W = Wharton     K = Jane Kirkland

W:   What are three ways that leadership in e-businesses here specifically differs from leadership in traditional bricks and mortar businesses.

K:    The first area in which it differs is simply the pace at which change has to occur. So a leader in an e-business has to be able to motivate and organization to move decisively and quickly, and also has to be comfortable with the fact that not everything gets right when it's done quickly.  There is a small penalty to be paid for doing things so quickly.  The penalty for doing them too slowly is much greater, but one has to account for the fact that not everything is done at the same level of quality that it is when you take things slowly and deliberately.  So that's a challenge for a lot of leaders.  The second challenge that leaders face in e-businesses -- and this is actually related to the pace -- is that it's frequently necessary to work outside of your organization to make things happen, to work across company boundaries to make things happen.  At the pace at which this sector's developing, no single company can develop the whole infrastructure, the whole web of relationships, the whole basic capabilities required to compete effectively.  The only way to capture the opportunity fast enough is to ally with other players.  Managing those relationships is much more complex than managing relationships within one's own organization.

W:   Can you give a specific example of that?

K:    I'm in charge of our technology effort, so we're involved in developing technology partnerships.  Certainly that's one area where web companies today have to be very active.  It's one thing to be able to manage your own development organization, it's another thing to actually work with an outside partner or figure out how to get your software to integrate with an outside partner's knowing that you can't necessarily control their product direction.  You're not going to be able to necessarily move in locked step with them.  You just have to make sure that the direction of the two organizations is basically consistent and you have to ensure that the linkage is done in a way that is sufficiently flexible, that it's not hard core integration that requires that every time they make a minor change in their product we're having to reissue ours.  Fortunately XML, from a technology standpoint, creates the opportunity for that kind of loose integration, but it's a different kind of technology development than getting things done within your own organization.  The third challenge is that in e-business a leader, by definition, has to be technology savvy.  E-business implies that the business relies on an electronic platform.  Therefore IT is not a back office operation.  It is a fundamental factory platform on which the business operates.  No executive at any level can afford to be ignorant of the technology, its implications for the flexibility of the business, what the business can and cannot do, the options that it opens up or forecloses for the business.  For business executives who have risen through the ranks with different skills, having to become savvy about technology is a challenge.

W:   Was that a challenge for you? 

K:    I had some early technology roots.  I was a senior software engineer before going to business school, so I've always been a closet nerd or even an out of the closet nerd. [laughs]

W:     Specifically what are the necessarily qualities of a successful leader in the Internet economy, individual qualities.

K:    It's a combination of some of the aspects I just mentioned, which are specific to the e-business world that we live in and compete in today.  Then I think some traditional qualities that have always stood leaders in good stead.  A leader has to be able to articulate a compelling vision and has to be able to translate that vision into something that's meaningful to the people who have to contribute to making that vision come to fruition.  Each person has to understand how he or she could play a meaningful role in making that vision become reality, and why that's going to be exciting for that person.  The leader is the one who's able to both see and articulate the vision and bring along all the people that have to be involved to make that vision become reality.   I think it goes back to a lot of the traditional qualities of good leaders in terms of courage, forthrightness, and fairness.

W:   Speaking to the point about people and their subordinates, what tools do you find necessary when seeking to motivate individuals to follow your vision?

K:    I'm not sure it's anything specific to the e-world.  It's really the classic tools of making sure that people understand the situation that the business is in and why their specific efforts are important to the business, how they advance the cause of the business strategically, how they help the business perform better, how they position the business advantageously vis-à-vis competitors, or how they preserve an advantage that the business has and defend against competitive attacks.  When people understand that what they're doing is important and they know that the rest of the business understands that, they'll put forth extraordinary effort.  That also has to be combined with clear goals, clear stretching but achievable goals.  When people know what they have to achieve, why they have to achieve it, how they can achieve it, and when they're getting some metrics along the way so they have some understanding of how close they are, they will accomplish extraordinary things, far more than any of us imagine. 

W:   How do you integrate new people?

K:    We actually place a lot of emphasis on ensuring that new people who join us understand our fundamental business concept and are committed to the success of FreeMarkets.  Every new FreeMarkets employee goes through a program called Market Making 101 in which they learn the fundamentals of market making, which is truly a discipline that we've created, or industrial market making is a discipline that we've created.  Obviously in financial markets there have been market makers for quite a while, but translating that to the realm of low molded plastics and printed circuit boards is something quite new.  So we make sure that everyone who joins us understands that in tremendous depth because that is the core of our business.  We have an extraordinary amount of training.  I'm sure if you were to look on our internet, on any giving week you'd probably see between five and ten different programs that are available to people.  They range from fundamental programs such as Market Making 101 to FreeMarkets Technology Academy which is a program that I sponsor where we educate primarily market makers and sales people about the technology that's driving the marketplace and that undergirds our own business.  So that when, for instance, when a salesperson is out dealing with a client and the client asks questions about security, or asks questions about whether and how we use XML, or what kind of application architecture we use, the salesperson can give an informed answer to that question.  Jason [a FreeMarkets intern and Wharton grad] has actually been a frequent faculty member at FreeMarkets Technology Academy, and he's done a  competitive landscape overview focused on technology advantages that will talk about the technology that each of the major players has to offer and how we stand vis-à-vis those competitors.  That is extraordinarily valuable to our staff members because they have to be able to engage in intelligent discussion about those topics with clients, with sales prospects, with potential business partners, even with vendors who are trying to sell to us.  We do a lot of that kind of thing to get people involved as well as a certain amount of social activity.

W:   It sounds like a fairly developed program.

K:    Yes.  FreeMarkets is unusual.  We are not a traditional dot com.  Because of the heritage of our founders and many of our leaders, we actually combine the speed and agility of an Internet start up with the performance focus of a leading industrial company like GE.  The care about professional develop you would tend to find at a professional services firm.  So we, for instance, review all of our people very thoroughly every six months and we have well defined career tracks and job descriptions.  We have core values.  We actually have five attributes on which we evaluate our technology people.  They are technical leadership, project management leadership, customer focus, quality focus and productivity.  We've defined how each of those attributes would manifest itself at the level of an individual contributor, at the level of a group leader, at the level of someone who's leading an entire organization.  We believe that people are the most important asset of any company, no matter how technology focused, and so we invest a lot of effort in getting people systems right.

W:   How do you compensate your employees?

K:    Salary plus options.  That's fairly standard.  The more senior people are the more the options comprise their compensation.  We try to keep the salary levels reasonably close to market levels, especially at the more junior levels, and then the options provide additional incentive.  We also provide people with long-term incentives.   We ensure that the options are vesting over a reasonably long period of time so that people have an incentive to stay with us. 

V:    Why did you make Pittsburgh your home base?

K:    The company was founded in Pittsburgh because we were looking for a city that symbolized the marriage of technology in the rust belt.  With a strong computer science department at Carnegie Mellon and a lot of the software based entrepreneurial activity around Pittsburgh, we knew we'd have a good source of talent.  We knew that there was some infrastructure in there, some professional services infrastructure to support technology businesses, yet it was certainly a city that had many high performing industrial companies that would represent the sort of clients that we aspired to serve.  Then just from the standpoint of general city characteristics, it has a good airport, easily accessible from most major business centers, and one of our founders was living there at the time.  So that was the reason that Pittsburgh was chosen.  Pittsburgh works for and against us in the recruiting process.  Not every candidate has spent his whole life dreaming of living in Pittsburgh.  On the other hand there are some very talented people who are looking for an opportunity to come back to Pittsburgh and are thrilled to find a high performing company like FreeMarkets that they can join.  We actually find that we do very well in terms of retention because there are not as many eye popping opportunities as there would be in other regions of the country.  So so far it's still working for us.