Jim McCluney tests new opportunities for Emulex Featured

8:00pm EDT July 26, 2010
Jim McCluney calls his company a survivor.

That’s putting it lightly.

Emulex Corp. (NYSE: ELX) has done more than merely survive. In fact, it’s grown by leaps and bounds — more specifically, by acquisitions, partnerships and diversifications.

McCluney came on board through the acquisition of his company, Vixel Corp., in November 2003. He was named president and CEO in September 2006, and since then, he has continued expanding the offerings of storage networking convergence solutions.

“The company’s been around for 30 years, so it’s been through a number of economic and technology transitions,” McCluney says, clarifying his definition of survivor. “It’s had the flexibility and determination to move into new directions many times over its life.” But none of those transitions are haphazard, no new directions unplanned. Everything ties to a strategic vision.

“If you don’t know where you’re going, any direction’s fine,” McCluney says. “You really need to understand where you want the company to be three to five years down the road. And to do that, you need a good understanding of where the technologies and markets and customer pain points are, and then have a very clear understanding of what capabilities and intellectual property exists within your own company.”

Setting that path ahead of time helps McCluney make decisions about new opportunities and challenges — like when, in April 2009, Broadcom Corp. made an unsolicited takeover bid to acquire Emulex.

“That was incredibly challenging because we had to not only stay on plan and deliver what we needed to deliver for this new market and a growth trajectory, but at the same time, defend the company,” McCluney says. “I spent a lot of time out on the road with investors, articulating our strategy and convincing them that there was a better future for Emulex than what the hostile bid was offering.”

Put out feelers

Knowing your direction starts with knowing what the road around you looks like.

“It’s so easy to get trapped in the daily [or] quarterly grind,” McCluney says. “You need to take time to get out and really understand what’s going on in the world.”

At Emulex, different employees have different lenses to look through, whether that’s international markets, technology trends and advances, partners’ investments, and so on.

Customers are the best source of that information. McCluney and his executive team visit big customers — both original equipment manufacturers and end users — at least twice a year.

When you touch base with customers, you’re looking for insight into how they use your company — but you’re also digging deeper than that.

“I’m always asking how they’re doing and what their views of Emulex are. I think it’s very important to hear firsthand and that can be everything from operational things to the quality of the products as well as the quality and interaction of our people,” McCluney says. “And we’ll talk about markets and market trends and technology. I like to hear from them what their challenges are and what they’re trying to achieve.”

When you ask those kinds of questions, customers will expect the same kinds of answers from you. So McCluney goes in prepared to share Emulex’s goals, investments and road maps as well as trends he’s seeing in the marketplace.

That will help facilitate information and ideas from them — sometimes, making it pretty easy to determine your direction.

“Sometimes customers come to us with problems and say, ‘Hey look, if you could solve this, I’d be really interested,’” McCluney says. “That’s why I think it’s so important to stay close to your customer base; you learn things and occasionally we get some real breakthrough ideas.

“For instance, over the last several years, a big theme with our very large customers like IBM and Hewlett Packard and Dell has been globalization and getting into new and emerging marketplaces. The advice they’ve given me is, ‘Jim, you better be there with us because that’s where we see a lot of future growth for our business.’”

With that direct line of input, it was a fairly easy decision to take Emulex global by building strategic partnerships and even a physical presence in global markets where customers needed them.

But it’s not always that easy.

Test new opportunities

You’re not always lucky enough to have customers hand you opportunities. Even in those cases, you have to strategically decide what to pursue.

“It’s all about pooling pieces of sometimes diverging information and seeing trends that we can capitalize on,” McCluney says. “We’ve employed some portfolio management techniques with some fairly strict financial guidelines around them. Before we get too enamored with a given technology or market, [we ask]: ‘Can we make money? Can we grow? What are the competitive dynamics? Can we capitalize on what we have today, or is it something that would require major working capital investment?’”

Of course, many opportunities may pass that test, and you won’t have resources for all of them. Set priorities against other existing investments.

“You decide what the best investment is and best return for each of the markets and segments that you’re competing in,” McCluney says. “So you balance that portfolio against your overall objectives in terms of earnings and return to shareholders.”

You can predict some of that by researching markets, technologies and financials. But sometimes you have to see an opportunity play out to know whether the market will really adopt it.

If a trend passes those initial — somewhat subjective — tests, McCluney has a system for allotting more resources to winning ideas.

“We keep a pocket of funds to one side where it’s like seed money,” he says. “So for a while we’re seeding some things and maybe not spending a lot of money on it. If it starts to look really interesting, we’ll do a much further market, technology and financial analysis.”

When you start testing a new opportunity, put as much planning and goal-setting into it as you would a new business. The more targets you set ahead of time, the better you’ll be able to track progress and determine how many resources to add or subtract.

“Before we actually get into creating the new product, we write out a business plan, a marketing plan, a development plan that says, ‘Here’s what we expect to see and here are the outcomes we expect,’ so we have a scorecard for each of our programs, whether that’s in relation to revenue and profitability expectations, the profile of the product — the features, the cost — the timing of when we’ll get things done,” McCluney says. “We lay all that out to begin with. Then we usually have a very senior program manager on top of it whose job it is to monitor progress.

“We have a very straightforward red-yellow-green marker system for each of those attributes, and we monitor it as we move through the product life cycle.”

At first, new programs are tested with key customers, industry analysts and business partners who serve as marketplace guinea pigs under confidentiality agreements. But the key is having an internal leader devoted to each new project.

“You have to watch it doesn’t get subsumed or disappear into the day-to-day,” McCluney says. “Even in the best-run organizations, it’s so easy for new ideas to just disappear because people are so busy servicing customers, getting the quarterly results done and fighting the daily fires. So it’s very important to have leadership for the new idea and people championing it. Make sure you give it enough oxygen and enough money to thrive, even if it means taking something away from your day-to-day business to make those investments.”

But at the same time, don’t become so focused on the new line that it slips into a vacuum. Always keep your eyes turned out to watch for obstacles or more lucrative opportunities.

“We also have business development people who are out looking at the market and what’s happening outside to see if anything’s changed in our assumptions for that specific market,” McCluney says. “Has the growth changed? Are there other new technologies that could be disruptive to what we’re doing?”

All of those factors play into your decision of how many resources to feed the new opportunity — and when to cut it off entirely.

“When any of those [parameters] starts to get out of bounds, that’s when you really look closely at the project,” McCluney says. “And if too many things go out of bounds or if you see a competitor come out with something sooner, then that’s when you start saying, ‘Is it time to cancel this program, or could we repurpose the technology in some way that we’re not in direct competition?’

“If things change in the market, you may want to kill the program because it’s the best thing to get scarce talent onto some new things. What you always want to do is keep the hopper full of new ideas. We always have more ideas than we have money to put on them.”

Involve employees

There’s still something missing from this equation. You’re not going to find opportunities or make these decisions without help. And you’re certainly not going to get the necessary power behind new projects if you can’t rally your employees in support.

“Make them part of the process,” McCluney says. “If you run some kind of ivory-tower process and people don’t understand what’s going on, you’re opening yourself up for what I call passive resistance. People just don’t get behind it.”

Start by simply keeping employees informed. McCluney holds quarterly all-hands meetings at each site — either physically or through a webcast — as well as regular round-table discussions. That communication involves some translation.

“A lot of employees need a little bit of a decoder ring in what’s going on in the markets. They see all the press releases; they hear us talk about design wins,” McCluney says. “But it is tough when you live in technical jargon all the time. You have to try and remember, not only for employees but also for our shareholders: They may like the sound of it but they’re not always as technically literate as we are.

“You’ve always got to take it from the technical into, ‘Here’s what’s good for the company. Here’s what’s good for the market. Here’s why customers will buy this. Here’s the problems that we’re solving. Here’s how it’s going to translate into the performance of the company.’”

McCluney simplifies broadly, for example, by cutting acronyms out of his presentations. While he leaves it to the managers to further tailor each message, he remains on-call for assistance.

“Our line supervisor gets to see what’s happening and he or she knows their team best of all and how to translate what’s going on,” McCluney says. “And we say, ‘If you don’t understand it, call us and we’ll try and translate it for you.’”

Involving employees also means asking for their input. Meetings at Emulex include Q-and-A sessions, but with 768 employees, McCluney doesn’t have time to hear from everyone.

Knowing who to ask can be a selective process. McCluney relies on annual employee assessments that ascend all the way to the top, keeping his executive team attuned to the talent in the organization. Every employee has a chance to share their input in that meeting when they’re asked whether they understand the direction of the company and their role in that and whether they have suggestions for improvement.

More specifically, because those evaluations are geared at identifying future leaders, they also reveal where strengths and talents lie so you know who to ask about certain issues.

“We invite people into different meetings to hear what their opinions are and what they’ve got to contribute,” McCluney says. “Over time, you get to know where the talent is and where the skill sets are that you need to draw on for a given issue or a given opportunity.”

The point is to stay in touch with people, both internally and externally, to constantly gauge whether your direction makes sense. That has helped McCluney make the right decisions for Emulex, which reported $378.2 million in total net revenue and $231.8 million in gross profit for fiscal 2009.

“You’ve just got to keep asking questions,” he says. “Never assume the plan you set will be identical to what actually happens. There are always twists and turns in the road. … Always be looking out over the horizon, and if you’re lucky enough, you set your own directions there and set the path for the industry to follow.”

HOW TO REACH: Emulex Corp., (800) 368-5391 or www.emulex.com