Storing success
Meeting demands of expanding data fuel EMC growth
Staff and wire reports
EMC Corp., based in Hopkinton, Mass., has become a household name in Rhode Island.
That's because every morning, about 600 Rhode Islanders cross the border to work at one of five EMC manufacturing or office facilities along Route 495 in Westboro, Southboro, Hopkinton, Milford or Franklin.
In recent years, EMC has grown into one of the region's fastest growing high technology companies. Figures released by EMC at the close of its third quarter in September showed the company employed 8,200 people in Massachusetts and 21,600 worldwide. That's up from 7,200 and 18,800, respectively, earlier in the year.
Also, thousands of investors have been rewarded during the past decade by EMC's stock performance. For the period that ended the latest bull market's first 10 years -- Oct. 11, 2000 -- EMC's share price rose 84,000 percent, topping companies such as Cisco Systems and Dell Computer Corp.
For the first five trading days of this year, EMC's stock (EMC:NYSE) has been as volatile as the overall market, closing yesterday at $61.50 a share. off $2.88 a share and down significantly from 52-week high last Sept. 20 of $103.25 a share.
Still, EMC's recent market value has roughly equaled that of competitor IBM Corp., although EMC's estimated 2000 revenue of $8.5 billion is one-tenth that of its rival.
Despite predictions that the company has become too big to maintain its torrid pace, EMC has posted 14 consecutive quarters of at least 20 percent revenue and profit growth.
To some extent, EMC's success comes from being in the right industry at the right time. Data storage is hot these days, especially with the rise of the Internet. Each online mouse click either creates new information, which must be stored somewhere, or taps an expanding repository of existing information. And the demand for storage is expected to grow exponentially.
Much of the credit for EMC's success goes to Michael Ruettgers, the company's chief executive for the past eight years. By repeatedly leading the company into untested markets, the 58-year-old executive has turned a struggling maker of minicomputer memory boards into the dominant player in one of the fastest-growing industries.
Was there ever a moment when you suddenly turned and saw a wave that was closer and approaching much faster than you thought?
Yes. In February 1999, I traveled to the West Coast and spent four days talking with dot-coms and other Internet companies. Suddenly it became clear that there was a surging demand that we hadn't seen. In fact, Sun Microsystems had seen it and had already made inroads with its storage systems.
We immediately established a dedicated sales force to focus on Internet companies. And we set out to identify the people who would have an influence on the purchase of our products. These were primarily venture capitalists -- people who could live with the business risk of a start-up but didn't want the technical risk of a company losing all its data.
Within six to eight months, we'd gone from essentially not having much visibility in this space to being considered one of the "four horsemen of the Internet:" Oracle in databases, Sun in servers, Cisco in networking and EMC in storage.
But wasn't it fairly obvious to you some time ago that the Internet revolution would create a big demand for storage?
Yes and no. Nearly four years ago, we formed our Internet Solutions Group, which includes a small Web-hosting business, because I wanted us to have firsthand experience with data storage on the Internet. We host the Web sites of 50 or 60 customers, and this allows us to advise our storage customers -- for example, Internet service providers -- on state-of-the-art technical issues.
At the same time, however, most of the dot-coms were falling through the cracks. In our business, only a few large companies provided the majority of data storage, so we focused on companies with more than $500 million in revenue, 150 people in the IT department and so forth.
But suddenly there were companies with little or no revenue who were poised to immediately buy as much storage as some of our largest customers. So yes, three or four years ago, we saw the Internet wave coming.
Let's talk about how you've anticipated some of the big waves in your industry.
You have to view this in the context of the typical life cycle of a technology company. There's usually a period of growth -- sometimes tremendous growth. Then there's surprise, as some disruptive technology or stealth competition appears out of nowhere. Then panic, with its accompanying loss of focus and paralysis. And then decline.
Occasionally, a company will reinvent itself and start the cycle again. But how much better to simply stay in the growth stage. Within a growth stage, there is the typical product adoption cycle, the one that Geoffrey Moore, author of Crossing the Chasm and Inside the Tornado, writes about. When a new product is introduced, a handful of innovators will try it, followed by a few more early adopters. And then there is that crucial chasm that must be crossed to get to the early majority of users and ever-wider acceptance. Then the growth tapers off until only the laggards are left to buy the product.
Staying in the growth stage requires both timing and speed. For example, we stagger our products rather than develop them one after the other: as one product peaks, the next one in the pipeline is poised to cross the chasm. One sign of our own success in this area is that, in recent years, as much as 80 percent of our annual revenue has come from products introduced during the year.
What about speed?
We get a new product to the very early adopters quickly -- maybe not with all the bells and whistles in place, but with the expectation of full functionality in the near future. Then we can modify and refine the product for them and for later users based on actual use. So when we cross the chasm and roll the product out broadly, the product has already been in the hands of customers.
You talk about the importance of quickly getting products into the hands of your customers. How do you know what they want or, more important, what they are likely to want in the future?
We focus on the customers we call "lead users." These are early adopters who will try unconventional approaches and push us for customized solutions, which we can later modify for wider customer use. In every case, we try to understand not only their current needs but also their future, unarticulated ones.
There are formal and informal ways of getting at this. For example, we hold what we call "customer councils" twice a year in North America and Europe and annually elsewhere in the world. The aim of these meetings is to methodically extract product requirements from customers, to test the validity of concepts we are considering for future products, and in general to create a climate of collaborative innovation.
The meetings include 50 to 60 carefully chosen customers and our own product management and engineering executives. Customers commit to working with us in this role for at least 18 months and sign nondisclosure agreements.
Rivals like IBM, Hitachi and Sun Microsystems all sell storage as a complement to other products. Doesn't this give them additional leverage with customers?
I think our focus on a single business actually helps us stay ahead of the curve. In some respects, this runs counter to what I learned in business school, where the prevailing wisdom was to diversify. But our single-minded focus creates a special lens through which to view and interpret customers' current and future needs.
For example, our perspective allowed us to see that the computer industry had, in some ways, lost sight of its reason for being. It had become so consumed with the "T" in IT -- the creation of faster processors and more efficient networks -- that it had forgotten about the "I." Yet ultimately, it's information that customers care about: the speed of access to it, its availability, the ability to share it across an organization.
People compare the intense atmosphere at EMC to that of a start - up. Can you describe the company's culture?
I think the defining characteristic is a sense of urgency. This primes us to seize opportunities that are only just emerging, as well as to execute our existing plans.
For example, when we launched our open-storage product in 1995, I set a goal of $200 million in sales for the year. At the end of the first quarter, we were way behind our sales targets, even though we had built enough products to meet them. We took all that extra inventory and put it in people's offices. People had to climb around crates to get to their desks. Miraculously, by the end of the next quarter, we had met our sales targets. And all of the offices were empty.
We help fuel this sense of urgency by setting quarterly goals for the 800 or so executives in the organization. We measure and pay people against those quarterly goals.
Despite EMC's success over the past decade, you describe a company that sounds as though it's still running to get ahead. How do you maintain that drive?
We're acutely aware that more companies fail because of their success than any other reason. I tell people, "What got us here won't keep us here." Technology leadership is not an entitlement, and we have to be constantly vigilant for signs of complacency.
I get a chilling reminder of that every day on my way to work when I drive down Route 495, passing the tombstones of once high-flying technology companies, from Computervision to Wang. If you're looking to place blame for these casualties, you have to fault the management. It's my job to make sure that this doesn't happen to EMC.
But I think healthy paranoia runs all the way through the company. Down in Milford, we occupy a building that Prime once leased. On the second floor, there's a big auditorium. In the back of the auditorium is a giant sign that says Prime Computer. When we moved into the building, the employees asked us to leave the sign up as a reminder of what could happen if EMC ever became complacent.
With reports from Cox Newspapers
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