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Business Unusual

Philip Diehl Transforms U.S. Mint; French Brothers Make Video Games Without Violence; Agency.com's Hsu Chen Discusses Internet Strategies

Aired February 6, 2000 - 6:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ANNOUNCER: Ahead on BUSINESS UNUSUAL, making change. We'll meet the man who transformed the United States Mint from a stodgy government agency to a player in the new economy.

Boeing attacks productivity problems, cuts cost and rockets toward the future with a key acquisition -- a look at one of the greatest turnaround stories in corporate history.

A tale of five French brothers who make some of the best-selling action videos for kids without resorting to violence. Next stop for the maker of Rayman, cyberspace.

Plus, Chan Hsu, the chief executive of agency.com tells us how businesses can get the most from their Internet strategies.

And now, Lauren Thierry.

LAUREN THIERRY, HOST: Welcome to BUSINESS UNUSUAL.

For the first time in 20 years, the United States Mint is circulating a new dollar coin, the golden dollar. It features a striking portrait of Sacagawea, the Native American who guided Lewis and Clark on their expedition across the US. It is a fitting symbol for the mint itself, which has been navigating the turbulent waters of the new economy with startling results. Over the last two years, the agency has installed state-of-the-art technology, doubled revenues and revived the nation`s interest in coin collecting.

As Bill Tucker reports, many people credit one man with giving the mint new currency.

(BEGIN VIDEOTAPE)

BILL TUCKER, CNN CORRESPONDENT (voice-over): Philip Diehl`s job is to make change. As director of the United States Mint, Diehl has transformed the government agency from a sleepy coin maker to a high- tech, high-performance business model for the new economy. If it sounds like a revolution, it is.

PHILIP DIEHL, DIRECTOR, U.S. MINT: We have gone through -- it`s like, you know, it's like Dilbert, you know? But in the government sector. We`ve been through all the flavors of the day of management reform.

TUCKER: Diehl should know. He spent most of his career on Capitol Hill. In 1993, appointed by President Clinton, he took the challenge head on, with the aim to change the hearts and minds of career civil servants who had on average 20 years on the job.

DIEHL: I think you've made him younger.

TUCKER: Antiquated equipment, politically motivated budgets, miles of red tape formed a staggering barrier to change. But Diehl started pushing.

DIEHL: You have to start somewhere, and I think one of the things that active change agents really have is a sense of urgency. But where you start is important, very important for how quickly you build momentum, number one, and how quickly you enlist the support of the old timers in the organization.

DIEHL: Lot faster than licking them.

TUCKER: The first thing Diehl changed was something visible from inside and outside the organization: customer service. Orders of commemorative and uncirculated coinage went out faster, shortening delivery time in some cases from 10 weeks to two. New coin programs went into development. Coin collectors finally got some respect.

NANCY KILLEFER, DIRECTOR, MCKINSEY & CO.: They were in a position where the coin collecting public was literally dying off. And what they`ve done is re-looked at the value of coin collecting and created programs that bring back the, if you will, youth of America to coin collecting.

TUCKER: Critical to changing the cultural DNA was upgrading information technology. The Y2K bug provided an interesting opportunity.

DIEHL: We could spend $10 to $12 million just to make our old pieces of junk Y2K compliant and have the same systems that were a straitjacket to the way we did business, or we could do something much bolder.

TUCKER: Diehl spent $40 million on a software system called Enterprise Resource Planning, or ERP. Used mainly by Fortune 100 companies, the ERP connects all of the business systems together, like finance, manufacturing and sales.

DIEHL: The whole shebang, all tied together in a single system, really pretty revolutionary in its capabilities, but also revolutionary in what it forces an organization to go through.

TUCKER: In a short time, performance problems were exposed. Seventy percent of upper management turned over.

DIEHL: We did turn, eventually turn the place upside down.

TUCKER: It took four years to lay the groundwork for change, and it was an agonizing experience for some.

DIEHL: Resistance is inevitable, and it comes in all kinds of forms. There are the inevitable naysayers and they naysay either out of their own self interests -- they`re comfortable with the current situation. They don`t want you to rock the boat, and they`re afraid they`ll lose authority or control or power.

TUCKER: Others had simply seen it all before.

DIEHL: Those folks often can be a crucial constituency to turn around. They`re typically cynics because they used to be true believers and they lost their faith. And when you`re able to re- instill faith in people, then you re-energize them in the workplace.

TUCKER: One re-energizing force was the Web site. Usmint.gov, which went up in April 1999, had its first $2 million sales day in October and today ranks in the top 25 money-making Web sites on the Internet. The mint is making record profits, enough to finance reinvestment in equipment and send billions to the Treasury.

The mint now operates on its own budget, no longer at the political whimsy of the congressional budgetary process.

STEVE KUNDEREWICZ, PLANT MGR., U.S. MINT: We feel more like a private industry and we operate like a private industry. We have statements like a private industry. So we feel more like an industry than government here.

TUCKER: The 50-state quarter program, along with a robust retail economy, has caused demand for coinage to jump from $2 billion to $7 billion, and the mint makes 21 cents on every quarter it produces.

Diehl is riding high. Today he says the risk and the heartburn were worth it.

DIEHL: There are very few places where you can work in the course of your life in which you create a product that will be in museums 3,000 years from now.

TUCKER: For BUSINESS UNUSUAL, Bill Tucker, CNN financial news.

(END VIDEOTAPE)

THIERRY: To find out more about the U.S. Mint or see this story again, visit our Web site at cnnfn.com and click on to BUSINESS UNUSUAL.

ANNOUNCER: Coming up, UBI Soft, the French video game maker and creator of Rayman looks for action on the Internet.

Now time for our "Biz Quiz."

Was it:

A) Alexander Hamilton B) Thomas Jefferson C) Benjamin Franklin D) George Washington

The answer when BUSINESS UNUSUAL returns.

(BEGIN COMMERCIAL BREAK)

ANNOUNCER: BUSINESS UNUSUAL is brought to you by Arthur Andersen.

Arthur Andersen presents "The Players."

Led by chairman and CEO Keith Krach, Ariba, the world's leading business-to-business e-commerce company has kept a firm emphasis on customer service. The company also provides Ariba Network, the industry's leading platform for commerce on the Internet, such as b- to-b auctions and electronic payments.

Under Krach's leadership, the company boasts a Fortune 100 client list that includes marquee names like Nestle, MCI WorldCom, Charles Schwab and Hewlett Packard. Recently, Ariba's market capitalization has been over $17 billion.

We talked e-commerce with Krach at the company's Mountainview, California headquarters.

KEITH KRACH, PRESIDENT & CEO, ARIBA: Well, one thing that we thought for sure is to substantiate Ariba being the leader in this area of business-to-business electronic commerce. We really had to start off with a solid business model. And so, you know, if you look at our business, even though we're unprofitable, our last seven quarters have been cash flow positive.

And if you look at from the point of when we started the company to the point where we did an initial public offering, we only burnt though $2 million in cash. And so, that's what I call equity efficiency, and I think that's a result of a disciplined business model and good habits.

Well, the Latin route is kind of approval, elation. Ariba, mas rapido. So it's got that little Spanish root and it's very memorable. And then if you spell it with one "R" you can own the trademark.

ANNOUNCER: "The Players," brought to you by Arthur Andersen.

(END COMMERCIAL BREAK)

ANNOUNCER: So who founded the U.S. mint? It was started by Thomas Jefferson in 1792.

THIERRY: Welcome back to BUSINESS UNUSUAL.

France is now the world's third-largest maker of videogames. Ubi Soft, founded by the five Guillemot brothers 15 years ago, produces many of the top-selling games. Ubi Soft makes some of the biggest names in so-called edutainment, games for children stressing strategy over violence. Ubi Soft is now determined to be one of the top five gamesmakers in the world and carry their success on to the Internet.

(BEGIN VIDEOTAPE)

CHARLES HODSON, CNN CORRESPONDENT: Rayman is the legless and armless character created by the five Guillemot brothers, the founders of Ubi Soft. RayMan has been described as something between a smart- alec kid and a happy-go-lucky dog.

He has been lucky for Ubi Soft. Rayman is now the biggest- selling games title by any French software company.

The 15-year gamesmaker is still controlled by the Guillemot family.

Michel founded the company and asked Yves to give up his job as a sales rep for an agriculture company. Two of the other brothers joined straight out of business school.

YVES GUILLEMOT, CEO, UBI SOFT: It took us back from all over the world. I was in the U.S. and he asked me to come back. Then he asked my other brother, Gerard, to come back. And we all came back to help him at the beginning of the business.

MICHEL GUILLEMOT, VICE PRESIDENT, UBI SOFT: We didn't know at that point, you know, how big the market would be. We only thought that it would be something very important Even at that time when we were saving we were in the game business before we were just thinking that we were just playing, you know, not really working.

HODSON: While they operate disparate parts of the fast-growing gamesmaker, the brothers come under one symbol, one trademark, one identity, Rayman.

Y. GUILLEMOT: It's very important for us to work around Rayman and to have the image of the character, because it's easier to explain who we are just in showing a character. And Rayman shows the energy and the action we want to have.

HODSON: Ubi Soft and its French rivals have tapped into a wealth of local talent for design. But the Guillemot brothers don't see themselves as a French company any more.

Y. GUILLERMOT: I am happy to live here, but I want to manage my business more in an American way, I would say. And what I see with American way is freedom, which is I would say the possibility for people to express themselves and to make lots of money if they do.

HODSON: Unlike many video gamers, Ubi Soft generates most of its money from nonviolent games, and Yves Guillemot says he will continue to make strategy titles like its popular Formula I game, and adventure and education games for children: so-called "edutainment."

Y. GUILLERMOT: For the kids you have to give them action. A lot of action. They want to do things quickly. But it doesn't mean you have to kill people.

HODSON: But the games world is a battleground, and this year may see its share of casualties. Players don't buy games when faster game machines are on the horizon. The Japanese three -- Sony, Sega and Nintendo -- are in the throes of upgrading their machines. But no one knows when the key Sony PlayStation II will arrive.

STEVE JACKSON, GAMING AUTHOR: When there's any uncertainty like that, people tend to put their buying decisions off to the future. So, that's likely to be what will happen. We'll see some of that this year.

HODSON: Ubi Soft says it will counter the lull by unleashing Rayman II in March for Sega's third-generation DreamCast machine.

Ubi Soft's revenues have more than tripled in the past three years, and its shares have doubled since October. That's because Rayman II sold well at Christmas and the Guillemot brothers have launched Gameloft.com.

By April, 300 games will be online for players to play in the virtual world.

One area Ubi Soft has yet to conquer, television. It's now developing Rayman for the lucrative American TV market, which it hopes to get on the air this year.

Ubi Soft hoping that Rayman on television, on the Internet, even on mobile phone screens will make the brothers Guillemot one of the top five gamesmakers in the world.

For BUSINESS UNUSUAL, this is Charles Hodson of CNN Financial News.

(END VIDEOTAPE)

THIERRY: Just ahead, just 5 years old, Agency.com is considered a grandfather in the fast-growing field of interactive consulting. John Defterios talks with chief executive Chan Suh after the break.

(BEGIN COMMERCIAL BREAK)

ANNOUNCER: Back to "The Players."

KRACH: Yes, it was funny. When we first formed the company, you know, we were talking about business-to-business electronic commerce. Everybody said, oh, well, you're just a procurement company. You're procuring things like paper clips, and it's so, you know, non-sexy.

The way I looked at that, it didn't bother me because the customers we were talking to were spending billions of dollars, and the value proposition we had for them was billions of dollars in terms of impacting the bottom line. And to me, that was always sexy.

In terms of the overall image or the brand of the company, and the strong, you know, leadership position we're in, that all starts with the customer. It starts with a quality set of customers and also satisfied customers. And then everything is built on top of that.

So you know, we leveraged that, and I think that has impact, whether it's industry analysts, financial analysts, whether it's on Wall Street, or you know, anywhere.

Everybody always asks us about our business model and our pricing model. And I wish we could claim some genius in there. But what we simply did is we asked the advisory council what should be the best way we should price this. And they really came up with this idea of making it a value-based pricing where instead of it's based upon number of desktops or servers, it's based upon the surrogate in terms of the number of, you know, transactions, or in essence the number of line items that, you know, get transacted, and to buy a certain amount of that up front or to put it into packets up front so they could kind of control that cost.

And that's how it really came up. It was designed by our customers.

(END COMMERCIAL BREAK)

THIERRY: Back in 1994, Chan Suh was helping Time Warner launch its Pathfinder Web site when he met up with Kyle Shannon, an aspiring actor who gambled in desktop publishing.

Working in a borrowed office with a Macintosh computer, the two men started Agency.com. Their interactive advertising firm quickly landed some key accounts, including British Airways, Gucci and Ford Motor.

Agency.com went public in December and revenues could hit $145 million this year. Ad giant Omnicom owns a 47 percent stake in Agency, which has more than 1,000 employees and offices in five countries.

John Defterios recently spoke with the chairman and chief executive, Chan Suh, about how the firm helps clients get the most from their interactive strategies.

(BEGIN VIDEOTAPE)

CHAN SUH, CHAIRMAN & CEO, AGENCY.COM: We're very much of a client-centric company. And that means that the relationship we have with our clients really governs the success or the failure of our added-value services. And that also means that we have to partner up with our clients. We're not going to replace our clients. Obviously, we're consultants.

But we're going to add value by giving them ideas and the ways to implement change so that they become an interactive business.

JOHN DEFTERIOS, CNN CORRESPONDENT: You sound like you're a grandfather in this business. I was reading the -- one of the analyst reports from Wall Street saying that oh, they've been in there, Agency.com has been in there for five years. It's the grandfather of the business. Do you feel like in fact you have a leg up because you decided to jump into this consulting business early?

CHAN: Yes, I think that over the last five years we've learned a lot, and that really is the benefit of having been there early on. We've been through the life cycle of a lot of interactive efforts at our client companies. And we to a large extent understand what's coming and what's going to happen and really what to look out for.

The whole purpose of that experience really, the benefit is that we get to shortcut the time frame. We get to give our clients an advantage by giving them a quicker time to market implementation strategy. So they don't have to repeat the mistakes of the others.

DEFTERIOS: Many want to be on the Internet. Your advice is to any global player, just don't go on the Internet to be there, but actually have a motivation to be there, and that's what you try to craft in a strategy.

CHAN: Yes. I mean, I think that if you're going to open up to do business on the Internet you need to know why you're doing this, you need to know how you're going to achieve your success, what success will look like and then you need to know what you're going to commit to in order to achieve those goals.

DEFTERIOS: How do you adapt a company globally and be sensitive to local issues?

CHAN: Well, I mean, personally speaking, I'm from Korea. I lived in Paris before I came here as a teenage, and I've been living in the United States for the last 20 some odd years. I've been through the culture shock a couple of times. There is no substitute for locally customized discussions and marketing strategies.

So that means that you can have worldwide global goals and direction and vision, but you have to be able to implement them on a local basis, where, you know, the customs are different, where the language is different. One of the things that we've done is gone aggressively into a global footprint, so we have a large contingent in Europe as well. It allows us to give our global clients local expertise.

DEFTERIOS: Nice to have you on the program.

CHAN: Thank you.

DEFTERIOS: Thanks for joining us.

(END VIDEOTAPE)

THIERRY: Just ahead, profits blast off at Boeing. A closer look at the dramatic turnaround at the world's largest aerospace company.

(BEGIN COMMERCIAL BREAK)

NARRATOR: More with "The Players."

KRACH: I think it really started with being able to have a clean sheet of paper and then combining that with a real customer-focused approach. So before we wrote a line of code, we went out and we talked to a diagonal slice of 60 of the Fortune 500 companies. We asked them two questions. One is, how are you doing it now? So we could understand the problems involved. And number two, what would be ideal? And we really latched on to the ideal and that formed the initial market requirements and product requirements. Then we brought these initial prospective customers together and we formed an advisory council and we asked them the same question presented in front of their peers and that really defined it.

NARRATOR: "The Players," brought to you by Arthur Andersen. When you need to know more, go to arthurandersen.com.

(END COMMERCIAL BREAK)

THIERRY: In 1997 and 1998, aerospace giant Boeing sold nearly $63 billion in jetliners and didn't earn a penny of profit on them. Asia's economic crisis, production problems, and a price war with rival AirBus Industry took a staggering toll. But Boeing has recovered smartly. Profits soared 106 percent last year after the company cut costs and streamlined its manufacturing process. Asia's rebound is boosting the outlook for future deliveries and Boeing is now diversifying to take control of its financial destiny.

Farland Chang reports.

(BEGIN VIDEOTAPE)

FARLAND CHANG, CNN CORRESPONDENT (voice-over): The world's largest aerospace company is taking off. Boeing has been stalled the past two years by production problems and sagging profit, and the Asian crisis choked off orders by up to 40 percent, but the Seattle exporter got off the ground with profits soaring nearly 80 percent in the third quarter and rising 42 percent in the fourth quarter year on year.

In December, Merrill Lynch rated Boeing stock a long-term buy, and S.G. Cowen calls it a value turnaround, thanks to improving trends. One trend: Asian airline traffic expected to remain strong in the 7 percent to 10 percent growth range in 2000.

BOB TOOMEY, VICE PRESIDENT, DAIN RAUSCHER: Well, we think Boeing is very well positioned. They have a lot of loyal customers in that region.

CHANG: And those customers are placing new orders. Singapore Airlines is buying 10 wide-body 777 jets for $1.5 billion. Taiwan's China Airlines is buying a dozen 747 cargo gets for $2 billion. And in China, Boeing predicts orders will skyrocket in two years, when a moratorium on new orders expires.

(on camera): Despite the Asian economic crisis, Boeing predicts that in 20 years Asia will become its largest market, surpassing the North American market.

(voice-over): And over the next two decades, Boeing plans to deliver to Asian airlines more than four times what it will deliver to North American carriers.

MARTHA NEWHART, BOEING: Japan clearly is our biggest market. China will come in second. But China will surpass Japan over the years and it will become the number-one market in Asia.

CHANG: But Boeing could face turbulence ahead from rising oil prices and slowing economies. Also, Boeing's main rival, AirBus, had a strong 1999, booking more orders than Boeing for the first time ever.

TOOMEY: Obviously, AirBus is going to continue to be a very stiff competitor in whatever markets Boeing is going into. Pricing is going to continue to be difficult.

CHANG: But Boeing aircraft still account for more than two thirds of the world fleet, and the jet maker is betting that its new 747s will be in greater demand than AirBus' new super jumbo. On the assembly line, analysts praise Boeing for building more jets with fewer workers.

And in space, Boeing says it wants to be number one, with its plan to purchase Hughes Electronics' satellite business for nearly $4 billion. If all these trends keep improving, analysts expect Boeing to stay on course for even bluer skies.

Farland Chang for BUSINESS UNUSUAL, Seattle.

(END VIDEOTAPE)

THIERRY: And that's BUSINESS UNUSUAL for this week. I'm Lauren Thierry, goodbye.

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