Wharton was the first collegiate business school. In the past 125 years, we invented the business curriculum, business textbook, business professor, and business student. Through the influence and actions of faculty and alumni, we’ve elevated industries, spread economic models, influenced capital markets, built companies, and created opportunities around the world.

In this month’s Wharton Alumni Magazine and in issues to come, you’ll hear directly from a few among 80,000 alumni innovators and leaders: Warren Lieberfarb, who led the creation of the DVD; J.D. Power III, whose market research firm defined independence; Michael Milken, who changed the bond market and the funding of cancer research; and David Yi Li, who restructured China Merchant Holdings and now leads UBS in China. Learn about how they’ve achieved innovation and results in their careers, and hear what they see as trends for the future in their industries. Look for the stories of more influencers, entrepreneurs, leaders, and visionaries as we celebrate the 125th anniversary of the idea that inspired them all. Visit 125th.wharton.upenn.edu to nominate a Wharton leader who fulfills the unique vision of Joseph Wharton.

Looking back, looking ahead

A Message from Dean Patrick Harker

In 1881, American entrepreneur and industrialist Joseph Wharton had the most radical idea in the history of business.

Patrick_HarkerHe proposed the establishment of the world’s first collegiate school of business at the University of Pennsylvania. Joseph Wharton offered the vision of future generations of business leaders—trained through the scientific study of business—unleashing the power of their knowledge to advance society through economic development.

As we celebrate this major moment in the Wharton School’s history, it’s important to reflect on the impact of that radical idea. We’re not only celebrating the 125th anniversary of the Wharton School. We’re also celebrating the birth of business education, a global industry that produces more than 300,000 highly skilled managers every year and the knowledge that drives business growth. And it all started right here.

No other single idea—and no single institution—has had such a dramatic, transformational effect on the way business is conducted in the global market.

But the 125th anniversary of the Wharton School is not only a time to celebrate our unique heritage as the origin of business education. It’s a time to celebrate our continued leadership to this very day in setting the standard for excellence that makes the School, our programs and our graduates still the most influential drivers of business growth and economic development—and an opportunity to tell that story to the world.

Our success rests squarely on the shoulders of the creative design Joseph Wharton outlined in his proposal to the Trustees in 1881. His vision for the School centered on three foundational values that continue to guide us today: first, an unfailing commitment to innovation; second, the application of broad expertise and outreach to the largest audience; and third, the need for a deep engagement with business practice.

Commitment to Innovation

Joseph Wharton did not create this institution simply as a distribution channel of accepted business knowledge of his day. From its start, knowledge creation was the basic foundational commitment of the Wharton School. He chose to base his school as part of a university—and not simply as an independent vocational academy—to ensure that serious, scientific scholarship in business issues would form the basis of instruction. He realized that business would advance most quickly and effectively in an environment where ideas are created, debated, refined, and retooled.

Wharton’s innovative environment and its world-class faculty continue to generate the knowledge and ideas that are the building blocks of global business practice in virtually every industry. We are always expanding not only the knowledge that advances business, but also the ways that knowledge is best communicated and implemented in practice.

Broad Expertise and Outreach

Joseph Wharton understood that business growth is driven by individuals with a broad range of knowledge across disciplines, as well as specialized skills. He believed sustained economic growth required a constant flow of information, skills and talent throughout every level of operations in individual companies, industries and policy-making bodies. He also recognized that business education must not be limited to the privileged classes; borrowing the mass production model from his business experience, he encouraged expansive outreach to large numbers of students and business leaders.

Wharton offers academic programs across the entire spectrum of business education—for everyone from high school students, undergraduates, MBA students, and doctoral candidates, to senior executives. The expertise of our faculty creates opportunities to gain in-depth knowledge on virtually every major challenge facing global business today. As part of the University of Pennsylvania, we also share vast resources in business law, ethics, public policy, technology and the life sciences—more than any other business school.

Engagement with Business

As a partnership between a leading industrialist and a university, the Wharton School was founded with the core belief that serious scholarship of business issues must be based firmly in the practical experience of those who deal with the challenges of the competitive, rapidly changing business environment. This ensured that the knowledge created and shared is not only relevant, but could be immediately used to drive change and achievement.

Wharton’s impact in the classroom and the world is fueled by our long-term relationships with leading companies and global policy-makers. Every year, we work with more than 1,000 companies, including more than two-thirds of the Fortune 500 and leading global firms, as well as government agencies around the world. This engagement in research, academic programming and curricular design enables Wharton to bridge the gap between theory and practice. It makes Wharton a unique environment where new knowledge grows in a real-world, real-time context.

Throughout the next 18 months, we will celebrate the many achievements and strengths of the Wharton School, our faculty and our graduates. Join us in Philadelphia for the celebration, or at any Wharton 125 events planned around the world.


Warren Lieberfarb: Father of the DVD

While many gadgets have inventors, the DVD had a father. Warren Lieberfarb, W’65, is credited with the vision, persuasiveness, and persistence that took the DVD from an idea—”a high-quality digital movie on a CD”—to the fastest consumer electronic product adoption ever.

Warren_LieberfarbIn the early 1990s, Lieberfarb, then the president of Warner Home Video, surveyed the digital future of entertainment. While analog videocassette sales and rentals were profitable, Wall Street analysts predicted decline. Lieberfarb believed that by producing a superior digital packaged product, the home video industry could jump out ahead of digital content delivery via cable, satellite, and DSL. Using the resources of his company, he forged a network of alliances among film studios, consumer electronics manufacturers, and technology companies. The result? The alignment of hardware and software to create an inexpensive, high-quality mass consumer product.

Consumers were waiting. Within five years of the first players becoming available, 30 million were sold in the U.S. and 22 million outside the U.S. It took VCRs 13 years to achieve the household penetration that DVDs did in only five.

Wharton Alumni Magazine sat down with the principal of Warren Lieberfarb Associates to hear how he envisioned the product that transformed home entertainment—and what creative and technological changes he sees in store for film and television in a digital world.

Before the DVD, other technically superior formats—Beta, Laser Disc—had been tried and failed. How did you see that the opportunity was finally there for a better option?

In looking at the potential, I saw a different business model as well as a different format. I took a page out of Andy Grove’s book—only the paranoid survive. That reflects a technique of critical thinking and a form of analytic discipline to look at the risks as well as the rewards.

My experience in the launch and development of pay cable television in the 1970s and early work at Paramount led me to a fascination on how to improve the business models for motion picture companies bringing entertainment into the home. My basic point of view was that the economic returns to the risk-taker—the studio—on television had always suffered because there was a gatekeeper.

Originally, there were three networks that controlled distribution. Then the dominant networks for film on TV became the pay cable networks. When the VCR came into existence, the dominance of a single customer controlling distribution into the home was disintermediated by mom-and-pop video stores.

That empowered the viewer, but there was an essential flaw in the notion that people had to rent videos, therefore making two trips to the store for access to a night’s programming.

I felt that what drives consumer adoption in many new businesses or services is convenience. Renting was synonymous to me to inconvenience. That idea led me to explore an alternative to the videotape at a price point that made purchase possible, instead of renting.

It wasn’t just that I recognized the advantages to a digital home video model, but the disadvantages of the current one. I saw the threats to it and simultaneously the solutions, and that led me to the journey on co-developing the DVD.

Co-developing the format was a key to the success of the DVD where other formats had failed. How did you get other companies on board?

The most challenging experience I’ve been through was not convincing the Japanese, Korean, and European electronic companies to develop a successor to the VCR. It was not working with key players in the technology industry, such as IBM, Intel, Microsoft, and Apple. It was working with Hollywood.

In my opinion, Hollywood, as the content creator that is the highest-profile and riskiest in the entertainment/media chain, has been most averse to risk. This aversion is manifested in any changes to the distribution paradigm. The industry has always been pulled into distributing their products in any new media rather than being the pusher because studios fear that any change will have a negative effect in the short run. Most of their mindset is based on short-run profitability because of the risks inherent in financing movies.

I was able to succeed because I had Time Warner behind me. I used our ownership of cable systems and the Time Warner filmed entertainment libraries to leverage studio participation. The reason that Paramount got into DVDs was because [its parent company] Viacom owned Blockbuster. Therefore, if Blockbuster sought change in their economics with Warner properties, a quid pro quo was available. Likewise if Fox and [its parent company] News Corp. sought improvements in how its cable properties were carried on Time Warner Cable, I was able to represent that those changes in dial position would not be forthcoming unless there was a reciprocal alignment with our strategies.

Hollywood necessitates tenacity, perseverance, and willingness to accept a lot of blows and be seen as an outcast. There’s not only resistance to change due to risk-aversion, but ingrained technophobia. Although the industry is driven by technology in production, post-production, and distribution, particularly in the digital era, there is a limited appreciation on how to evaluate technology alternatives. At core, the senior management are creative executives, not technologists.

Once you had the studios on board, the consumer adoption of DVDs was rapid. Why?

As soon as the studios were making their products available in DVD simultaneously with VHS and offering people a price point that facilitated either purchase or rental, consumers were given an option that was not widely available on VHS. This was coupled with the open licensing of the DVD technology, which allowed price competition for hardware, with Chinese manufacturers being new entrants.

The combination of low-cost players and numerous features that differentiated the product—video quality, sound quality, interactivity, compatibility with PC, navigation tools, added content that made sense to consumers. The chicken and egg came together—the hardware and software were aligned.

Now that DVDs are the standard, digital on-demand and downloadable formats seem to be next.

It’s inevitable that physical media of the DVD will ultimately be challenged by the electronic delivery into various home and portable displays.

Studios will try to design ingenious ways to have their cake and eat it too. The margins of a physical item are higher, and DVDs are still differentiated from on-demand content because of the extras. There are advanced content applications via second video screens that have been developed as part and parcel of the interactive specifications that for now are only available in physical media, but a lot of the added content is as easily available in electronic media—bits are bits.

The industry will initially offer the new movies on a pay-per-view model, but the library of movies—the back catalog—would probably be optimized by a subscription rather than an a la carte model, monthly or annual terms.

A number of different copy-protection technologies are being used for DVDs, with varying success. What do you see as the biggest challenge to studios?

Regardless of copy-protections, studios are very vulnerable and significantly at risk through piracy. And the expense and cost of the movie-going experience is challenged by the quality of the home display, home audio systems, and the resolution and audio characteristics of the DVD.

The communal experience of sharing the magic of the big screen, particularly for certain movies that have a spectacular character to them, will continue, but in my opinion that experience will be challenged by piracy and pricing—the high cost of movie going.

In 2005, box-office receipts were down while DVD and on-demand revenues are rising. Some people are now proposing releasing DVDs the same time as the theatrical release.

I think a better alternative would be secure, high-definition downloads simultaneous to the theatrical opening, but with digital rights management technology coding the movie such that it can be played only for a limited, studio-selected number of times or number of days. The protection on the files would keep them from being forwarded or copied.

The distinction between the theatrical release and video release will disappear, but the video release will be electronic. The use of VRM will enable studios to control and price it to minimize the cannibalization of revenues during that time period.

The benefit of using the theatrical advertising not just to draw people into the cinema but to draw usage in the home is very seductive. Thus the media can be leveraged against the much larger audience that goes to the movies.

Do you think this will change the kinds of entertainment that is made?

Yes, I do. As we develop a home model that scales the media budget, we will be appealing to a demographic whose tastes and interests might be very different than the younger generations that find cinema-going a great escape from staying at home.

I look at this home model as creating an appetite for investing in story- and character-driven movies that appeal to the pre-, post-, and actual baby boomers who were the core audiences who brought about the creative resurgence of cinema in the 1960s and 1970s, but whose tastes are not being met in today’s market.

Advertising-dependent television has been dominated by the youth market, as well as theatrical films. The home distribution will create access to a new market because in lieu of the constraints of distribution—the theaters and networks as gatekeepers—distribution will be ubiquitous on the Internet.

The economics are yet to be decided because until you know the consumer reaction, it’s hard to predict the production budgets. But arguably the costs of production would go down, because technology is transforming production and post-production as well, lending the medium to more productions of specialized programming.

It’s clear that the television model is also going to change. The disruptive technology of the personal digital video recorder, downloads to portable devices, and video on demand is going to challenge consumer audiences. The movie model is going to change based on this continued progression of personalization where the user is the programmer and no one else.

If you create a distribution model that is direct between the content and consumer and it’s not filtered through the economics of running a cinema or selling advertising, the content will determine the length and format, not business metrics. There are no magical number of pages in a book, so I don’t know why there has to be a magic number of minutes for a movie or a television program.

Access to content at your schedule, your location, your device will be the next generation of the dissemination of entertainment. As someone who loves movies, that’s something I look forward to.

Interview by Kelly J. Andrews, editor of Wharton Alumni Magazine.


Michael Milken: Financier for a Cure

More than 30 years ago, philanthropist, financier and Wharton School alumnus Michael Milken, WG’70, began applying the innovations he developed during his studies at Wharton to revolutionize modern capital markets, bringing new financing strategies to fund companies. The thousands of companies he financed created millions of jobs, and the financing markets continue to bear his imprint.

Michael_MilkenJust a few years after starting in business, Milken began using his business innovations in philanthropy. Today he is ranked not only as one of the leading economic innovators in this country, but also as one of the most generous living Americans. During the past 30 years, he and his family have given more than $750 million to medical research and education. Their Milken Family Foundation has created models in how philanthropy can advance education, youth programs, inner cities solutions, pediatric neurology, and treatments for various forms of cancer.

Milken recently spoke with Wharton Alumni Magazine about how he is using new business models to fund and drive medical research toward cures and treatments for serious diseases.

You created a revolution in capital markets and now you have had this extraordinary success funding medical research. How does your approach differ from the traditional approach and why does it work?

It took 20 years to figure it out, so there was a lot of trial and error along the way. I began working on this aggressively in 1972 when my mother-in-law was diagnosed with breast cancer, and then really in earnest in the mid-1970s when my father was diagnosed with a melanoma.

The approach has been to recruit human capital. The concept is that getting the best people gets the best results. How? I have three key approaches to encouraging the most talented people to participate.

The first thing we did this was to change the awards process. With our foundations, a person can apply for grants knowing that we promise to read only the first five pages of their application. They could submit a nine-foot-tall stack of papers, but we’re only going to read the first five pages. And we promise to let them know if they’re going to be funded in 60 days and give them their money within 90. Many people who were very busy, or Nobel Prize winners who wonder why they should get involved with a lengthy or difficult application process, or people that had a unique idea, would not normally apply for grants from the National Institutes for Health or the National Cancer Institute because they have no proven data to give them. By allowing them to present their ideas to us in five pages, people didn’t have to prepare for months for this mission, and they had quick responses on whether they’d be funded or not. This strategy really worked well. It’s gotten people involved who might otherwise not have gotten involved in these forms of research.

The second approach is that we literally did fund things based on the future, not the past. So we funded ideas, from the standpoint of worthy venture medical research, to get someone started. Once their work is underway they can then be funded by the National Institutes of Health or the National Cancer Institute or in some cases biotech companies or pharmaceutical companies.

The third thing is that we collaborate and make them share. We interact with these individuals anywhere from one to four years, we hold them accountable for what they’re doing, and we bring them together periodically with others to share their information.

This was a difficult proposition for some researchers. Many people felt their work so important, they were waiting to get it published, they were waiting for credit, and they didn’t want to share it. In those cases, I told them that if their work was so important, I’m sure they wouldn’t have a difficulty getting funding from someone else. I told them our funds were for individuals whose work wasn’t that important and needed our funding. Within a year everyone was willing to share their information.

I think bringing together a critical mass at individual centers is a very important piece in innovation. Creating a therapy consortium, where institutions would share with one another, has made a big difference. When it began, people felt they were competitors. We explained to them that for the patient there are no competitors.

Looking back now a few decades, are you able to see mistakes that you made, lessons you may have learned, strategies or processes you have been able to develop?

One of the things we’ve always done is identify key researchers in a laboratory and give them awards, so they don’t have to take a vow of poverty. That’s been our thrust and strategy.

In general this has been very effective, with one exception: When we give senior people these awards, I would have to say that 30 years later, the benefits of that decision are hard to justify. I don’t believe that was a good social investment. When I look at what was done by our young investigators, they were far more productive than the people near the peak, near the back ends of their careers.

If you look at Nobel Prize winners, if you look at my own work, most of the ideas, say for today’s modern capital markets, came out of my studies at Berkeley and Wharton. Most Nobel Prize winners get Nobel Prizes in science or economics for the work they did within five years of going to school. They might get the recognition 30 years later, but the ideas occurred much earlier. Today we’re much more focused on young investigators who are still deciding what to do with their career. The average age of a first grant from the National Cancer Institute is somewhere between 42 and 44 years of age. Well, that’s long after a person’s has reached their peak in knowledge, in terms of going to school, getting a PhD, MD. It’s extremely discouraging, if you’re 29 or 30 years old, you’ve spent 12 years in a university setting, and the average age is another 10 to 15 years before you’re going to get a grant. Our goal was to encourage these individuals.

The second mistake we made was that early on, I felt that giving a researcher an inspirational speech, an award ceremony, and money was enough. We discovered later there was a lot more work that had to be done to help people. This was primarily supporting interaction for them between nonprofits and for profits, dealing with bureaucratic issues and getting clinical trials going.

Scientists and business people are often dispassionate about the people affected by their work, whether they are conducting basic scientific research or weighing a financial decision. Your funding of cancer research has at times seemed very personal. Is this a benefit?

It is personal, and not just for me. I would say at least one in two people went into medical philanthropy because of their personal disease, their children’s disease, their brother or sister, their parents, or a friend. Many of them were successful entrepreneurs or businessmen, and have completely diverted their careers or partially diverted what they were doing to drive organizations that are disease specific. I always say it is personal. I’ve lost 10 relatives to cancer. I lost my father to cancer. I’ve lost four relatives to brain tumors. My children had certain health challenges. I’ve spent nights lying on the floor in hospitals like others have.

Today I try to talk to anywhere from one to five individuals who have been diagnosed with cancer a day. This gives me a focus on the person who has just been diagnosed, who obviously is on the edge. I try to understand what they’re thinking, what they’re learning, and it also gives a fresh perspective on how a person reacts and what knowledge is available. Last week a young man who I knew well died of cancer. This was despite all of our efforts and despite who I believe was the best doctor in this field and despite his access to treatment. Everything we could do in 2005 was still not enough for him. The numbers of people touched by disease are so large it might seem like it’s not personal, but I think everyone, every person who is sick and needs care, is personal.

There are other philanthropists trying to affect health. What is unique about your work?

Some people have chosen other paths. The Gates Foundation particularly has been focused on bringing medical care and solutions that are proven to people that haven had access to them, in Africa, for example. My focus here has really been to search for medical solutions to problems that have not been solved. I find that intellectually stimulating, emotionally stimulating, personally rewarding, and very challenging.

You launched FasterCures / The Center for Accelerating Medical Solutions in 2003 as an “action tank” to save lives by saving time in the discovery and development of new treatments and cures for all serious diseases. What have you achieved, and what are you working toward?

I believe we’ve instilled a sense of urgency that I feel is extremely important. There’s a new realization in medical research that things need to be done quickly, and that they can be done quickly. For example, a university can forgo the grant process and technology transfer paperwork and simply get funding for research from donors and in the process, possibly save a few years.

Another things we’ve done is to take the best practices, whether they be in multiple sclerosis or lung cancer, and apply that to other disease categories. We do this by having meetings with what we consider to be the strongest, most focused groups in disease specific areas, and then open ways for them to share with each other. This has led to advances in digitizing medical records, which makes data available across disease categories. It also helps get patients into clinical trials in a more collective way.

We’ve also been looking at the economic effect of curing a disease. Forget the emotional effect. The pure economic effect of what it is worth to a society to eliminate a disease is tremendous. For a minor disease it’s measured in the billions, a major disease in the trillions.

The last area we’ve been working toward is the internationalization of this effort. There are enormous financial and research resources outside the United States. It’s quite possible that India can do clinical trials more efficiently than we can here. They have a great medical care program in many parts of India today which rival the United States. So whether it’s Japan, China, India, Norway, Sweden, Finland, Netherlands, Australia, the United Kingdom, all of these countries are involved in the process of finding cures. I’m actually quite optimistic that what is going to occur outside the United States is going to couple with what we do here.

Interview by Martha Mendoza, a working journalist and a winner of the 2000 Pulitzer Prize for investigative reporting.


J.D. Power III: Consumer Research Pioneer

Once upon a time, market research was a fairly straightforward endeavor: questions were asked, answers tabulated and then reported. The Internet has changed all that. Today’s research-hungry corporations want instant answers, and a slew of online upstarts are happy to promise those answers—for less money.

J.D._PowerNo one knows this better than J.D. “Dave” Power, WG’59, known as the customer satisfaction guru by the business press. After 37 years as an independent, Power this spring decided to sell his information-services business for an undisclosed sum to The McGraw-Hill Companies, parent of Standard & Poor’s, McGraw-Hill Education, and Business Week. The 73-year-old statistician, whose name has become synonymous with automotive-quality rankings, vows he’ll stick with the rapidly growing company that still bears his name. Power gave up the CEO title a few years ago, but he remains founder and one of the most influential figures in the global auto industry.

Power began his career doing market research for companies such as Ford and General Motors. Bored and frustrated with the way management massaged his research to justify their decisions, he left the auto industry in the mid-1960s for chainsaw maker McCulloch Motors Inc., which was having trouble cracking the consumer market. Power advised the company to expand its product line of lumberjack saws to include lightweight models for do-it-yourselfers after spotting a basic flaw in McCulloch’s operations: The company forecast chainsaw sales based on the number of lumber trees it could find. “I said, ‘You don’t sell to trees, you sell to people,’” Power told McCullough executives. Power’s research also showed that the saws needed to be smaller, less expensive, and able to tolerate long periods of idleness. McCulloch listened, and sales took off.

Power set off on his own in 1968. Toyota was his early client, initially asking Power to survey the forklift market and begin his long relationship with Japanese carmakers. Today, Power is often credited with accelerating the popularity of Japanese cars in the United States. “At the time, Detroit didn’t think Japan could produce anything other than motor scooters,” he says.

Though he’s best known for rating auto companies based on surveying tens of thousands of consumers a year, Power today rates companies in categories as diverse as cellular communications, satellite and cable TV, hospitals, banks, home builders, hotels, and airports. And as competition has heightened, his firm’s services have expanded to include proprietary tracking studies, media studies, forecasting, and training services, as well as business operations analyses, and consultancies on customer satisfaction trends.

Based in Westlake Village, CA, JD Power and Associates today has 750 employees in 12 offices worldwide and generates more than $190 million a year in revenues, according to published reports—a fivefold increase over the past decade. The firm has expanded in China, India, and other burgeoning economies. The cost of this expansion, Power admits, is a major reason behind his decision to sell.

During a recent interview with the Wharton Alumni Magazine, Power offered some thoughts about the future of his industry, the wisdom of the consumer, and becoming an employee again after nearly 40 years.

What are the biggest issues facing the market research services industry?

The biggest issue is that as we move into the information age, we’re finding a lot of questionable information out on the Internet claiming to be research. Lots of people are able to do surveys, but the industry has developed over the years with certain standards that, these days, are often not adhered to. There are many people conducting surveys who don’t understand sampling methodology or statistics. A research firm might put out a quick survey on the airline industry, for instance, interjecting personal opinion into the analysis. We’ve never done that. There’s a lot more information going out that’s often misinterpreted. Everyone is an expert now. It’s the Wild West when it comes to surveys. Can we stop that? No. It’s only going to increase.

One way we’ve responded is by teaming up with McGraw- Hill. They will help us move into the information age faster than our competitors while still living by the standards that we originally developed. Our industry is entering a new era. Globalization, technology, and information—and using them strategically—are the issues defining the future.

In your industry, how do mature companies stay innovative?

That’s a very good question. I believe that the standard marketing research survey company of 30 or 40 years ago is obsolete today. We see this with the consolidation of the industry, with major companies from Europe swallowing up smaller research firms here to get into the U.S. market. That will likely continue.

But companies like ours need to get out of the survey research business and move into the solution business, the information business. When we merged with a much larger organization, we looked for a company that would help us change, allowing us the ability to still do the work we like to do, but also take us into the information age.

We see today that what we’ve done in the U.S. is now being accepted on a worldwide basis. The automobile companies are looking for the same information in all of their markets. And because they are all becoming global, opening up markets in places like China and India, they are looking for global information on an instantaneous basis. That’s what we want to provide. If other market research firms are to survive, they too will have to adopt this instantaneous mindset.

In a global environment, management has to have the information across all of their markets. Until recently, they might have a distributor in a particular market handle the market research for that market. But these days that won’t allow managers to make decisions on a global basis. Each market is different. We have to use different but complementary techniques. Our clients are changing. We have to change too.

As it grows ever larger, how will JD Power and Associates stay in touch with the little guy, the consumer?

Technology will help us with that, but we must embrace the technology. More surveys are done on the Internet, and we have to manage the language differences and other challenges. Our Consumer Center (found on the JD Power and Associates website) also keeps us on-mission by allowing consumers to check our ratings on everything from homes to health care and to voice their opinion online. We also offer Consumer Center websites in Germany, India, the U.K, and Canada.

When we started, my vision was that we have to give the right information from the eyes of the consumer. In Detroit, where I got my market research baptism, I found that the data was changed as it passed up the line of the organization. We used to say that they tortured the data until it confessed. I felt that they weren’t listening to what we were presenting. And so I decided that the only way to tell it like it is to be independent.

We found that the customer is a lot smarter than the automobile industry gave them credit for. We started feeding the information we gathered back to the industry, and some companies listened and modified what they were doing, especially the Japanese companies that were coming into the U.S. market and eventually took it by storm. They listened, and when I would go in with results, they wanted more. The more information they got, the more they requested, and that’s a mindset. Industrial companies that have been around for 100 years or so are the ones that are the slowest to change.

Even today, we see this. But managers are waking up. The domestic companies today want our information and they don’t want it massaged before they get it.

What has it been like for you personally to sell the company you founded nearly 40 years ago?

I am definitely nostalgic, but I have been preaching that we have to change. McGraw-Hill will allow us to be ourselves, but give us the financial strength to keep growing. We were growing at such a fast pace that it was difficult for me to keep my hands on everything. Cash flow becomes more of a problem as you get bigger. We didn’t want to slow down our growth, and so we decided to look around.

I didn’t want to merge with a traditional survey research firm because I feel that most are still operating in the industrial era. The whole survey research industry is changing dramatically. The days of mailing out the questionnaires and tabulating the results over a six-month period are over. That’s why we are transforming the company. Unfortunately you get older, but I want to be around as long as I can.

It’s an interesting time, because for the first time in 37 years, I am an employee. When I went home recently and opened the employee manual I’d been sent, I saw that, because of my 37 years in this business, I qualify for five weeks vacation. I haven’t had more than a week of vacation in nearly 40 years. So these are the happy things.

Compiled by frequent contributor Nancy Moffitt, with additional information from BusinessWeek, the Associated Press and Wharton’s Get it Started online newsletter.



David Yi Li: Bridging State and Private Economies


David_Yi_LiChina is renowned for its ancient culture and its thousands of years of philosophical riches.

The country’s economy, however, is still a gangly adolescent, according to David Yi Li, WG’92, the chairman and country head of UBS China.

After all, it was only 25 years ago that China began its transition from a planned to a market economy. And though it has maintained a historic nine percent growth rate for the past quarter-century, to Li’s mind, China’s blossoming in the world economy is only just beginning.

Li’s own journey, from professional soccer player to a senior executive at China Merchants Holdings (International), one of the county’s largest state-owned-enterprises, to his current role as head of the China division of one of the world’s largest investment banks, in many ways reflects his country’s economic voyage.

Economic reform, begun by Deng Xiaoping in 1979, was a historical turning point for modern China. Then, everything was state owned: Local barber shops, corner restaurants, financial institutions and even the Shaanxi Professional Soccer Club, where Li played professionally for four years.

Now, the private sector contributes to one-third of China’s GDP. By many estimates, it will be up to half within five years, and surpass three-quarters within a decade.

Accompanying the rise of the private sector will be the continuing rise of Chinese consumer demand, says Li. That means China’s next big economic move will be away from export-oriented manufacturing toward a more lucrative service market. Moreover, China’s phased entry into the World Trade Organization, to be completed by 2007, has broadened the range of its economic development and deepened its reach.

The upshot, says Li: Tremendous opportunity for international financial service institutions.

Few have as good a perch from which to describe China’s growth, both internally and in the global market, as Li does. A Chinese national, he is steeped in traditional culture, armed with a bachelor’s and law degree from mainland universities and an MBA from Wharton, and can boast of senior professional roles across continents. The combination puts him in a unique position to build bridges between East and West.

Li’s ability to strategically grow a Chinese business through financial acumen is a large part of the reason why UBS hired him. Before joining UBS, Li restructured China Merchants Holdings from a multifaceted investment firm to a leading port company focused on its core port operations, largely through asset swaps, acquisitions and divestitures. During his four-year tenure at the state-owned-enterprise, net profit more than doubled and its share price almost quadrupled.

At UBS, his main focus is to steer the global bank toward strategic local opportunities, such as its recent acquisition of Beijing Securities Co. Ltd, a prestigious but financially troubled securities firm. The transaction made UBS the first international financial institution with direct ownership of a full-functioning local securities firm and was intended to serve as the launching pad and operations platform for all of UBS’ business in China.

Helping Chinese businesses make inroads into overseas markets is as critical a component of the bank’s success in China as is finding mainland opportunities for UBS.

As the man who stands at the nexus of the two worlds, Li is in constant demand. It also means he doesn’t get much rest. Though based in China, he spends most of his time—weekends, weekdays, the middle of the night—meeting with clients all over the globe.

“I sleep five, maybe six hours a day. It’s a very intensive job,” Li says. “Some local companies who want to do business overseas have to get UBS’ support. If they want UBS’ support, they have to get me to understand their business first.”

But getting local businesses to understand and operate by international rules often poses more cultural barriers than helping the global investment bank seize mainland opportunities.

“American and European companies have already been doing business internationally, in Taiwan, Korea and Japan, for a long time, so they know they have to understand the local culture. They already know it’s a vital part of being successful,” says Li.

Many Chinese companies, Li explains, don’t have the same experience to draw upon.

“China only opened its doors 20 or 25 years ago. It’s historically short. Chinese companies that want to do business internationally still have a lot to learn.”

The learning curve could be China’s Achilles heel, Li warns. China’s challenges are numerous, including a legal system that has yet to catch up with its economy, cracks in social welfare because of unbalanced urban and rural growth, and environmental threats as its quench for oil and raw materials grow seemingly unchecked.

“There are tremendous challenges that China is facing to modernize the nation with over 1.3 billion population and relative scarcity of resources. The challenges may include problems in preserving the environment and improving balanced education and healthcare in the rural areas,” said Li.

“Due to the size of the nation and its population” he continues, problems in any one of those areas “could be of grand scale and inter-related, and could cause great damage in China’s continuous development.”

“The hope is that the country and its leaders are sufficiently wise and capable of solving these problems gradually,” Li says.

Still, the challenges of managing China’s growth are daunting. By international standards, the country’s capital markets are still inefficient and enormously risky, with mountains of bad loans on the books of state-owned banks. And global investors are losing patience with rampant intellectual-property theft.

Leading economists point to yet another threat to China’s booming growth: A potential deceleration in world demand. If the U.S. consumer slows down—and some economists worry about a recession, given rising interest rates and energy costs—the global repercussions would be swift and loud.

China’s growth so far has been largely on the coattails of the American consumer, producing the televisions, t-shirts and toys that U.S. consumers hungrily charge on their credit cards. The U.S. trade deficit with China widened to a record $20.1 billion in September, compared to $15.5 billion a year ago. With more than one third of China’s exports going directly to the U.S., there is no question that the countries’ economies, not to mention their currencies, are inextricably linked. A slowdown in U.S consumer spending could endanger China’s booms, whose factories are already showing signs of overcapacity.

“A slow-down in the U.S. as well as other areas around the world will, to a different extent, have a negative impact on China’s continuous growth as the world’s factory,” Li says.

But, says Li, despite its intricate ties to the U.S. economy, China is boosting its immunity to global ups and downs.

“China’s reliance on exports is becoming less and less significant. With the WTO agenda rolling out and the conscious desire and decision from the Chinese government to maintain long term growth and prosperity, we will be able to see that the domestic market will play a bigger role” in the country’s economic stability, Li says.

That, in turn, spells a bigger role for financial institutions to serve a population increasingly hungry for credit lines, insurance policies and investment vehicles such as mutual funds and retirement accounts.

“The opportunity in China for international financial institutions of all forms is tremendous,” and carries more potential than any other industry, Li says.

Private equity and venture capital investment in China continues to rise. Foreign direct investment topped $60 billion in 2004, and by mid-October, merger and acquisition activity in China had reached $42.2 billion.

UBS has played a leading role in that flow. In 2003, UBS became the first institution approved as a Qualified Foreign Institutional investor, allowing it to trade in Chinese shares and bonds on behalf of foreign clients. In 2004, the bank topped the China mergers and acquisitions league tables, and in March 2005 obtained a license to conduct derivatives transactions to help clients manage interest rate and currency risks.

The inflow of foreign capital is expected to play a critical role in modernizing China’s capital markets and banking system, which until now have been renowned for their cronyism and corruption.

Yet, says Li, it will take time for the country’s legal and capital markets infrastructure to evolve. He urges patience to those who expect overnight transformation, and encourages flexibility in navigating the country’s business culture, where the success of a deal can often hinge on approval from key members of state councils rather than particular provisions in a contract.

“We know that the regulatory and legal system is very important in the U.S. But in China, the legal and regulatory system is not very mature. If you try to do business here but only follow international legal practice, in some ways you couldn’t get anything done,” Li said.

“At Wharton we talked a lot about business ethics,” he continues. Outside the classroom, however, says Li, the lines are not as clear. “It’s a dilemma. You have to make difficult decisions base on your experience, your judgment. It can be very tough.”

The challenge, Li says, both for global companies looking for opportunities in China as well as Chinese companies looking to expand overseas, is not to get stuck in one way of thinking.

“China will be able to sustain its fast growth for a prolonged period beyond 2025. The biggest job right now is not how to grow. The important thing is how to combine or smooth the different cultures. It’s very important. For the long run, for a responsible vision of building a business or an investment, you have to build a bridge. To construct a bridge, you have to understand both cultures.”

Interview by Ritu Kalra, W’96, a reporter with the Hartford Courant. She worked as an investment banker and bond trader after graduating from Wharton and before attending journalism school.



The pioneering of Joseph Wharton creates the world’s first collegiate business school.

W.E.B._DuBois 1896

Through the Wharton fellowship, W.E.B. DuBois undertakes his classic study of the social and economic condition of African-American urbanites.

Quadricycle 1921

The MBA Program enrolls its first class.

Frances_Perkins 1933

Frances Perkins is appointed U.S. Secretary of Labor by President Franklin D. Roosevelt, becoming the first woman cabinet member. Perkins studied at Wharton between 1907 and 1910.


The Securities Industry Institute is established, the first and longest running custom executive program among business schools.

Mutual_Funds 1962

Professor Irwin Friend leads a milestone study of mutual funds.

Simon_Kuznets 1971

Simon Kuznets, former Wharton professor, wins the Nobel Prize in Economics for his method to measure the Gross National Product.

Lawrence_Klein 1980

Professor Lawrence Klein wins the Nobel Prize in Economics for creating econometric forecasting models that help predict global economics trends.

Laptop 1990

Wharton leads a “wave of change in management education” with the revolutionary redesign of its undergraduate and MBA curricula.


The Alfred P. West, Jr. Learning Lab establishes Wharton as a leader in creating technology-enhanced learning tools for 21st century management education.

Globe 2005

Wharton’s global network expands to more than 80,000 alumni in 140 countries.



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