Operating in the network storage space, the biggest challenge for Michael Klayko hasn’t been growing his company, but growing it fast enough to keep up with customer demand.
“I’ve gone to pretty much every country in the world, every vertical segment, any type of industry and asked the question, ‘Whose information isn’t growing at triple digits?’” says Klayko, CEO of Brocade Communications Systems Inc. “I haven’t had anybody raise their hand and say, ‘Me.’ No matter where I go, it’s ubiquitous. It’s an issue around the world.
“Just around managing information in a company, there are 8,000 laws around the world on how do you manage, protect information, and now that varies between different industries. … When you look at it from that standpoint, I think opportunities become unlimited — you know, how do you solve very specific issues? Because the issues supply customers face, which is the [Forbes] Global 2,000 companies, are daunting. They are just absolutely daunting. You talk to some of the CIOs and some of the business owners, and they’re scratching their heads going, ‘How can I get ahead?’ They’re trying to just catch up.”
Having grown up in the networking space and data storage, Klayko saw when joining the company in 2003 that the $2.1 billion company was in the position to be the challenging brand — as long as it could adapt fast enough to changing technology and increasing consumer demand for the newest products.
“Fifteen years ago we were four guys, a dog, were a very prototypical Silicon Valley startup,” Klayko says. “And now, today, we’re roughly in every country — about 160 countries in the world, a little more than 5,000 people — and growing quite nicely, frankly because networking storage continues to grow.
“A lot of this has to do with the fact that there’s been one very large networking company, and they didn’t have to innovate. What they had to do was provide features and functionality, and it was good enough. Today, it’s not good enough.”
Klayko has kept Brocade on track for growth by ensuring innovation is paramount in the minds of employees. By nurturing a culture of innovation, Klayko has continued to strengthen Brocade’s foothold in the crowded IT and data storage marketplace.
His strategy for building this culture begins with setting performance-based innovation metrics that keep his employees thinking one step ahead. When you are a company with competitors ten and 20 times your size and revenue, you have to be able to offer customers the newest and latest products. To give Brocade the edge with customers, Klayko knows Brocade needs to make those products readily available on an ongoing basis.
“There’s only one weight class in networking — it’s heavyweight,” he says. “There are no different weight classes. There’s one weight class. So we have to compete like that. And one way we do this on innovation is we constantly like to stay anywhere from 12 to 18 months ahead of our competitors. We have to. That’s how we are actually not just surviving but growing.
“I think every company, when you go back the last couple years, is trying to figure out not how to grow, but how to survive and stay alive. We’re fortunate. … We happen to be in a segment where information, traffic and data traffic is growing triple digits.”
Klayko uses metrics to track the company’s quarterly percentage of innovation. The benefit is two-sided. For one, having innovation metrics gives your employees a benchmark to aim for in terms of continuous improvement, but also, your ability to meet these goals signals to customers you can consistently provide them with the newest products.
“No one wants to sit around and say, ‘Yeah, I don’t innovate, I just kind of collect money,’” Klayko says. “Everybody is innovative. But we do it a little bit differently in terms of we have the innovation metric. How do you measure it? Ours is we want 60 to 80 percent of all of our current revenue to come from products introduced in the previous six quarters. So if you think about that, I have to reinvent myself every two years.
“Now that sounds like a lot. The reason it’s not is that any one point in time about 2/3 of my customer base is going through an acquisition, a consolidation. They’re actually getting rid of a company or so forth. So their data centers and their information requirements are evolving and changing. Everybody wants the shiny new product, and so if you have the shiny new product at that point in time, you will be considered.”
Look for the disconnect
When you are in a rapidly advancing industry, keeping innovation steady at 60 to 80 percent can be a huge advantage in staying ahead of competition. But continually innovating doesn’t mean you are placing your bets on anything that’s new and different either. It’s important to take calculated risks so you don’t bet too big on an area that never takes off.
“Our biggest challenge sometimes is where do we go, how do we put scarce resources, because if you make a bet on a certain area or a certain vertical and another one grows faster, your competitor can actually grow faster than you, even though you are growing, because you made that wrong decision,” Klayko says.
But how do you find those areas for employees to innovate in ways that add new value for customers yet haven’t yet been exploited by your competition? Klayko does it by asking them to look for a disconnect or a contrasting position.
“By 2020, there’s going to be 35 billion devices connected to the Internet, I think, to 6 or 7 billion humans,” Klayko says. “So every time someone comes out with a smartphone or a new iPad or anything that creates digital data, it just more and more burden on that network that needs to get bigger pipes, faster, larger.
“You’ve got network traffic growing at 100 percent, data traffic growing at 100 percent. Budgets aren’t growing at 100 percent. So there is a huge disconnect going on. Whenever there’s that big of a disconnect, there’s an opportunity.”
By identifying contrasting market positions on common issues, beliefs, pieces of technology and so forth, your team can visualize new ways to solve emerging problems as an industry evolves and customer needs change.
“If you go back, how we originally started with this is the contrasting position that’s around simplicity,” Klayko says. “The last couple years, the recession really affected the data centers in terms of personnel. They were the first people to go in many companies, and so they would continue to buy the equipment but the human beings to run the equipment were released. So costs were really disconnected again. We just said, let’s focus on simplicity. What if we could actually have equipment go into a network and self-discover, self-manage, self-heal if it broke? What a contrasting position.
“We always look for an area where we can provide contrasting positions. Anybody that goes into a market says, ‘Oh, I’m a lower cost or I’m a little bit faster,’ — in my business, technology is always improving. You’re always getting better price performance. So you need a relatively different way to approach the market. We said from a contrasting position, ‘What are the real issues?’”
Lead the vision
Setting a culture of innovation involves a lot of decision-making on the part of a CEO. You have to get the right people on board and give them the resources they need to innovate. But once the culture is set up as an idea-making machine, it’s your job to grease the wheels. To get people thinking creatively about new opportunities, you first need to get them excited about what that innovation means and the effect it has on driving your company’s vision.
One way to do that is by engaging your key creative people in new projects or areas of potential growth. For example, when recently bringing a new category to market, Klayko made sure he assigned his long-term engineers to the project. The piece of technology, called Ethernet Fabrics, was 15 years in the making for Brocade.
“We actually made a big bet that this technology was going to be the future of the company and so we just redirected the people from some of our core businesses into this new technology,” Klayko says. “Then we backfilled our core business with new people who were brought into the company.
“That’s what gets engineers excited, working on the new project and so forth. So there was accommodation and new folks that we brought into the company, but primarily we repositioned a lot of folks that were in the company and gave them the opportunity to work on this project.”
Building an innovative culture starts with leadership. In the end, it’s largely your call on what risks the company takes and which it doesn’t. You also set the precedent for areas such as accountability, performance, entrepreneurial thinking and of course innovation, which is why Klayko doesn’t just have metrics for his team’s performance, he has them for himself.
“You have to lead from the front,” he says. “I do a thing in the company called a performance contract. I list top six areas that are going to be a focus to me. I put my metrics down, and every quarter, I do a broadcast to all 5,000 people and I give myself a report card. I give myself a public appraisal every quarter, but when I walk to see you, I expect you to do the same thing. It’s all about accountability and setting the culture.
“We have a lot of bright people, and there’s a myth that CEOs create strategies. What they do is they participate in the creation with very smart people. So my job is to ask a lot of Socratic questions and push and say, ‘Is this the right thing to do?’… I have to be the chief cheerleader when times are good and times are bad. When times are good, I have to tell people, ‘Don’t get complacent.’”
In the end, while successful innovation probably involves a little luck, good marketing, the right timing and other factors, it all starts with setting a culture where people are inspired to compete and improve their industry and company every day.
In fact, while achieving first quarter year-over-year revenue growth, this year Brocade was also named one of Fortune’s 100 Best Companies to Work for in 2011.
“I ask a question on our employee survey every year that tells the truth about the health of the company: ‘Would you ask your best friend to quit their perfectly good job and come work with you at Brocade?’” Klayko says. “When I first came in, that number was at 8 percent. In fact, I answered it no, which was a telltale sign. … That number is 91 percent right now. So we’ve obviously focused on the right things.”
How to reach: Brocade Communications Systems Inc., (408) 333-8000 or www.brocade.com
The Klayko File
Brocade Communications Systems Inc.
Education: Bachelor’s of Science in Electrical Engineering from the Ohio Institute of Technology
Affiliations: Klayko currently serves on the Boards of the Silicon Valley Leadership Group and The Tech Museum of Innovation
On his decision to join Brocade: One of the inherent issues of storage area networking is you just built these flat networks and we saw an opportunity to route between different networks. There was no product in that space. We got a bunch of smart people together. We had about 100 people together when we ended up selling the company to Brocade. We built the routing technology that is now the industry standard. That was the impetus is we found that there was a huge opportunity with nobody looking at it, and we went, ‘Wow, why is nobody going after this? It’s possible.’ And so that’s what we focus on.
On transforming the networking space: We’re taking those principles, applying it into the IP site, which is the Ethernet, and your Internet connections and so forth. By applying that knowhow and that technology, we’re bringing a new category to market, which is going to challenge all of the incumbents.
We took 15 years of heritage and created a new product and a new category called Ethernet Fabrics, and where it’s going to apply in the data center. And by the way, what we’re addressing in this market is measured in the tens of billions of dollars. So there’s a big opportunity and frankly, there hasn’t been a large piece of innovation or significant piece of innovation in the networking space for a decade.