I'm at the EMC analyst event this week and it is filled with the typical briefings on new products and services. Much of this I can't talk about because of the required NDA but there is an overarching message I've picked up that isn't protected. That is about how management is transitioning the company to dominate a technology market that is economically constrained. I'm seeing three areas of unique concentration: Employee Engagement and Trust, Customer Loyalty, and a focus on lean, smart, savings. Let's take each in turn.
Employee Engagement and Trust
For most of the large companies, both in and out of tech, layoffs have been one of the most common tools of dealing with the downturn. These are often massive layoffs (and I'm not a fan), and these firms have treated employees like easily replaceable parts and sacrificed long-term loyalty for short-term economic benefits. EMC has had some staffing adjustments but has avoided the massive multiple layoffs that many of its peers have executed. In addition, it continues to drive internal education programs that allow employees to get advanced education at the plant, involve the employees in programs where the employees themselves drive cost reductions and quality improvements, and aggressively recognize employees to step outside their jobs and do things that improve the company's bottom line.
This contract with the employees is somewhat unique in the segment. EMC enjoys one of the highest levels of employee retention, stability, and evident high morale in the segment as a result. Recently, it recruited Pat Gelsinger from Intel; Pat was one of the most respected managers in that company and was thought to be the heart of that firm. His choice showcases EMC's focus on the value of a manager who works with his people and doesn't dominate them. In short, EMC's first advantage is being a Great Place to Work.
EMC has instituted the most comprehensive customer loyalty monitoring and feedback programs of any company I've ever worked for or follow. As a result, it can see its own products, services and solutions as well as those of competitors through the customers' eyes. This customer view goes beyond just the things it does; it drifts into the environments that customers live in. For instance, it is one of the few companies that has picked up that decisions have been steadily shifting away from IT through Finance and are starting to reside with line managers. This allows EMC to transition sales programs, offerings, and solutions to better appeal to these new influencers and not only increase customer loyalty but go around entrenched competitors to find more successful ways to displace them.
One interesting fact that has come out of the related research is that every point in customer loyalty it gains equals two points in market share. This is because these customers supplement the sales force and become advocates. As loyalty increases, the accounts are more willing to believe EMC and more quickly buy into new technologies. This reminds me of the very successful IBM model in the 60s and 70s, where a tight focus on building deep relationships led to a much tighter coupling between IBM's new offerings and business adoption.
Lean and Smart Savings
Like most companies in the enterprise storage space, EMC operates on five nines in terms of product quality. Unlike most companies, its quality efforts are largely employee driven. It lives in the same economic environment, however, and that means it has to cut costs while ensuring it doesn't adversely impact quality. As a result, unlike most firms, who use a top-down approach to cost cutting and process management, EMC largely uses a bottom-up approach. While it too is aggressive with automation, it will often create a manual process first before building an automated tool to replace it. This allows EMC to explore both the problems and advantages of a new process before it is implemented, avoiding many of the problems and costs other methods enjoy.
In addition, this allowed the company to discover and implement a method of sharing expensive tools that likely wouldn't had worked if it had been dictated, because employees tend to be territorial. By coming to the conclusion cooperatively, they were more likely to successfully accept it. However, unlike most employee-driven methods, EMC's is based on the concept of constant improvement, where perfection is not required before a change is made. This prevents employees who are resistant to change from constantly pointing out imperfections to stop the process because the solution isn't perfect. As long as it is significantly better, the changes are implemented and additional ideas are factored into the next change cycle. It was quite fascinating to walk EMC's manufacturing lines and see best practices from a number of industries implemented in what appears to be a very lean, in terms of cost, but rich, in terms of quality process, set of practices. It was almost like a living textbook of historic best practices. It was fascinating to experience in person.
Wrapping Up: The Advantage of Focus
So many companies try to be one-stop-shops, which has advantages in terms of being able to be a single throat to choke for customers, revenue diversity, and account control for the firm. However, this approach has disadvantages in terms of complexity, employee retention, customer satisfaction and market anticipation. While the tech market is led by generalists like HP and IBM, Apple just demonstrated that tight focus can even beat another, less focused, specialized competitor like Nokia and has consistently outperformed, in terms of profitability, the top tech market generalists.
EMC, Cisco and VMware are each specialists in their unique space and it interesting that the three firms have partnered to create the Virtual Computing Environment Coalition. If they can gain the advantages of the breadth of this offering without damaging the focus of the individual units, the result could be very powerful. In any case, I leave EMC impressed with its customer focus, employee loyalty, and balanced focus on cost. I'm watching too many firms making bad choices by stripping off strategic assets to make quarterly numbers. I'm pleased to report EMC isn't one of them.