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Chambers Promises a Simpler Cisco

LAS VEGAS -- Cisco Live 2011 -- After his Tuesday keynote, Cisco CEO John Chambers said he's making a mental note to not miss the next big transition in his business.

His talk had included a slide showing Cisco's major transition points so far. In 2001, at age 15, Cisco survived the dot-com bust by expanding beyond switching and routing. Now, 10 years later, Cisco is at another major transition point -- one Chambers said the company will fix by making decisions faster and becoming less bureaucratic.

"Speed of decisions is the number-one thing I want to see improved at Cisco," he'd said during the keynote.

His slide showed the next phase lasting only five years. While a small group of audience members hung out with Chambers after the keynote, Zeus Kerravala, an analyst with Yankee Group Research Inc. , asked about that time frame, and Chambers responded that he expects the next major transition to come that quickly.

He added that he intends to do a checkup on the business at around year four, to make sure he isn't caught by surprise again.

The simpler Cisco
Cisco isn't expected to detail its restructuring until after its fiscal year ends on July 31. So, Chambers didn't talk at all about the staff cuts that have been all the rage in the press. (See Report: Cisco Cuts Could Hit 10,000, Cisco May Cut 5,000 Jobs and Cisco's Early Retirements Begin.)

But he did give Cisco's customers an overview of how the company's management is changing, the goal being to create a faster organization that's easier to do business with.

Because Cisco Live is a customer event, Chambers emphasized that more sales decisions will be made closer to the customer level, rather than by faraway executives.

In the post-keynote hanging-out session, Chambers added the boards-and-councils structure hadn't necessarily outlived its usefulness but had become too bureaucratic. The number of boards and councils has already been reduced to three -- enterprise, service provider and emerging markets. (See Cisco Cuts Down on Councils.)

"The guys that run those boards will be held to greater accountability than in the old model," Kerravala told Light Reading.

Cisco is also merging some product groups, because the siloed approach that served it well in the 2000s has become too clunky, Chambers said. Too many groups emerged -- software had three major ones plus assorted skunkworks around the company. Software is being melded into one group, and something similar is happening to Cisco's other major businesses.

Table 1: Integrating Cisco
These pieces... ... Are getting combined into:
Various software groups OS group
Switching / Routing / Optical Core technology group
Voice / Social media / WebEx Communications and Collaboration team
Cable and set-top stuff Service provider group




Chambers also mentioned in his keynote that the company will integrate new technologies more quickly. Kerravala translates that to mean Cisco has to make "fewer acquisitions or bigger ones" -- probably the latter.

One topic Chambers didn't discuss was market adjacencies -- the technologies peripherally related to Cisco's business. "That to me is their biggest challenge," Kerravala says. "Last year they were talking about 30 adjacencies. I think they might streamline that down to 10."

Adjancencies are maligned nowadays, partly because no one could figure out why Cisco wanted to own the Flip camera. But they helped Cisco dig out of the dot-com crash. Five of the six advanced technologies, as Cisco called them back then, became $1 billion businesses for Cisco, Chambers said. Those include security and wireless LAN. (The sixth technology is probably optical networking.)

Kerravala thinks Cisco has to keep looking outside its normal boundaries for growth. "Enterprise drives the ship, and there aren't that many large areas of spend lift in enterprise that have the margins Cisco wants and that they don't dominate," Kerravala said.

— Craig Matsumoto, West Coast Editor, Light Reading

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olegzz 12/5/2012 | 4:59:08 PM
re: Chambers Promises a Simpler Cisco

Sailboat, I would support your IMHO in 100% as a former Cisco employee.


And I believe that most of engineers, who is still obliged to&nbsp;support some&nbsp;stupid "initiatives" created by "perfect" managers otherwise you could lose your PLI, would also&nbsp;agree with&nbsp;you.


Even 5 years ago, Cisco technolgy leadership was quite obvious, you would even don't tell aloud&nbsp;about this. But nowadays CTO in CiscoLive11 has to admit attendees repeating "We are leader in industry..." Who does believe in this?

StartUpGuy1 12/5/2012 | 4:59:04 PM
re: Chambers Promises a Simpler Cisco

It seems that Cisco really is a binge/purge type of organization.&nbsp; 2003 layoffs and the same matra "more focused"..&nbsp; Then they binged again and now in 2011 it is time to purge to get "more focused".&nbsp;&nbsp;


They want to be "customer focused".&nbsp; They should listen to the customers and quit preaching to them about the "One World under Cisco".&nbsp;&nbsp; Maybe a refresher course from John Morgridge could do JC a bit of good.&nbsp; Leave the entourage at Corporate and start listening to the customers and take responsiblity...

inauniversefarfaraway 12/5/2012 | 4:58:59 PM
re: Chambers Promises a Simpler Cisco

JC also looks like he needs a haircut.


Have a read at the following:


http://blogs.forbes.com/steved...

Pete Baldwin 12/5/2012 | 4:58:53 PM
re: Chambers Promises a Simpler Cisco

Interesting read. I haven't gone through the guy's posts on new management -- and I have to admit I'm a little suspicious; I don't trust the squishy practice of spouting new management philosophies just because a couple of case studies happen to have worked.


But he's at least half right: bean-counting has taken too much priority in business. Too many businesses seem to be run by the accountants and lawyers, and the craft of what they do suffers.


Kind of ironic that he lists Cisco under "traditional management."


InaUniverse wrote:

<div>

&gt; JC also looks like he needs a haircut.


&gt; Have a read at the following:


&gt; http://blogs.forbes.com/stevedenning/2011/07/16/why-is-the-world-run-by-bean-counters/?partner=yahootix

</div>
inauniversefarfaraway 12/5/2012 | 4:58:53 PM
re: Chambers Promises a Simpler Cisco

It would be interesting to ask engineers about whether they think the wrong decisions keep being made, precisely because "old world" managements' day is done. Maybe this could be part of an IEEE survey, seems more relevant than pay.


Another interesting experiment is to ask former Nortel employees who are working at Cisco how the company "feels". Astounding that some would say that it is exactly the way Nortel was before the fall...


Yes, it's a big disappointment that Cisco has also turned to the dark side. Evil was in it's genesis, it could not rid itself of the bad seed. It is like watching kids when they see Annakin turn to the dark side and they go sooo quiet. What a riot that is!


This is great news, if the "fuzzy new boss" is just the same as the old boss, they will crash and burn just the same.&nbsp;


Breaking news: Cisco lays off a bunch... The begining of the end.


That seems very "traditional management" to most people.

paolo.franzoi 12/5/2012 | 4:58:52 PM
re: Chambers Promises a Simpler Cisco

I think there is this problem with comparing the companies that he has. &nbsp;I think traditional management (and radical management) would point out the same thing. &nbsp;Cisco is spending WAY TOO MUCH on engineering on old product lines that are not providing growth.


Cisco (like many large companies with ongoing businesses) has this problem. &nbsp;Cisco faces the additional challenge that many of its traditional markets are becoming more competitive (more competitors of significance and this is lowering pricing).


Go take a look at Apple and you will see that the revenue from their new businesses (and profits as well) drown out the drag from their old businesses. &nbsp;But I would say the same about Mac computers that I do about Cisco's traditional switch and router business. &nbsp;These are sustaining business and pick your favorite number between 5 and 10 percent of revenue and that is your R&amp;D budget for those businesses.


What Apple has done well and Cisco has done poorly is both create new large growth opportunities and manage these to maturity. &nbsp;Apple's time on this will come in a few years when iPad, iPod, iTunes is no longer the growth engine it is today. &nbsp;Will it mean that Apple goes out of business...no and neither will Cisco.


The comparison to Nortel is patently wrongheaded. &nbsp;Nortel did three horrible things:


1 - It gave customer's the money (read here CLECs) to buy their products.


2 - As part of #1, it decided these new customers were more important than the customers that provided it the revenue that they needed (I was in many a place where they sided with emphasized the CLECs over the RBOCs).


3 - They wrecked their balance sheet with some horrible acquisitions (Qtera).


The stock issue that Cisco has was visible a long time ago. &nbsp;Cisco is not in a disruptive growth part of the business cycle. &nbsp;They have a huge number of outstanding shares and need to start buying them back or doing a reverse split (or something to rationalize it). &nbsp;Can they make a big disruptive new business? &nbsp;Maybe, maybe not - IBM never did it again. &nbsp;But IBM thrives 35 years post its prime. &nbsp;


Nortel and Lucent had one other huge issue that Cisco never has had. &nbsp;They ran for their first 100 or so years as part of a monopoly. &nbsp;They never really effectively became good competitive businesses in a general market.


seven


&nbsp;

inauniversefarfaraway 12/5/2012 | 4:58:50 PM
re: Chambers Promises a Simpler Cisco

Seven,


By your own metric, Cisco is done. Thanks! It also looks like you would've closed down Apple long ago...


Yes, we do see things differently.


Businesses exist is to serve society. It is a humble and simple position.


Shareholder value is entirely dictated by society as well. No matter how well you do, it is people that decide whether your company has value.


By your reasoning, Nortel should still be around since it was the most valued stock on the TSX and therefore most successful at building shareholder value. What happened? There is plenty of historical precedent demonstrating the flaw of the numerical model to companies. Were you a Nortel executive? ;-)


Ideas change the world.&nbsp;That is entirely different than your misquote about companies changing the world.&nbsp;


Good luck to you Seven, looks like you're a traditional management type.


Also, thank you for making my points!

inauniversefarfaraway 12/5/2012 | 4:58:50 PM
re: Chambers Promises a Simpler Cisco

Hello Seven,


Nice of you to jump in with some great input! We differ greatly on what constitutes the strength of companies and whether or not they will rise or fall.


The technical details can easily be interpreted one way or another. From a philosophycal standpoint, things are far more interesting, simpler and clearer.


Cisco did not grow on the virtue of it's management nor the brillance of the founders, these are two enduring myths of the business world. The business world did recognize the brillance of the ideas put forward by the founders and how it fit into society. It is only a pity they do not see the value people bring, this is their Achilles heel. This is why they are so clumsy, buying stuff that makes no sense aimed solely at trying to drive traffic, this is stupid. Sadly, Cisco can find stuff that drives the single idea that gave them so much, but they cannot adapt and do new stuff. They have failed to innovate. They actually believe they can buy innovation: error!


Things seem to be very different with Apple. Even Apple may rise and fall, who can know? They have shown themselves remarkably commited to cultivating ideas and seeing them through while seemingly being able to preserve some concepts contrary to widely held beliefs in the business world. Some of this is due to being attuned to what the customer wants, really wants. Cisco is doing the old world way, telling customers what they can have. Apple refused to give up the computer, even after failures. They saw this as the most intimate connection to their customers. Eat some of that Cisco, if you can!


It is fundamentally about ideas. That is the winner. Cisco will try to tell you that it is only about execution.


Amazing that so many companies miss this. Same with RIMM and their products. They think by throwing everything at the customer, the customer will find something they like. How is that for total capitulation, they are giving up on their customers! These guys have a major issue they don't even get: how do you make your customers love your products?


The example you cite, all three have but one root: pleasing Wall Street. This is something Cisco wants to be good at too. Goodbye!


Ideas change the world, not traditional management. It takes exceptional management to cultivate and build on ideas. Who comes up with ideas: people! Now the only real question is how do you get better ideas?


Finances are great as metrics of performance, however not ends in themselves. That road only leads to disaster.


Businesses exist to serve society. Bean Counters believe that companies exist to make money. Apple strives to serve their customers and employees and makes money in the process, Cisco tries to make money and doesn't do a great job with their customers or their employees. That is how simple it is.


The only sad part about Cisco is that they had a real shot, too bad they're wasting it. It will only take a competitor that figures out what the customer wants to put a nail in this coffin.


That was the flaw with the old school guys, they were used to telling customers what they wanted. That only works in a monopoly.


Remember that the technological/financial terrors created are insignificant compared to the power of the force.

paolo.franzoi 12/5/2012 | 4:58:50 PM
re: Chambers Promises a Simpler Cisco

&nbsp;


"Bean Counters believe that companies exist to make money."


Businesses exist to raise their stock price...full stop. &nbsp;They exist simply to add shareholder value. &nbsp;Everything else is a means to that end. &nbsp;The people and systems that are there are required to build shareholder value. &nbsp;If they are not doing so, then they need to go - Upper Management, Engineers, Janitors, whatever.


People have no value into and of themselves to the company except that they can create long term value in intellectual propery either in products or systems. &nbsp;The whole point of a management team is to tune the investment in these people, products and systems. &nbsp;If you believe that people should invest infinitely, then I will give up talking to you. &nbsp;But if you understand that people should be put into products and solutions that make more money than what they are doing currently, then I think we are talking about the same thing.


Most companies have problems with Innovator's Dilemma, which is the innovation problem you have described. &nbsp;Look at Google for example. &nbsp;They can not build a business that is as good as they made out of their search/advertising business. &nbsp;To expect them to invent a business as good as that again is completely flawed.


This is the challenge. &nbsp;Their Growth and thus PE and PEG are never going to be better and the growth of all these companies will slow. &nbsp;That is because no market is infinite nor are they all they as profitable as one another. &nbsp;So, companies change. &nbsp;They become less efficient over time.


Again, the point of a company IS NOT to change the world. &nbsp;That is the point of inventors and entreprenuers. &nbsp;The point of a company is to maximize the shareholder value. &nbsp;You may not like that answer...but that is the answer.


seven





yarn 12/5/2012 | 4:58:47 PM
re: Chambers Promises a Simpler Cisco

Maybe Cisco should have simply accepted they're no longer a start-up but have become a big company, with all its pros and cons. Be a good big company and watch your weight, but don't get anorexia. With all the trimming I doubt that anything is fundamentally changing that would bring back start-up like growth projections. Much better to set realistic expectations and meet them, rather than trying to relive the past.

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