Chambers: How I'll make Cisco into IT's biggest player

By almost any measure, Cisco Systems is the biggest fish in the networking pond. Thanks to more than 130 acquisitions, a brisk pace of internal development and a much-discussed new organizational structure that the company is using to attack a slew of new markets, Cisco's reach extends from the consumer to the enterprise and deep into service provider networks. The company offers everything from personal video cameras to high-end telepresence systems, set-top video boxes to, lately, servers for the data center, in addition to more traditional network gear like routers and switches. But Cisco's real ambition, as articulated by its high-energy CEO, John Chambers, is to become the most important IT company of all. In this installment of IDG Enterprise's CEO Interview Series, Chambers talked with IDGE Chief Content Officer John Gallant, Computerworld Editor-in-Chief Scot Finnie, and InfoWorld.com Editor-in-Chief Eric Knorr about the market transitions fueling Cisco's bold strategy, what it means for enterprise customers and how the company will compete head-to-head against the industry's biggest players.

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Q: Everyone knows Cisco as the leading network company, but your remarks at Cisco's recent Financial Analyst Conference made clear that your goal is for Cisco to be the number one IT company. That's pretty ambitious. What's it going to take for Cisco to become the number one IT company? And, what will it take to convince customers?

A: I always start from a customer perspective when I look at this. It is when your customers suddenly are encouraging you to go well beyond what your current scope is. That is the most important indicator the opportunity exists. The second; when you make movements into new market areas or have dramatically different relationships with customers, you've got to catch market transitions. And the third is you've got to have an engine that does innovation, not just internal, but partnering and acquisitions.

If you think of them in sequence, it can be as simple as smart [power] grids. I wish I could tell you it was brilliance from the top. It was not. It was basically the utility companies in Europe saying: "Cisco, pay attention. This is an instant replay of the Internet -- 360 protocols and no security. You have a lot of the pieces. Put it together." Once we got it, we then used the effectiveness of our organization structures around councils, boards, working groups. The concepts of social networking, if you will, brought together with process and discipline, and interdependencies among the groups.

So, the second part of innovation is organization structure innovation, as well as business models. Everything at Cisco -- it doesn't matter if it's response to a corporate social responsibility issue or a strategy in the data center, a strategy in the home, our engineering product evolution -- it's first around vision, which is five, 10 years plus. Then, what's your differentiated strategy? Two to four years. Then, execution-wise, what are you going to do in the next 12 to 18 months. Get the vision, differentiated strategy and then execution.

What a lot of people don't realize is that all of these 30 new [market adjacency] areas that we're working on will be at first appear to be independent. But they will actually be very loosely and then tightly coupled together.

We have the number one position in most every product [area] we've gone into. We've also gotten very good about doing acquisitions -- 137 of them. Usually, 90 percent of acquisitions fail. My definition of fail: Did you keep the management team? Did you keep the key engineers? Did you get the next-generation product out? Did you gain market share? Seventy percent of ours have hit or exceeded what we told our board of directors we'd do.

So, with innovation, Cisco is pretty good at doing internal [innovation], internal start-ups, acquisitions and strategic partnering. Not perfect in any of them, but very good versus our peers.

So, the first thing is [that this is] customer driven. Second, is [our] innovation, and the third element is catching market transitions. What's the transition here? It's the role of the network. The network's going to be the platform for all forms of IT and communications, if we're right. The network is not just dumb pipes. We're actually aligned very closely to service providers on this. I'll make money on plumbing and there will be a lot of plumbing to be done.

But with intelligence throughout the network -- starting in the data center with virtualization -- you don't [have to] know which servers are used, where the data is stored, where the application resides. That will start first in the data center, but go all the way to the home, where you won't know if your movie is on your TV set, on your Microsoft device, set-top box, at Disney or the point of presence of the service provider -- that's what virtualization is about. That's Cisco's core competency there.

One of the other market transitions is that video's role will be huge. It won't be just the primary way we communicate; it will be the way I deliver my sales, my support, my partner interface, my service, etc., to customers.

Then [there is] collaboration. Collaboration, I think, will drive productivity at two to three percent per year in the U.S. and Western Europe. Most economists would say that is unlikely, because you can't grow productivity by more than about one-and- a-half percent sustainably. But, yet, the first generation Internet did. We're going to see an instant replay of that in my opinion around collaboration.

Q: At that same analyst conference, you said that all the exciting new developments in IT were tied to the network. What does that mean for IT?

A: You're starting to see an increase in IT spending because people have delayed some spending but, secondly, they're realizing they've cut costs as tight as they can. Without process change, they're [going to have to] cut costs more. They're all looking at new revenue streams and they're all looking at productivity. Process change will continue cost cutting. [For example,] telepresence reduced $750 million a year in Cisco travel to $250 million. Every CEO gets it isn't just about travel. It's about the process change behind it. But travel pays that first expenditure.

The second area in terms of productivity is collaboration. Using Cisco as an example, our productivity grew 17 percent in two quarters, measured by revenue per employee. Part of it is just because our business ramped up. But, I would say at least of half of it was because of these new business models, the vision strategy, execution and organization structure, because my productivity was actually a lot higher than that. We moved a billion dollars of resources into new models that produced no revenue or no material revenue. So, at the same time, we were driving our traditional models, we are going into a whole bunch of areas like sports and entertainment. You know it's a rounding error how much [business] we'll do in the stadiums around the country. But the play is bringing that into the home over service provider networks, changing the advertising models, etc.

So, to the CIO, what's important to him? Productivity and collaboration is a huge part of that. Infrastructure refresh, and we clearly are benefiting from that. And process ways of changing cost. We're playing in all three.

Q: Some IT executives may look at the things Cisco does in consumer and ask why? How does that benefit the enterprise buyer? Case in point, how does the acquisition of the company that makes the Flip video camera benefit me as an enterprise buyer?

A: Our ability to get market transitions right is pretty good. CIOs will probably give us very high credibility for that. If you look at the charts we did in '97, 2001, 2006 and 2009, almost everything we said that looked pretty visionary [at the time] actually worked.

So, from the CIO perspective, three thoughts. The first generation of the Internet was driven by business to the consumer, in terms of Internet productivity. Business got it first, with ordering online, doing customer support. The next generation of productivity is the consumer [technology] driving into business. We predicted this in 2000. It was on the charts. That's how it's occurring -- what our kids did in social networking, Web 2.0, You Tube, Facebook, etc.

We are absolutely taking [that] straight into our own enterprise and architecting them together underneath a common collaboration architecture. We think that will drive productivity at well run companies five to 10 percent a year for a decade. Now, you'd say, that's a nice general statement. But, when we've made those [statements] in the past, we've been right. The new creative ideas, as we thought, are coming from the consumer up. We just add discipline to it, organization structure, business models to it.

This is occurring much quicker than [anyone] thought. You ask the top leadership at Procter & Gamble what they use Flip for. They use it to submit ideas to the CEO. You ask what I use Flip for? My team pushed me, saying 'John, you've got to think about blogging.' I said no way. I can talk 200 hundred words a minute. Why would I ever want to blog? Today, I will do probably four Flips to the whole company or to a specific audience.

We've led the video architecture in the home with our set top box architecture and we'll tie it to the Flip. We'll tie telepresence in the home off of the same high-definition TV.

All of a sudden what looks so remote to the consumer actually will change productivity models in the enterprise, will change virtualization models in the enterprise. You're going to use the same devices at work that you use at home. In fact, you'll be working a large percentage of your time based upon your own personal preference at whatever physical location you are. So, you combine those. And the CIO says, 'I get it.' Even though they might not have agreed with me three or four years ago.

They also agree you've got to support any device over any combination of networks, and if you're not the leader already in service provider, the leader already in enterprise, the leader already in the commercial marketplace and the leader already in the consumer, that's difficult to do. We are in all four categories. So, this vision of the four coming together, not being separate, looks pretty accurate.

Q: What do you see as the timeframe on the adoption of such consumer technologies in the enterprise?

A: It's in your leading accounts already, big time. Look at G.E. Look at what Jeff Immelt, the CEO is doing with Gary Reiner, world-class CIO. He's taking these concepts of collaboration, virtualization, and instead of bringing employees to where the work is, he's bringing the work to where the employees are. Completely transformed productivity, business models, taking advantage of your resources. I'm doing the exact same thing with my services. I can bring them from India, the U.S., in Europe, to wherever the opportunity is. A huge productivity gain, never mind the transportation costs or the hiring costs and bringing people up to speed

Q: You face a lot of competition in enterprise networking right now. What are you doing to stay ahead of these companies?

A: We don't focus on the competition. We focus purely on market transitions. Did you get them right or wrong? Now, you can argue whether that's right or wrong? My view is that if you focus on competition, you're looking out the rearview mirror. I'm a West Virginian. You look out the rearview mirror too long, you're off the road. So, philosophically we focus on market transitions.

Second, if you haven't got really good competitors, you're in the wrong market. The good news is we've got a lot of really good competitors. But the fascinating part is who are my competitors versus Flip? Apple, Sony. Who are my competitors in security? Symantec. Who are my competitors in routing? Alcatel-Lucent, Huawei, Juniper. Who are our competitors in switching? A different set of competitors. Who are our competitors in data center virtualization? Another set of competitors. Who are our competitors in wireless? Ericsson, Siemens. Who are our competitors in terms of set-top TV boxes? Motorola.

Now, you know where I'm headed. We do them all. And we believe they are architecturally tied together across consumer, enterprise and service provider. If we're right on that strategy, it's hard [for the others] to move with the speed needed. If we're also right on our business model strategy [we can].

I'm command and control. I love it. Turn right. Sixty-seven thousand people turn right. Tremendous speed. But, that is only if you're going to do one or two products. If you're going to try to even think about what we've described, you've got to do counsels and boards. That's hard to replicate. You've got to use your own technology, this collaboration technology. So doing it ourselves and driving the products at the same time we use them, that gives us tremendous speed.

Q: What are the advantages of the councils and boards? On the face of it, that structure seems overly bureaucratic.

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