Cisco: "We've never been more relevant"

CEO Chambers reflects on past year, how Cisco's changed

Despite the impressive recovery Cisco made over the last year, there's still room for improvement. Though CEO John Chambers acknowledged last week during his roundtable session with the trade press that he feels better talking about the company now than he did a year ago, he noted several areas where Cisco still needs to improve.

Even though last year's restructuring, which eliminated more than 12,000 Cisco jobs, effectively re-invented the company, Chamber says Cisco needs to continually reinvent itself - that these introspective moments and events should not be reactions to, or wait until the company falls on challenging times.

"It's been a pretty traumatic 18 months," Chambers said, "but we have reinvented ourselves."

Cisco's reported two solid quarters since that reinvention. But it's not over. He said the company is still reinventing itself and now going through a constant reinvention instead of one every five to seven years.

Hindsight has a way of making a company change its approach.

"We should have been smart enough anticipate or avoid" the events that led up to last year's restructuring, like the slowdown in public sector spending and the product transition in switching, Chambers said. "We should have (named a COO) a year ahead of when we did."

Shortly after Cisco announced its disappointing fiscal Q2 last year, the company named Gary Moore as its first ever COO. Chambers gives a lot of credit to Moore for streamlining the company since he took the COO reins. Cisco's management structure of councils and boards has been trimmed down, sales geographies have been fine-tuned, and core markets have been consolidated into five pillars supporting the company's key initiatives.

Cisco also appears to have become less ambitious in the number of market adjacencies it is targeting. Before hitting last year's wall, Chambers would boast that Cisco is addressing as many as 30 markets adjacent to its core routing and switching operations.

An example of success in Cisco's market adjacency initiative is its smart grid entry, the next generation of intelligent utility communications which Chambers says aligns tightly with Cisco's core mission because it represents "the Internet of things." An example of failure is its consumer electronics push, underscored by the abrupt killing of its Flip pocket videocam from the $600 million acquisition of Pure Digital.

"Three acquisitions at the time looked like home runs," Chambers said about lessons Cisco's learned from its consumer push. "Nobody bats better than 70% (in M&As), and 90% fail. Our timing was wrong in the sense that we couldn't pull the pieces together fast enough. We missed our window, so we decided to exit."

We don't hear that kind of 30 market adjacency bullishness anymore. But that's not to say Cisco is backing away from entering new markets that can complement its cores.

Chambers says Cisco is watching for new trends all the time. He says we'll see Cisco become more active on the M&A front to support its five foundational market pillars. He says we'll see Cisco become more of a software company, yet tying that software tightly to its hardware and custom ASICs in order to differentiate the company's offerings and fulfill its architectural sales approach.

"Customers value innovation the most," he said. "The more you sell business technology, the more you win with the IT architecture approach."

Software defined networks is an example of where Cisco will be more of a software company, though tying that closely with its ASIC development. Chambers wasn't ready to spill the beans yet on Cisco's SDN strategy in general or adherence to OpenFlow in particular. Yet he said that ASIC development will really bring SDNs "to light in a unique way."

"We view OpenFlow as a viable option for the future," he said.  "But our Nexus 1000v (software-based virtual switch) has 5,000 customers. We've been doing elements of (SDN) 9-12 months ago. We have weekly meetings on how to address the market through innovation, acquisition, partnership. But we will operate in quietness as we determine the moves we are going to make and the sequence we are going to make."

With SDNs and any other innovation, Cisco has to be faster. The company needs to improve its speed of development, and that results from faster decision making and simplified business processes.  

"How much is macro, and how much is internal?" Chambers asked himself about issues impacting Cisco's business. "We haven't moved as fast as we needed to. We developed complexity internally that we needed to take out."

He says Cisco needs to slow down the attrition rate in its engineering ranks. He gives Cisco "mediocre marks" on defining and helping customers implement an overall IT security architecture -- he says it's still piecemeal in approach. He likes Cisco's story in Borderless Networks, its overall campus architecture.

And he defended Cisco's customer success when challenged on alleged message inconsistency customers hear from Chambers on down through Cisco's sales ranks.

"We're getting very little push back today on prices," Chambers said. "Most people think we've done that fairly. I would argue we've never been more relevant."

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