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Karl Moore : This is Karl Moore of the Desautels Faculty of Management at McGill University, talking management for The Globe and Mail. Today I am speaking with Murray Martin, who is the CEO of Pitney Bowes Worldwide. Murray is also a Canadian.

Murray, good afternoon

Murray Martin: Good afternoon.

KM: One of the things that I think about Pitney Bowes – when I was starting out at IBM, we had a Pitney Bowes machine that was about stamp technology. The world has really moved on since then. How has Pitney Bowes managed to surf the technological waves to leave what is technology [that's] largely not that important to still be a large successful company? How do you deal with technology?

MM: Firstly, Pitney Bowes was founded on innovation, and the postal-evidencing device [postage meter] was its first innovation, but it was just the first of many and it was a very large technological leap. We have continued to move along that chain, whether it is going from mechanical to electronic, and then implementing back in the fifties an architecture that allowed for virtual transmission of funds across a network of devices.

We have taken that and continued to expand into the digital environment so that we, today, not just evidence [postage on] the envelope but we take care of things such as … understanding who buys, what the demographics and cycle graphic data is. In this manner, we can help target information and make it more information-rich by adding our software capabilities, adding out mail-distribution capabilities, and our on-site service capabilities.

These are all areas we have expanded out from, and so today, that original technology is about 50 per cent of the revenues of the company.

KM: How do you get the timing right? How do you know when you should move into a new technology or a new segment? How do you keep on pushing the company into these new areas?

MM: If you are in a focus of continuing innovation, you are always looking for the next opportunity, and you should be doing that when you are most successful, and not when you are under stress. You will know that certain things you have innovated are not ready and the timing isn't right for the market, so you put those on the shelf and then you pull them off.

I think back to some of the things we did – we were looking at self-service and kiosk around postal automation back in the sixties and we put that on the shelves because the timing was not right. Today, obviously, self-service is the right time.

By having that innovation lab and by putting things together in an orderly fashion, you can then take those and come to market with them much quicker than if you had to innovate from the beginning. So I believe it is a culture of innovation, always leading, always looking for how you are going to be in the right place, whenever that time is.

KM: Where does innovation come from within Pitney Bowes? Is it primarily research and development labs? Is it from customers? Is it from conferences? Where does all this innovation arise from Pitney Bowes? MM: Innovation is very broad across Pitney Bowes and I believe that there are a number of elements that need to occur around innovation. Firstly, I believe that the spirit of innovation has to begin at the top, so it has to start with whoever is the CEO of the company saying we will continue to drive innovation.

But that is not enough. It is not enough to have technology labs such as we have and have them innovate; they are more on the invention [side]. Innovation is taking an invention and being able to capitalize that and generate real customer value. To do that, you need to be able to go and study customer behaviours, what their pain points are, what it is they want to accomplish and then say how you are going to deliver the goods and services to do that. So that is the top-down approach.

At Pitney Bowes, we also expanded the bottom-up approach. We launched a social-network program which we called IdeaNet, which allows all employees to engage in innovation. I believe that there are a lot of innovators in the company that want to innovate product, services and processes to enhance the value to customers. We have launched that now, and we have had over 16,000 of our employees engaged in innovation.

KM: Out of all of those suggestions, how do you decide which ones to pick up and which ones should be the ideas that should fall by the wayside, from all these suggestions from across the company?

MM: What we do first is that we take the broad base and we give them targeted areas to think about, and that then restricts the number that you have. We have actually assigned funding to a small team of non-first-level managers to look at those, and they make the choices and they make the assignment of funding to have some of those programs start up.

As we look at it from the topside, we look at it from a strategic position of the company and we look at what areas we need to innovate in, and then we narrow that innovation column into that. That then progresses into new business opportunities, where we have launched a limited number of those per year to see which ones will succeed, which ones will have traction with customers, and which can be built into meaningful business.

As we do that filter, if the business does not have an opportunity of over $100-millions, then it is not a significant innovation and it might be useful for a business unit to add to an existing platform, but it is not a new wave of innovation.

KM: How many would you see of those in a year?

MM: We would look at three to five of those a year. Three being a more reasonable number, where we launch and look into the second year. Probably two of those would survive and one of them would, over a period of 10 years, reach its original target.

KM: So you are looking at dozens of ideas to get one that is really the winner from a profit viewpoint in the marketplace?

MM: That is correct.

KM: What about other ideas you have learned through innovation? What have you learned about innovation during a recession? Is there anything about that?

MM: Of course there is and there isn't. During a recession, one of the things that most people generally look at are expenses. One of the easiest things to cut is innovation and investment in the future. But during the time of recession, this is where strong companies can really come out and leverage the future. Because if you invest in a time of recession, you can come out of the recession [and] not only will you be stronger but your company will leapfrog ahead of the majority of the competition. At Pitney Bowes, we continue to invest at a very strong rate during this time of recession. We have not decreased our spending at all.

KM: One of the things that Pitney Bowes has done is dozens of M&As [mergers and acquisitions] in the last 10 years. What have you learned about doing an effective merger and acquisition?

MM: There are multiple types of acquisitions. There are acquisitions that we call platform acquisitions; this is an acquisition on which you are going to build a new stream of business. With this type of acquisition, you would be looking at not just the technology but also at the basic underpinnings to be able to add additional components to it. This addition of components or tacked-on acquisitions we do to both platforms and to our core. For example: We would make an acquisition where we would really want or are looking for customers and technology, and then look to leveraging those assets across the existing business and use their infrastructure to support that. Therefore, you can get immediate synergy in cost and synergy from a revenue point of view. Those are the two different types, whereas a platform you are looking to establishing a new business direction and then build on its own, which you can hopefully leverage across your other business units.

KM: What does Pitney Bowes bring to these acquisitions, other than the money to buy them?

MM: If you look at an acquisition such as add-on, what we add is capacity. We have over two million customers around the world. So if you are adding a small entity, they do not have that kind of reach. They do not have that kind of capability to reach customers and to deliver their product, where it would take decades for them to get to that kind of penetration. That is the big advantage of small technology and as what we call ‘tucked' acquisitions.

When we come to a platform acquisition, what we really bring there is the resources that will allow them to expand at a much faster rate. If I take our mail services systems as an example: We made a $60-million acquisition about six years ago. Today, that business is over $600-million because we were able to accelerate the growth that was available in that market segment that they would not be able to fund nor do on their own.

KM: Do you keep or how do you keep the founders of these small organizations as part of the Pitney Bowes organization after an acquisition?

MM: From a family point of view, you will end up with a mix of people that are looking to go on to the next opportunity. When you are making the acquisition, you are very careful in looking at what is the infrastructure and capabilities behind that person who is going to basically catch on and look to move on. An entrepreneur is an entrepreneur and they do not necessarily work well as something becomes larger. You have got to have in mind from day one, on the other hand, you have some people that grew up with large businesses and have taken over small businesses and are looking forward to going back and being involved in a larger environment, where the funding is available or the capabilities are there which aren't there in a small business. So I'll say it is another 50/50.

KM: This has been Karl Moore of the Desautels Faculty of Management at McGill University, talking management for The Globe and Mail. Today I have been speaking to Murray Martin, who is the CEO of Pitney Bowes Worldwide.