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Business model transformation - how to do it?
Case study: EMC Corporation

Only those organizations that can change over time as external environment changes tend to survive and create shareholder value. Since the 90s, as the pace of change has increased at rates never seen before, it is no longer possible to simply "evolve;" what is needed is radical change. This is not easy for most organizations. However, a company that provides a classic case study of business model transformation is EMC (Disclosure: I do not own EMC stock).

I recently attended a presentation by Michael Ruettgers, Chairman of Board, EMC Corporation. He is the most appropriate person to talk about business model transformation since he led the company during the turbulent times from 1992 to 2001.

What was EMC's business before?

Prior to the transformation, EMC was a "product" company selling offerings to companies that helped them store information (often referred to as a "storage vendor"). As the technology revolution was happening and enormous amount of information was being generated, companies needed storage capacity and EMC was the company that had the right portfolio of products to make that happen. No surprise then that the company grew very rapidly.

What went wrong?

As Ruettgers pointed out, EMC was suddenly doing enormous business with technology startups that had storage needs that rivaled those of Bank of America. These companies had no revenues at all but had the venture capital to place big orders with EMC (EMC traditionally did business only with those company that had at least a billion dollars in sales, but started to serve startups as their data needs exploded and they had the capacity to pay). Then two things happened. First, the bubble burst and many of EMC's customers disappeared. Two, storage became dirt cheap as technology improved and demand slipped.

How did EMC transform its business model?

Unlike many companies that were unable to survive the tech bubble burst, EMC recognized that their core business had been commoditized. However, needs of companies for information management did not disappear. On the other hand, the task became even more complex for them to manage on their own and companies needed even more help from external providers.

At this point, EMC abandoned its traditional "product" approach and focused on high-value services and solutions under the umbrella of "information lifecycle management." The process was not easy. With layoffs and cost-cutting, the stock price was depressed for a long time. However, through strategic acquisitions (Legato, Documentum, VMWare, etc.) and complete overhaul of its operations, the company has now become a leader in its space. Indeed the stock price is nowhere it used to be at its peak, but sales are now back at a more sustainable level of $ 9 billion.

What can we learn from EMC business model transformation?

If external environment changes, and even if your core business disappears, the only way you can survive is to leverage your skills and capabilities to offer what the marketplace is looking for.
If you lack in-house capabilities for the new business model, do not hesitate to acquire them.
Business model transformations are painful. All the way from employees to investors, you will hear groaning and whining, but if you make your vision clear and show results at each step, you can win them over.

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