of people. While McNealy could not be regarded as a typical CEO, the company he built in many ways typified the phenomenal growth and technological achievement that was associated with Silicon Valley during the last two decades of the twentieth century.

EARLY EXPERIENCE

Growing up, McNealy gained exposure to the business world through his interest in his father's job as a manager at American Motors. His father eventually became vice chairman of the company, and the experience of watching American Motors decline was important in shaping the younger McNealy's understanding of business. Sports were also important in McNealy's early life. He developed early passions for hockey and golf, which continued into adulthood; McNealy was named the top CEO golfer by Golf Digest in 2002, and he continued to play hockey into his 40s. When the McNealy family settled in Bloomfield Hills, Michigan, McNealy attended the elite Cranbrook prep school. He valued the atmosphere at the school, especially the experience of being around bright people and being treated as an adult, which he said better prepared him for life at college. Although he was not a dedicated student, McNealy was able to gain entrance to Harvard. He enrolled as a premedical student, intending to become a doctor, but switched to economics. This was due mainly to the influence of an economics teacher, Bill Raduchel, who was later to join him as chief information officer at Sun. Despite listing his main interests at college as beer and golf, McNealy managed to graduate from Harvard in 1976.

While trying to gain entrance to Stanford Business School, McNealy spent two years working as a plant foreman at Rockwell International, in a factory that made body panels for tractors. This practical experience in a manufacturing environment proved to be extremely valuable. McNealy later said that this was better preparation for running a company than anything he learned at Harvard or Stanford. Eventually accepted into Stanford, on his third attempt, McNealy was one of the few MBA students to concentrate on manufacturing, rather than finance. Upon graduation in 1980 McNealy went to work for FMC Corporation, building Bradley tanks for the U.S. Army. In 1981 he took a job as manufacturing manager with Onyx, a small company manufacturing computers. While he had no technical knowledge of the computer industry, Mc-Nealy's manufacturing experience and people skills impressed the CEO at Onyx, Doug Broyles: "We brought him on as director of operations, and put manufacturing and purchasing under him. Within a couple of weeks, Scott had the 50-year-old manufacturing guy's respect and they were working as a team. Scott went out on the line and talked to people" ( High Noon ). Throughout his career, and despite his privileged background, McNealy cultivated an image as a down-to-earth, blue-collar workingman, which appealed to many people.

STANFORD UNIVERSITY NETWORK

McNealy's manufacturing experience did not make him an obvious candidate for founding a Silicon Valley start-up company. However, in 1982 a college friend from Stanford made McNealy an exciting offer. Vinod Khosla was a passionate and driven entrepreneur, with an exciting vision for the future of computing. He met Andy Bechtolsheim, a PhD student who was working on a project called the Stanford University Network, or SUN. Khosla recognized that Bechtolsheim's work could provide the solution to his idea of a powerful workstation to replace the minicomputers that software engineers were using. This workstation would operate while plugged into a computer network, allowing for electronic collaboration. Khosla invited McNealy to join the project because of his valuable business and manufacturing experience. A fourth member of the team, Bill Joy, was brought in for his programming genius to develop a Unix operating system for the prototype workstation.

The four men, all in their 20s, had very little business experience between them, but they had passion and ambition to make Sun Microsystems a success. The first Sun-2 workstations hit the market in late 1982. Few people in the industry took the upstarts seriously. At the time, Apollo Computers dominated the workstation market, and its staff joked about the "kids" at Stanford. But after Sun beat out Apollo for a crucial deal to supply workstations to Computervision, it was apparent that they had to be taken seriously. Sun's aggressive campaign for the contract, even after Computervision had originally decided to go with Apollo, became a hallmark of Sun and of McNealy's business style.

Initially, McNealy's position within the company was as vice president of manufacturing. Khosla, as the visionary force behind the new company, was CEO. But it soon became apparent that it was McNealy, not Khosla, who was providing leadership to the company's expanding workforce. Of the four founders, only McNealy had the personal skills and experience to deal with the varied demands of running a company. As McNealy described his role in these early days, "I couldn't program anything. I still can't program anything. I wasn't the technical guru. I wasn't the visionary. I was kind of the glue that kept everybody together and helped enunciate what our goals were, how we're going to get there, and kind of cleaned up after the engineers and made sure the customers got what we promised them" ("Scott McNealy Oral History"). This ability to crystallize and implement the vision of others became one of McNealy's strengths throughout his career.

Increasing dissatisfaction among staff and board members over Khosla's performance as CEO led to his leaving Sun in 1984. As the only obvious successor, McNealy was named interim CEO, but the board was concerned that this brash young man, who often lacked tact or discretion, did not have the business acumen required to run the company. A search outside the company failed to produce a suitable alternative, however, and the board decided to stick with McNealy. This was a big gamble, as McNealy was inexperienced, had little technical knowledge of the industry, and had a reputation for cockiness and arrogance. However, his confidence, energy, and total commitment to making the company succeed helped convince the board that he could do the job. Their faith proved well founded. As Sun Microsystems developed from a brash renegade into an industry powerhouse, so too did its CEO.

CHALLENGES

McNealy faced many challenges over the next two decades. His abilities were questioned at times and his response to these challenges highlighted some of his main attributes as a leader. One of the first major trials McNealy faced as CEO came in 1989, when, after several years of rapid growth, Sun posted its first quarterly loss. The company had grown at a phenomenal rate, surpassing its main competitor in 1987 and reaching $1 billion in revenue in 1988, but such rapid growth caused difficulties. Under McNealy's leadership, Sun had placed heavy emphasis on gaining market share, often at the expense of profit margins. Problems with internal systems meant that it was unable to manage production and keep up with demand for its products. At the same time, several key executives left the company, raising questions about McNealy's management style. Some business analysts suggested that the company had outgrown McNealy's abilities as CEO.

In response, McNealy instituted changes in the company's strategy that showed his maturity as a business leader. He put new focus on the importance of costs as well as growth and developed new internal accounting processes that controlled spending. He also made the crucial decision to consolidate Sun's products, basing everything around the new microprocessor developed by Sun's own engineers, the SPARC chip. Other products based on the Intel chip or Motorola technologies were discarded. This was risky, as market acceptance of Sun's new technology was not yet established.

McNealy also initiated an important restructuring of the company during the early 1990s. He reorganized the company into seven planets, each of which represented sales and marketing focused around a specific product line. The new decentralized structure had positive and negative outcomes, which highlighted McNealy's strengths and weaknesses as a leader. While most people agreed that transformation was necessary, in practice executives bickered with each other over their own agendas. Rather than provide his team with practical guidance on how each planet was supposed to interact with the others, Mc-Nealy preferred to move on and focus on the next challenge, the next big sale. He often gave more attention to the newer technologies, while neglecting the older, more established parts of the business. This resulted in jealousy and tension between different areas. Nevertheless, the new structure did allow the various businesses within Sun to focus on establishing their own markets, without interference from the others. Many believe that the reorganization enabled the company as a whole to foster innovation in a way that would not have been possible in a more centralized business.

"THE NETWORK IS THE COMPUTER"

At the same time, Sun repositioned itself and carved out a new market away from workstations. Since the company's inception, McNealy had been a strong proponent of the slogan "the network is the computer." This meant that the true value of the computer did not come from the machine you could see on your desk, but instead from the power it derived from being connected to other computers. Sun's commitment to this model meant their machines had always been built with network capabilities, and they were much more powerful than PCs. As businesses began to understand the benefits of data networking in the early 1990s, Sun's workstations were ideally positioned to evolve into network-server computers. With the rise of the Internet, Sun's network slogan finally became clear to most people, and Sun's servers were at the center of the Web revolution. As the Merrill Lynch analyst Steven M. Milunovich claimed in a 1999 BusinessWeek article, "If you want to know where the computer industry is going, ask Sun" (January 18, 1999). McNealy's long-term dedication to the network vision had finally paid off.

The launch of Java also identified Sun as a leader of Internet-based technology. Java was a programming language developed by Sun's software engineers in the early 1990s. It was unique because it was not tied to a particular computer operating system. This meant it could be run on almost any computer at any time, provided that the computer had a Java interpreter. Therefore, it was ideal for the Internet environment, where millions of computer users needed to be able to talk to each other in one universal computer language. McNealy saw Java as the basis of a completely new platform for the computing world, one that could challenge the dominance of Microsoft. Inevitably, this would bring him into direct conflict with Microsoft.

THE BATTLE WITH MICROSOFT

When McNealy helped to found Sun, Microsoft had little presence in the industry. Before long, however, the industry would have to grapple with the growing dominance of Microsoft's Windows operating system combined with the Intel computer chip, an alliance that became known as Wintel. Mc-Nealy was quick to recognize that Wintel technology would eventually threaten Sun's key markets. As he saw it, Microsoft's CEO, Bill Gates, had a flawed vision for computing that dominated the industry due to Microsoft's unfair business practices. Never one to shy away from directly criticizing his competitors, McNealy's rhetoric reached new heights in the battle against Microsoft.

McNealy's attacks on the company certainly won Sun publicity, but not all were convinced that this was necessarily positive attention. Some people felt that McNealy's anti-Microsoft zeal crossed the line into obsession. For instance, banning all Sun employees from using software such as Microsoft PowerPoint was not popular, as staff needed to be able to operate with Microsoft products when dealing with customers. Many customers were also worried by McNealy's attacks on Microsoft and his apparent inflexibility over the issue of Wintel technology. What they wanted was to be able to run both kinds of technology, not to have to choose between them. McNealy's stubborn insistence that Sun would stand apart from Microsoft was in some senses ignoring the real world in which people needed to be able to operate with both.

The case of Java indicated how difficult cooperation between the two companies was. In 1996 Sun and Microsoft worked out a deal that licensed Microsoft to include Java in its Windows operating system. As the vast majority of desktop computers were running Windows, Sun needed Microsoft to incorporate Java if it was to become a truly universal computer language. At the same time, Microsoft had to use Java because it had been slow to reposition itself in the new world of Internet computing. The deal quickly collapsed, however, with Sun alleging that Microsoft violated the contract by making changes to Java that were incompatible with Sun's own systems. Inevitably, Sun sued Microsoft for breach of contract in 1997.

THE NEW MILLENNIUM

The 1990s had proved to be a great decade for Sun and McNealy. The company had been transformed into an innovative leader in the information-technology industry, and in Java it had one of the most exciting new technologies of the era. McNealy's vision for the Information Age and his crusade against Microsoft's monopoly gained him an appreciative audience. He became one of the most high-profile high-tech CEOs, winning over audiences with his willingness to poke fun at himself as well as his competitors. In a 1996 BusinessWeek article, Sun's former treasurer, Thomas J. Meredith, saw this as one of McNealy's key strengths: "His humor and ability to raise a crowd to its feet is in many respects exactly what you need in CEOs and leaders of today's industry" (January 22, 1996).

However, the year 2000 heralded the beginning of Scott McNealy's most difficult period as CEO. With the crash of the dot.com and telecommunications industries and an economic recession exacerbated by the September 11, 2001, terrorist attacks, technology spending plummeted. Sun faced increased competition in its server market from companies producing cheaper alternatives. Sales of Sun products were also badly affected by the Linux operating system, an open-source software that was free to anyone who could download it off the Internet. By 2004 Sun faced 12-consecutive quarters of shrinking revenues, and it had been posting losses since 2002. The credit-rating agency Standard & Poor's dropped Sun's rating again in 2004, and substantial staff layoffs were announced. McNealy faced criticism for his apparent inability to return the company to profitability. Some analysts predicted the eventual demise of the company.

These factors were behind the shocking announcement in April 2004 that Sun and Microsoft were calling a truce. Microsoft would pay Sun $2 billion to resolve lawsuits, and the two companies agreed to work toward making their technologies more compatible. Many in the industry read the deal as a capitulation by McNealy. It also sparked speculation that he was approaching the end of his time as Sun CEO. Analysts questioned whether McNealy could work closely with Microsoft, when so much of his earlier motivation had come from trying to prevent Microsoft from gaining total control of the industry. There was little doubt that Sun needed to be taken in a new direction if it was to survive, and some people were unsure if McNealy was the right person to do this. McNealy's name was also mentioned as a possible successor at Oracle Corporation if Larry Ellison were to step down as CEO. But McNealy continued to lead the company that he helped to found, relying on continued innovation and new products to return his company to profitability.

See also entry on Sun Microsystems, Inc. in International Directory of Company Histories .

sources for further information

"Face Value—Desperate Embrace," Economist , April 10, 2004, p. 54.

Hof, Robert D., "Scott McNealy's Rising Sun," BusinessWeek , January 22, 1996, pp. 66–72.

Hof, Robert D., Steve Hamm, and Ira Sager, "Sun Power," BusinessWeek , January 18, 1999, pp. 64–70.

Schlender, Brent, "The Adventures of Scott McNealy—Javaman," Fortune , October 13, 1997, pp. 70–76.

"Scott McNealy Oral History," http://www.cwheroes.org/oral_history_archive/mcnealy/2003.pdf .

Southwick, Karen, High Noon: The Inside Story of Scott McNealy and the Rise of Sun Microsystems , New York: John Wiley & Sons, 1999.

—Katrina Ford



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