EMC Dishes Out a Little More TLC
Kurt Wong never read EMC Corp.'s sales bids from front to back. The data- storage outfit's typical 50-page pitch was so much longer than other bids that Wong, director of storage engineering at Visa International, would skip to the last page, to the price, which was always two to three times as high as the lowest bid. When EMC (EMC ) realized that Wong was ignoring its marketing spiel, it started burying the figure in the middle of the proposals. Even more irritating was the accompanying arrogance. "It was a take-it-or-leave-it attitude without directly saying so. Like: `You're stupid if you don't take this,"' says Wong. Still, take it Wong did. At that time, EMC was miles ahead of its rivals in storage technology.
Not anymore. Competitors IBM (IBM ) and Hitachi Data Systems are offering storage systems that are just as good as EMC's. And customers are only too happy to switch to rivals that can offer reliable storage for a reasonable price--without the high-handed attitude. Wong, for instance, bought storage from IBM last year for the first time in several years. Big Blue now supplies about 25% of his storage systems, up from next to nothing a year ago, while EMC's share has dropped from 80% last year to 60%. Hannaford Brothers Co., a supermarket chain in Scarborough, Me., bought from IBM in December for the first time in eight years. "[It] was less expensive, had better performance, and was easier to manage," says Bill Homa, Hannaford's chief information officer. "[EMC is] facing real competition for the first time in years."
The change couldn't have come at a worse time. With the collapse of many dot-coms and telecom companies, the storage market is expected to be flat this year, at about $30 billion, compared with 16% growth last year, according to market researcher Gartner Dataquest. That has EMC fighting off a growing number of rivals just as the market is stagnating. The double whammy is taking its toll: EMC, which had been growing at an average annual clip of 37% since 1995, posted its first year-over-year revenue decline in 48 quarters in the period ended June 30. Revenues slid 6% in the second quarter, to $2.15 billion, while net income dropped 75%, to $109 million. EMC's stock has plummeted to $17--off more than 80% since its September, 2000, peak.
Now, Joseph M. Tucci, who took over as chief executive from longtime CEO Michael C. Ruettgers in January, is shaking things up. His biggest challenge: getting a company that has a long tradition of going it alone to work more effectively with others, including its customers, companies that resell its products, and even its rivals. For example, he wants to sell more storage products through resellers to lower overhead, which ballooned to 31% of revenues in the second quarter, up from 24% a year earlier. That means the direct-sales force, which used to try to swipe business from resellers, needs to cooperate with companies such as Eastman Kodak Co. (EK ), which sells EMC's storage to hospital X-ray departments along with Kodak imaging equipment. To accomplish that, EMC sales reps now receive fatter commissions than they used to get if they sell through a partner.
The cooperation won't end there. Tucci wants EMC services, such as consulting on storage systems, to increase to 20% of revenues in 2003, up from 7% last year. To get there, EMC will sell its services alongside tech consultants, such as Electronic Data Systems. And, in a dramatic break with past practices, EMC is starting to make software that will drive the storage gear of competing hardware makers for the first time. The first software program, which lets a customer coordinate storage cabinets from a variety of hardware companies from one control center, was introduced a few months ago. This initiative requires EMC programmers to work with rivals to make sure EMC's software runs on their hardware smoothly.
FINE LINE. Tucci is trying to infuse EMC's culture with a dose of humility. He's coaching the sales staff and other employees to drop the smugness that alienated customers like Wong. He's also reducing the number of accounts salespeople handle and cutting their quotas to encourage them to spend more time with big customers. "It's the old rule: Treat others how you want to be treated," he says. The company has even fired people who get too cocky. "You've got to weed out the rotten ones," Tucci says. "I hate arrogance. I just hate it."
The trick will be to change EMC's culture just enough to hold on to its customers without losing the aggressive spirit that made the 22-year-old company the leader in the storage market. For example, EMC needs to walk a fine line between selling its software widely and giving away the technology that makes its products unique. "On paper, it's the way to go," says analyst James D. Poyner Jr. of C.E. Unterberg, Towbin. "Politically, it may be difficult."
Tucci, who joined EMC in January, 2000, and became CEO a year later, may be just the person to revamp EMC. Born in Brooklyn, N.Y., he graduated from Manhattan College and got an MBA from Columbia University. In 1993, he led Wang Laboratories Inc. out of bankruptcy and transformed the company from a hardware seller into a software and services provider. In 1999, he sold Wang to Getronics, a Dutch tech-services company, netting a cool $2 billion for his shareholders. Ruettgers spent four months recruiting him to EMC because Ruettgers felt no exec inside EMC had the experience to run the company. In his first 90 days, Tucci built the foundation for EMC's consulting business, which is becoming a substantial revenue producer.
Tucci has proved his toughness in personnel matters too. In April, he moved Mike Ruffolo, the head of sales, services, and marketing, into an internal consulting job because Tucci felt the business wasn't clicking. He gave responsibility for sales and services to Frank M. Hauck, an 11-year EMC veteran who had never sold a storage box-- but had built up a world-class service network. Ruffolo left in July to join Akamai (AKAM ), an Internet company. "When your team is not doing what you want it to do, you just make changes," says Tucci.
Changing the culture at EMC will take more than a little turnover in the executive suite. The company has fostered a hyperaggressive environment. One way it has done that is by filling its sales ranks with blue-collar men who played sports. Each year, the top execs pumped up the sales team at a pep kickoff in January. At one, the executive team showed clips from the movie Apollo 13. The scene: The chief NASA engineer puts a bunch of engineers in a room, hands them some parts, and gives them an hour to find a way to bring the astronauts home alive. The message became a mantra at EMC: Failure was not an option. "If 6,000 people are being told failure is not an option, not an option, not an option right up to the end, they say: `I'm going to figure out how to do this,"' says a former EMC executive. "The culture just doesn't look at reality. It can't see reality."
Some analysts suggest that that culture blinded management to the tech downturn and hurt its credibility on Wall Street. As other tech companies ran into troubles earlier this year, EMC execs remained upbeat about the company's performance. Back at the beginning of the year, they insisted EMC would boost revenues 25% to 35% from the $8.9 billion last year. In April, EMC lowered the revenue growth guidance, but only to 20%. It wasn't until July that the company conceded it didn't have a clue how it would do for the year--months after other tech companies. "They tend to have a view that there's no reason they shouldn't be able to cause something to happen," says analyst Laura Conigliaro of Goldman, Sachs & Co.
EMC insists that it's changing. Besides giving salespeople fewer accounts and lower quotas, managers are visiting customers with reps to help close deals. "It's a little bit more teamwork," says Hauck. Customers are beginning to notice the change. Visa's Wong, for example, says he's getting more TLC from the company these days. EMC assigned him a special account manager so Visa doesn't have to compete for attention with other accounts. "He's very good," says Wong, although he won't say whether he'll give EMC more business.
"CAN WE HELP?" Stephen Bold may be a prototype of the more accommodating EMC sales rep. The avid golfer and weight lifter now drives his used Mercedes to just three accounts outside Boston, down from nine last year. The other six accounts have been passed to another member of EMC's 6,000-person sales force. Bold can't seem to do enough for his clients. A huge opportunity looms at telecom carrier CTC Communications Group Inc. (CPTL ), based in Waltham, Mass.: a new data center the company will use to provide storage services for customers. "Challenge us," he tells Jeffrey C. Lavin, vice-president for marketing at CTC. "Just let us know what you need." The message is the same at Tufts Health Plan, another major client. "Can we help?" Bold asks one morning in August, as Robert Bimmler, a systems manager at Tufts, recounts how he's under more pressure to better justify tech spending.
Back at the office, Bold makes a phone call to arrange the catering for an upcoming Saturday softball game. Techies from EMC's Internet Services Group are playing their counterparts at Staples. Will EMC be nice and let the customer win? "No," says Bold. "We play to...." He stops abruptly. But he clearly means to say win. EMC hasn't lost its drive. It's just toned down the swagger that used to go with it.
By Faith Keenan in Hopkinton, Mass.