EMC’s Innovation Steward: CTO Jeff Nick Talks Company Strategy Amid Soaring Profits, Rumors of Big Acquisition

It has been a ridiculously busy week for EMC—and for everyone else, it seems. For starters, the Hopkinton, MA-based data storage giant (NYSE: EMC) announced record quarterly revenues for the third quarter of 2010. Yesterday the firm hosted its fourth annual innovation conference from its center in Cork, Ireland—which amounted to a company-wide session on strategy and research, the largest of these gatherings to date, involving 15 EMC facilities worldwide. And in other news, the rumor mill has been buzzing with talk about EMC being a possible acquirer of Seattle-based storage firm Isilon Systems (NASDAQ: ISLN), in a deal that reportedly could be worth upward of $2 billion.

Amid all this activity, EMC chief technology officer Jeff Nick took some time to talk with me last week about the company’s broader innovation strategy—tackling aspects that are internally and externally focused, home-grown and acquisition-based. Like IBM (NYSE: IBM), one of its main competitors, EMC is known as an aggressive acquirer of companies, using new businesses to further its technology and attack new markets—witness its recent purchases of Mozy, Greenplum, and Data Domain. But it’s also known for pursuing some pretty interesting in-house initiatives aimed at turning cutting-edge research into technologies and services that its product groups can use.

Unlike big tech companies such as IBM and Microsoft (NASDAQ: MSFT), EMC doesn’t have a big traditional research organization charged with advancing the state of the art in technology. Instead, EMC pursues more of a virtual model—an “innovation network” (run by Burt Kaliski, formerly of RSA) that consists of virtual centers as well as a few physical research facilities, and collaborations and partnerships with academic researchers at places like MIT, Harvard University, Carnegie Mellon University, Stanford University, University of Michigan, and Tsinghua University in Beijing. The topics of its R&D projects include things like scalable file systems, Internet cloud security, and data availability on peer-to-peer networks.

In our recent chat, Nick didn’t deviate too much from his message about EMC’s innovation network and conference, but I did get him to open up a little about how the firm balances its in-house R&D with its acquisition efforts, how it works with and thinks about startups and smaller businesses, and how EMC’s culture compares to IBM’s. (Before joining EMC six years ago, Nick spent 24 years at Big Blue. The experience no doubt informs EMC’s innovation and research strategy.)

But first, the primary topic of our chat: EMC’s innovation conference yesterday. This event is all about connecting different parts of the company around the theme of innovation—and surfacing potentially transformative ideas from all corners of the globe. It’s part of what Nick calls the “Web 2.0 model of research,” which is crucial when you’re talking about a company with 45,000 employees worldwide. The event culminated in a showcase competition between ideas proposed by EMC employees; this year, the finalists were culled from some 1,900 ideas company-wide (as compared to 400-plus at the inaugural event in 2006). The winners: a low-cost data storage system for developing nations, a framework for software application deployment in storage devices, and a home entertainment storage system.

The main point of the conference—and EMC’s innovation network more broadly—is to “connect the dots” between internal and external (e.g., academic) innovation and research, Nick says. It’s also to get EMC employees thinking about ideas and products that might cut across existing business units, he says—and to highlight ideas that should be nurtured by Nick’s office or by EMC’s Centers of Excellence, a cluster of advanced technology development groups in Brazil, China, India, Ireland, Israel, and Russia.

I wondered how this really differs from other corporate innovation approaches—and whether it represents an important new model for big tech companies. To Nick, though, that’s beside the point. “We want to make innovation a vital part of one’s existence at EMC. We didn’t start out to invent some brand new model for innovation in the industry,” he says, acknowledging that other companies are pursuing similar strategies. Instead, he says, the virtual network and conference act as “a lightning rod for the innovative spirit at EMC.”

Indeed, the firm’s innovation strategy has evolved over the past few years as EMC has become more of a global tech leader—as exemplified by the geographic extent of the conference this week. Nick says EMC’s international operations and expansion are “fundamental to the company’s future. The industry has gone through a transformational process. Being a U.S.-centric company, you build out from your strong point, and then farm out function and responsibility to other regions where there’s economic benefit in terms of cost of labor, and also a beachhead for an expanded market…Then you start to realize the talent you’re attracting makes up a significant talent pool that can be leveraged as first-class R&D organizations…[that are] reaching out to universities and strategic partners.”

I also wondered how Nick would articulate EMC’s strategy for working with startups and smaller companies—other than buying them, that is. “We have a strategic view and a number of touch points to look at the market as a whole and where it’s trending,” he says, pointing out that EMC is on the lookout for “consolidation opportunities” and “new adjacencies to grow into and new areas of integration of our existing capabilities.” Interestingly, Nick also says, “We meet regularly with venture capitalists and talk to companies that manage the incubation of companies.”

All of that feeds into EMC’s evaluation of companies it might form partnerships with—and eventually acquire, if things get that far. “When you’re a whale you’ve got to eat a lot of fish to make a meal,” Nick says. “From an EMC corporation perspective, we like to see the growth and maturity of startups to something more substantial and proven in order to get it onto our typical radar screen. But the place to tie it back to brand new startups, that’s where we’re leveraging our R&D and university collaborations.”

So one persistent question is, how does the company weigh doing mergers and acquisitions versus innovating organically from within? Nick calls it a “continuing balance.” For example, he says, EMC would look to acquire a company if it could help establish a front in a new market quickly, versus taking a longer time to build out a product internally. “If we’re playing in a growing space, we tend to do that more through investment with more than one company, to seed the landscape…and have an aperture on the growth of the market,” he says. “But let’s not forget the importance of strategic partnerships where we may have gaps, but we don’t need to own a control point.”

Lastly, I asked Nick to compare and contrast the cultures of EMC and IBM, his previous longtime employer (which has been on a buying spree in Massachusetts as of late). He ended up bringing the discussion back to EMC’s evolving R&D model. IBM is a much bigger company, Nick says, with a long history of doing pure research in fields as diverse as materials science and electromagnetics. “That’s certainly not what EMC does,” he says. “We are an applied technology company. Innovation to us is not through traditional pure research lines. What’s interesting is, I think IBM and other well-established firms in our market have also been adopting the [Web 2.0 research] model more and more.”

Nick is biased, of course, but he thinks this model is better at “capturing the more elemental nature of innovation, being able to put a lens on that, and bringing [ideas] forward,” which is more crucial in the “much more fluidly dynamic world today than it was in the past.” We’ll be watching to see how well all of this pays off in the future.

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