EMC and Customers -- published in The May Report
http://www.themayreport.com/
05/09/2002
Scoop
A Culture of Arrogance, disregard for customer wishes....
A Culture of Arrogance, disregard for customer wishes, and for good accounting practices continues as forged signatures are found at EMC's Professional Services Mid-Atlantic division, by Ron May
So, you thought EMC eliminated its problems when they fired Manish Shah?
Well, think again. It turns out that the problems with the way EMC conducts business and, in particular, the way it bills customers and handles revenue recognition issues, are pervasive and ongoing --- pervasive in the sense that they don't just relate to Chicago. In fact, there are serious problems in the way the Mid-Atlantic region operates and they continue to this very day. Beyond the billing issue is a broadly based cultural problem within the company. Quite simply, the old guard, which includes many higher and mid-level managers, does not get it.
The irony is that in the grand scheme of things the people who are pulling the tricks are doing so when it comes to relatively small amounts of money, perhaps thinking that this way they won't be caught.
Here are the specifics:
In the Mid-Atlantic region (which includes New York, Virginia, and Pennsylvania, that area), now run by people from the Southern
region because the two areas have merged, there have recently been several cases of fraudulent billing in the Professional Services division, tied to issues of revenue recognition. There is a little thing called the PCF (Project Completion Form). Billing on projects is supposed to be done only at the point at which the work is completed. A project may be slated for X dollars but it will be broken up into its component parts based on when the work is done. The customer is required to sign off on the PCF before the bill can be sent to the corporate office at EMC and the accounts receivable department. The customer's signature acknowledges that a certain milestone in the project has been completed.
Recently, in the Mid-Atlantic region several PCFs were forged. In one instance, the person at EMC who signed for the customer was so inept that he misspelled the customer's name. According to my sources, the forging of the customer signatures on the PCFs occurred in at least two instances. The amount of money involved was in the range of $40,000 in each case.
This gets a bit technical but I think it's worth going over. Some projects are bundled, meaning that the customer is making lump sum payments or paying for hardware and services together. From an accounting practices point of view, some of that revenue, even if it is already sitting in EMC's bank, is considered to be deferred revenue. A PCF must be signed by the customer before it can go from being deferred revenue to real revenue.
Just to jump ahead a minute, the phony billing was discovered and the bill was pulled back by the Mid-Atlantic region from the corporate office before a bill was sent out to the customer. The East Coast PS management claimed that a mistake had been made.
So all's well that ends well, you say. Not true. The specific numbers may seem tiny and in the end the problem was corrected but the culture that created it marches on as Sherman marched through Georgia. The use of that analogy is not purely coincidental since my sources are telling me that much of the "sleaze factor" at EMC can be tied to the Southern region. While I don't have the names of the culprits at this time, I do know that one of the "stand up" people is Maurice Dupas who is, I believe, a division head for the PS East Coast area.
Several important things should be noted about the way this whole thing has been handled. First, EMC was pressuring the customer at least in one instance to sign the PCF and the customer said "no" - - twice. The pressure to sign off early on the PCF was coming from management within Professional Services. This fact alone is astonishing. Second, is there retaliation or the threat of retaliation against whistleblowers? You better believe there is. Anyone who so much as asks questions is singled out and targeted on any number of grounds. I have heard stories of backlash and character assassination. One person discovered the problem and another leaked it within the PS division. Third, the whistleblowers are using the threat of going to the media as a defense against being
subjected to retaliatory moves. Whistleblowers are telling EMC management that they better not screw with them or they will go to the Wall Street Journal. Fourth, the people who forged the signatures were not punished. The person who discovered the problem and reported it is being targeted and others who are asking questions are also being subjected to harassment. Management has written this off simply as a mistake and has not acknowledged the severity of the problem. Another source told me late today that one of the top East Coast PS managers has been canned very recently. I don't know if heads have rolled or not. Remember, EMC is getting rid of a lot of people right now.
The general cultural problem at EMC is this: this is a company that sells boxes. Many of the old-timers at EMC are not college educated and have a "good ol' boy" view of the world. In fact, many of them are proud of the fact they never went to college. Most of the people running the company come out of a sales background. There is little respect even at the highest levels of the company for knowing and following good accounting practices such as FASB and GAAP. It is true that there are some MBAs and/or people who come out of a professional services background, but that is not the crowd running the company.
As one person put it to me late this afternoon, the old cowboy philosophy that has governed the firm is that we will "shove it down the
customer's throat." Customers are told, "Here, sign this." The customer just bought a million dollar piece of hardware and he is being treated like an order taker from a salesman who will be fired if he is not making $350K a year. It is not about customer service or satisfaction, it is about winning at any cost. Well, the days of "take no prisoners," the guiding EMC philosophy, are over. There is competition from Compaq, Hitachi and others. That $200 billion in asset value is now $16 billion; the stock of $100 is now $8.
One source told me that there are non-stop meetings going for 48 hours straight at the VP level to determine how the firm is to be reshaped and who will run it. It is "land grab" time. There are a lot of good people who are now gone and the survivors are looking at what remains. It could have real value if the firm gets its act together.
One source told me that this is an "internal controls" issue and that the Professional Services area is too small to pop up on the radar screen for the firm's auditor PriceWaterhouseCoopers. The advice that my sources tell me every EMC customer should heed or ignore at their own peril is READ YOUR BILL - - CAREFULLY! Make sure that you have actually signed off on everything you are being billed for.
It did not escape my attention that The May Report legitimately scooped the story of Manish Shah being fired. And that neither the Wall Street Journal nor the Boston Globe, which did stories on the topic gave credit for the story being broken. I will be watching carefully on this one to see if the major media outlets have reformed their ways. One source told me today that the Shah story was dismissed as being pure quackery written by that nutcase Ron May, but that they had a much harder time using that excuse when the story appeared in the Wall Street Journal. Look, this is not just Ron May tooting his horn. It is important that an avenue such as
this report have the appearance of legitimacy. A story seemingly as minor as this might not be picked up by the Journal or the Globe until some pressure builds. That is why TMR should be seen as a legit pub. Recall that it was The Drudge Report that broke the Lewinsky story.
Think for a moment about what it took in dissatisfaction for people who work far away from Chicago to call me about the internal workings of EMC when the problem was caught and corrected. The point is that only a symptom of the disease has been treated. The core disease, which is the very culture of EMC, continues unabated.