The Man with the Plan: Joe Tucci of EMC

Joe Tucci became CEO of the EMC Corporation, a leading storage and information technology firm, in January 2001. It was, as he says, an interesting time.

The Internet bubble had just burst — EMC’s market cap plunged and its revenue slipped along with it — 9/11 was about to happen, and the United States, EMC’s biggest market, would soon slip into a recession that affected the tech sector disproportionately. Difficult as these challenges were, they were in many ways less challenging than the problems that Tucci faced when he became CEO of the bankrupt Wang Laboratories and was tasked with fixing that company. In both cases, he succeeded well beyond expectations.

The secret to bringing battered companies back to life is not really a secret. It involves devising a plan, getting everyone on board with it and sticking to that plan with a strong sense of discipline. But a leader must do more. A leader must also generate a sense of hope. At EMC, one of the ways Tucci did this was by reminding people that the firm was the leader in storage technology — a great and growing business — and by refusing to cut core research and development spending. While critics said R&D should not be considered sacred, the signal Tucci sent to the company was that EMC was not retrenching; it was committed to building its future.

Tucci, who prides himself on his accessibility as CEO — chairman was added to his title in 2006 — achieved phenomenal results. Revenue at EMC grew to $20 billion, and the company’s market capitalization increased around sixfold from its low. Since joining EMC, he has made around 70 large and small acquisitions. One of these, VMware, which is public, is valued at around $46 billion, with EMC retaining an 80 percent stake.

Tucci is a strong leader with a clear vision and a warm and acces-sible demeanor. He is passionate about two big things. Everyone at EMC — from administrative assistants to engineers — is client-facing and interacts with customers. He is also passionate about making sure EMC is an inclusive company. In fact, Tucci goes so far as to say to all employees, “This is not my company; this is your company.”

Tucci recently spent time at EMC’s headquarters with Robert Hallagan, Korn/Ferry International’s vice chairman and managing director for board and leadership services, and Joel Kurtzman, editor in chief of Briefings on Talent & Leadership. What follows are excerpts from that conversation.

You pride yourself on the fact that EMC stays close to its customers. How do you it?

TUCCI: One of the things I did when I came in was to institute a program that said everybody makes customer calls. And I assigned accounts. I asked people to talk to our customers. I assigned accounts to our chief legal counsel. I assigned accounts to our CFO and to our head of H.R. They all have clients that they call on. They were supposed to open a dialogue, give better access to engineers, making sure we have better service. I’ll tell you, it’s worked phenomenally and we’ve pushed that down though the company.

So everyone at EMC is client-facing?

TUCCI: Yes. Everybody makes customer calls. It’s popular to say, “The right thing is to keep our engineers coding. “ I say, “No, no, no.” When the customers come in here, and we bring them in in pretty big numbers, I want our engineers to go over and meet with the customers. I want our engineers to spend some of their time traveling to customer sites to talk to our customers. So when I mean everybody makes customer calls, I mean everybody. It’s all about how we understand our customers’ needs, wants, how we understand where we’re doing a great job and where we’re falling short. It’s about always trying to do better. It’s part of the total customer experience — our T.C.E. program. And we also make it part of everybody’s bonus and reward program.

Do you get innovative ideas from your customers?

TUCCI: Absolutely. Look, I will never have an executive vice president or a president for innovation. Innovation comes from everywhere. Sometimes, it comes from somebody that’s using one of our products every day who says, “Have you ever thought of this?” and we say, “Yeah, that’s a phenomenal idea.” Then it’s brought back here for vetting, or a salesperson brings it back. The key is communications and an environment of inclusion.

Can you give an example of learning from a client?

TUCCI: Absolutely. I was visiting a customer in New York — AXA, the big insurance and financial company. And the person that was heading up AXA Tech said that he found this great product and that his people were in love with it and that he needs us to support it, and I said I’d never heard of it. This was in 2003. So he showed me the product and what it did and I said, “Wow, that’s pretty neat.” Now, I have this habit — and I love it — of meandering through our company and chatting with our engineers. So, when I got back, I talked with a couple of our engineers in our labs and I said, “Hey, have you ever heard of this product called VMware?” The first guy I talked to says, “How’d you know about that?” And I said, “What’s the difference? Tell me your version.” He said VMware is one of those secrets in engineering. In engineering you try to keep to some basic standards, and VMware wasn’t a standard product. So then I said, “What do you think of the product?” He said, “It’s the best thing I’ve ever used.” And I said, “Explain it to me; show me a demo,” and he explained it to me. Two days later, a V.P. came in and was showing me a demo that was cool. And I said, “How’d you do that?” And he said, “I’m using VMware,” and I said, “I thought so.” And then he says the same thing to me the other engineer did, “How’d you know about that?” So, I looked up the company on the Web. As it turned out, I didn’t know the founders of VMware, but I knew all three board members well. So I called up one of the board members and I said, “Hey what’s happening with VMware.” They said, “You’re right, it’s an unbelievable product, but if you’re thinking of buying it, you’re too late. Others are circling.” So, I called the CEO, introduced myself to her — Diane Greene — and I said, “Hey I’m really interested in VMware and I’ll move fast.” She said, “There are others way ahead of you,” and I said, “We can move really fast.” So she said, “Well, speak to our lawyer, who is also on the board.” I gave the lawyer a call and he said, “You’re kind of late,” and I said to the lawyer, “You’ve dealt with us before, you know we can move fast. We will be good for your company.”

So, our M.&A. team went out to California, and they called me up, and said, “You’re right, this is really cool.” I said, “I already know that.” Then the M.&A. team said, “We’re going to come home, and then we’ll come back out here.” I said, “Don’t. Take your credit cards, go buy yourselves toothbrushes and clothes, whatever the heck you need. Just stay there until you get the deal done.” We closed the deal in 10 days.

And it all started with the customer?

TUCCI: Yes. You asked me how I found out about it, a customer told me about it. And then I heard about it from my folks when I got back home and tested it internally. And they all loved it. But it started with talking to the customer.

How did you keep the board informed and on board?

TUCCI: The board was great. We did it in real time, and I told them why I thought the company was so great. They were intrigued. One board member in particular thought it was a phenomenal asset. We paid $635 million for VMware, which was a lot, considering it had only $60 million in trailing revenue. But it wasn’t going to break us and it was a really innovative move, and the board backed me.

Not a bad deal, considering at present VMware’s market cap is over $45 billion and EMC still owns about 80 percent of the company. How important was moving quickly to making the deal?

TUCCI: It’s part of innovation. If you get something that’s hot and you move at a slow pace, you’ll lose it. We beat some other players because they had to go through cumbersome processes, while we just ran with it and the board ran with me. That’s how we got such a great return.

You became CEO in 2001, exactly when the tech bubble burst. What was that like?

TUCCI: We had an amazing fall from grace. In the dot-com boom, our market cap on $8.8 billion in revenues peaked at over $225 billion. We had about $1.8 billion in profit, so it was a pretty frothy price-earnings ratio — I think we’d all agree. We went from that high to just under $9 billion in market cap when the bubble burst. So, when I say “fall from grace,” I’m not overemphasizing it. That was a pretty big fall. And of course, that’s exactly the time period when I took over. Let me put it this way, it was interesting.

What was your mind-set when that happened?

TUCCI: Well, I realized it had to do more with a bubble bursting and the fact that the industry was going through changes than it had to do with EMC. And if you truly believed that it wasn’t just a blip — that it was a sea change and that things were not going to be the same — then you act very differently. In my case, I deeply believed, viscerally believed, this was a sea change that was happening along with the bursting of the dot-com bubble.

Was that based on instinct?

TUCCI: Observation. It was happening pretty pervasively, and actually I thought it needed to happen. I mean, P/E ratios of 120 to 130 are not sustainable. You needed to go through a correction.

Did your experiences at Wang prepare you for what you were greeted with at EMC when the bubble burst?

TUCCI: In my Wang days, when I became CEO of that company, we were in Chapter 11 bankruptcy. At Wang, we had $2 billion of creditors’ claims and about $60 million in the bank. We were so broken that we couldn’t even secure debtor-in-possession financing. I think it’s one of the only major Chapter 11 restructurings where D.I.P. financing did not play a role. Wang had lost its lead forever in word processing, e-mail, office automation, and we had to re-birth Wang as something totally different. And so it was about as bad as it could get. Now, contrast that to EMC. EMC was still the leader and the biggest player in information storage. There was not a doubt in my mind that information storage was going to continue to be a great business, so we were the leader in a great business. We also had $4 billion of cash in the bank, and no debt. So, even though the bubble burst, I was sitting here saying, “Wow, this is a great hand!”

However, I used the same principles I learned at Wang because, basically, back then we went from making $1.8 billion in 2000 to losing about $500 million in 2001. In 2002, we lost about $100 million. So you had to turn things around. And when you really believe it’s a sea change and you really believe that you have to attack things differently, then you have to force yourself to go through three stages.

What are those stages?

TUCCI: The first stage is stability. It’s kind of like a patient who’s had a major trauma — you have an accident and you break your leg badly and it’s bleeding. In that case, the doctor’s not going to come in and set your leg until the bleeding is stopped. So, you begin with stabilization. To do that, you have to figure out what you can count on for revenue flows and profit flows and cash flows, and you have figure out how to attain those cash flows and profit flows. You have to figure out what you have to do to get the cost base down to meet the revenue and cash-flow base.

What did you do next?

TUCCI: That’s the basic analysis, which, unfortunately, meant that we had to resize the company. We went from approximately 24,000 people to 17,000 people. I made some very tough decisions. And, you know, the human side of me was very concerned about how it affected people’s livelihoods. And that was tough. But I also realized that if I didn’t do it, it would ruin the business. So, I thought, you have to be upfront and you have to explain as well as you can what you have to do and assure people that when things get better, conditions will change. Even so, we had to cut some good people, and that was unfortunate.

What did you do next?

TUCCI: Well, in the stabilization period you have to communicate, communicate, communicate. And, you’re in a fishbowl. As a leader, you’ve got to make sure you work harder than anybody else, that you live more frugally than anybody else and that you really sacrifice, along with everybody else. But you’ve also got to paint a picture of what you think can and will happen. You’ve got to paint a picture of optimism and success. You’ve got to point out, “Hey, we’re No. 1 in storage; our customer satisfaction ratings are out of this world.”

So you created a climate of hope?

TUCCI: Right. You paint a picture of the mission, a picture of what we could be, and you paint a picture of the vision, a vision that says, “Here’s where we’re going.” So once you complete the stability phase, you go into the rejuvenation phase because you can’t save yourself back to prosperity. In the rejuvenation phase — if we go back to the patient analogy — the bleeding is stopped and I’m setting the broken leg. Then I’ll let the patient walk on crutches and put a little pressure on it. But in this phase, you’re setting your strategy and thinking, “How am I going to grow again? How are we going to return to our former greatness?” You develop your strategy and your tactics.

How did you approach that?

TUCCI: Well, you start with a small group, and you get as much involvement and as much communications as you can. And you share the same message with all audiences. So, whether I was talking internally or whether I was talking to customers or to investors, I always gave the same message. Here‘s what we‘re doing, here’s why we’re doing it, here’s how it works. And that’s what you do. You work on it. That was in the middle of 2003. That’s when we stood on stage and launched our grand vision to everybody.

What did you do next?

TUCCI: We entered the third phase, which is the fun phrase, which is growth. And then, as you grow, you’re hiring again. You’re making it clear how people can have a great future and grow themselves intellectually, grow themselves through their careers, grow themselves financially and get rewarded for their hard work. And, of course, that’s fun. Now, if you lose your way a little, you have to go back to the other phases. But, if you do your job right, you should only need to rejuvenate the organization, the strategy, the vision, the tactics and grow. You shouldn’t have to go back to the stabilization phase.

Do you oscillate between the three phases?

TUCCI: Well, you try not to go back to stabilize, as I said. But if a company goes through one of those sea changes, like the bursting of the dot-com bubble, and it’s losing money, you may need to go back to Phase 1.

Where did you come up with this approach?

TUCCI: Basically, I learned it at Wang. We took Wang through those three phases. And it was unbelievable. When we entered the stabilization phase and we were in bankruptcy, we had about 15,000 people. When we came out, we had 6,000 people. When we went in, we were in word processing, office automations and so forth. When we came out, we focused on document processing software and desktop and network outsourcing services. It was a very different company coming out than going in. But we grew it to an all-time high in revenue — not profit, revenue. So these strategies work and I applied the same lessons here.

How did you test whether or not that was the right strategy?

TUCCI: There’s no such thing as a perfect strategy. I’d rather have a good strategy that’s extremely well executed than a great strategy terribly executed. And you’re always balancing things. Strategies are living, breathing organisms. You’re always morphing your strategy. Not changing it altogether, but tweaking it. In information technology, you’re looking for adjacencies to expand into. That’s what we’ve done.

How do you take advantage of those adjacencies?

TUCCI: Since I’ve been here, we’ve done over 70 acquisitions. Now some of these are small companies we don’t even talk about because we’re buying a five-person shop and we wanted some technology. But still, every time you do that, you’ve got to integrate something. I’ve always been a fan of saying “innovation is critical and investing in research and development is critical.” Even in 2002, our down year, we didn’t cut core storage R&D. We had the highest percentage of R&D in our history.

What was the reaction?

TUCCI: Of course, I was being questioned. CEOs get way too much credit and way too much blame. So if things go well, they get way too much credit because it’s the team that does it. And, if things go badly, the buck stops here. That’s just part of the game. So, yeah, we were taking heat for investing so much in R&D, but it was the right thing to do. In 2003, when we stood up on a stage and said, “Here’s our plan for growth,” and we started to grow, after three quarters of growth in a row, we layered in our first acquisition. But, I really believe that you shouldn’t do acquisitions defensively. I don’t believe it’s right to say, “I’m in such bad shape; let me try to fix myself with an acquisition.”

You don’t think it’s right to buy revenue, in other words?

TUCCI: Right. I’ve never been a believer in that. I’ve been a believer in getting your own ship righted, getting it under way, getting real growth over multiple quarters and then layering in acquisitions.

Does that mean acquisitions belong to the third phase?

TUCCI: Yes. They’re part of the growth phase. The first part of the growth phase is organic growth. The second part of the growth phase is to enhance growth by layering in acquisitions. Look, I’m blessed with 15,000 great people in our engineering organization. They are as innovative as heck and making great products. But 15,000 is a very small percentage of the people that are innovating in I.T., so to rely on them for 100 percent of growth and innovation is foolish.

What do you spend on R&D?

TUCCI: We spend 11.5 percent of revenues on a cash basis on R&D. And if you look back over the last six years, we’ve spent about $2 billion a year acquiring technology companies.

Is that $2 billion included in the 11.5 percent figure?

TUCCI: No. It’s in addition to the 11.5 percent we spend on R&D. That means 11.5 percent comes out of the profit and loss statement, and we use the balance sheet for the acquisitions.

Spending $2 billion a year on acquisitions is an average. Some years we did a lot more, some years we do a lot less. But if you take that average and add in 11.5 percent based on revenue of $20 billion, it means we are spending something approaching $4.5 billion on technology, which is part of our strategy. This company, in its heart and soul, is a technology company, and I want to keep it that way. Technology companies don’t just put out good products, they put out truly distinctive products. To do that, they use all of their heart and soul. And if a company loses that soul, it loses its way.

So, if you’re a bright young engineer, is this the place to go to work?

TUCCI: We invest a ton on indigenous innovation. What I tell our engineers is that if there are people you admire, that you think are doing great things, that are friends of yours and that are out there doing innovation in a related area, go get them. Bring them in.

Our internal people don’t feel like, “Wow, we’re getting all our innovation externally.” Our indigenous innovation is phenomenal. But what I want to do is do both — indigenous innovation and external innovation. We made the decision in the rejuvenation phase that we’re going to stay a technology company. But once we got growth back, I’m not going to rely only on indigenous innovation.

How do you know your innovation strategy is working?

TUCCI: It’s a simple answer. You watch the customers’ reactions, and you see the product growth. Sometimes, you have to have patience. Every product we have isn’t an out-of-the-box home run right away. Some of the most successful products we’ve had took a little bit of a ramp. Sometimes, it works out great. You put a product out in the marketplace, and boom, the customers love it.

Sometimes, you put a product out there and the customers want to test it and do a trial with it for a while, and it takes some time. So, you have to have a little bit of patience. And where it’s not immediate or fails to ramp as soon as you would like, you have to go out and be very visible. I spend at least half my time traveling, and when I’m traveling, I’m always visiting customers. I’m always visiting our people in the field who are closest to our customers, and I’m always saying, “What’s the reaction to this product?” And the customer says, “Boy, this is really intriguing. I‘ve just got to do more testing. I want to prototype it longer.” I think that’s fine. If customers said it’s just not hitting the mark, then I’ve got to change something.

How would you describe your leadership style? Has it changed over the years?

TUCCI: My core leadership style hasn’t changed, but it has morphed a lot on the margin — and the margin is what a lot of people see. What I’ve learned over time is that there are three things you have to do to be a successful CEO. One thing is hire really talented, really smart, really hard-working people. I’m a big fan of intellectual brilliance blended with a person who has drive and truly cares for people. But hiring great people is insufficient; you have to get those people to work together as a team. But even that is insufficient.

What completes it is that you’ve also got to get those great people to work around a common vision and goal of what we can be, what we should be and what we’re going to be. There are obviously other things one has to do, but those are the three core things that I focus on. You know, I want people around me who are really good human beings. You work so hard and so long with people, you want them to be good human beings. You also want people who are intellectually smart. What you want is a good blend of E.Q. and I.Q. So, you have to ask, can this person really play? Does he or she truly value a team? You can have conflict, but everyone has to be marching in the same direction.

What are some of the events in your life that shaped you?

TUCCI: I was born in Brooklyn, my family did a short stint in New Jersey, then we moved outside Albany, N.Y., when I was 11. But what shaped my life more than anything else was my father dying when I was pretty young. I was the oldest of five, ages 16 through 3. When that happened, life was different.

My father was an engineer, he went to college on the G.I. Bill, and my mother was a math teacher. I was always good in math, so I think I got the math gene from her. We weren’t wealthy by any means, but we were middle class. Then, when my father died, we were, let’s just say, much less wealthy. If you’re raising five children on a schoolteacher’s salary, you’re hardly rich. I was the oldest, and that shapes your life. It gives you an air of independence, in a way. I mean, as the oldest, I wasn’t going to burden my mother with any of my problems, right? That was a turning point in life.