Cisco Signals Major Restructuring

CEO John Chambers tells Cisco staff that the company's 'operational execution' needs a shake-up and that 'tough decisions' are imminent

April 6, 2011

3 Min Read
Cisco Signals Major Restructuring

Cisco Systems Inc. (Nasdaq: CSCO) staff might be somewhat distracted during the coming weeks following an internal memo from CEO John Chambers that signaled a major upheaval designed to combat problems with the company's "operational execution."

Chambers noted that the company has "disappointed" its investors, "confused" its employees and lost some credibility, and that it's time for some "bold steps and tough decisions" to get the company back on track.

There's no doubt that Cisco, compared with previous years, has been less than formidable during the past 10 months or so. (See Cisco Offers Softer Switch, Router Sales, Is Cisco Spread Too Thinly? and Cisco Q4 Hides a Frown.)

That performance has been reflected in the company's stock. A year ago Cisco's share price stood at $26.22 but is currently $17.22, a 34.3 percent decline.

So what's Chambers planning? Well, he says he won't fix what isn't broken and that the five company priorities -- leadership in core routing, switching and services; collaboration; data center virtualization and cloud; architectures; and video -- remain unchanged.

Here are some of the key highlights from the memo:

  • "We are a $40B company that for the last decade has seen a virtual explosion in market opportunity. The Internet has taken on an entirely new form– and our growth strategy has been based on capturing the incredible opportunity afforded by this massive demand for the network. Many say that in the face of this expansion, Cisco needs more discipline. I agree.

    Cisco’s value to our customers is differentiated and it is simple: we globally deliver network-centric platforms that make them more competitive. Our strategy is just as clear—we are extending the network platform to enable collaboration, data center / cloud transformation and video architectures that expand our technology and business relevance to customers and partners on a global scale.

    As I’ve said, our strategy is sound. It is aspects of our operational execution that are not. We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders. That is unacceptable. And it is exactly what we will attack.

    Today we face a simple truth: we have disappointed our investors and we have confused our employees. Bottom line, we have lost some of the credibility that is foundational to Cisco’s success – and we must earn it back. Our market is in transition, and our company is in transition. And the time is right to define this transition for ourselves and our industry. I understand this. It’s time for focus.

    We now need to prepare ourselves for what’s next, as you will see Cisco make a number of targeted moves in the coming weeks and as we move into FY12.

    We will take bold steps and we will make tough decisions. With change comes disruption, and you will see this necessary and healthy disruption as we make meaningful decisions in a timely, targeted and measureable way. We will address with surgical precision what we need to fix in our portfolio and what we need to better enable.

    We are all responsible for driving operational excellence across Cisco. As you’d expect, I’m asking each of you to play your part in this transition. The responsibility does not fall on one leader or one team. It will not be easy and I expect your participation, flexibility and feedback along the way. As I’ve said before, we will look back at this time in Cisco’s history and remember it as challenging, and important to the future of our company. Plain and simple – we need to roll up our sleeves and work it out, together. I’m ready, your leadership team is ready, and I know you are ready."

You can read the full memo here.

— Ray Le Maistre, International Managing Editor, Light Reading

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