A case for Lou Gerstner at Cisco

Investment firm argues for a strategist like the ex-IBM CEO to take over from here

Does Cisco need some Lou Gerstner? That's what an investment firm asks in light of Cisco's recent struggles.

Gerstner took over IBM in 1993 when it was facing a similar dilemma as Cisco - a company in need of an aggressive redefinition of its strategy in order to avail itself of the opportunities in IT for the next 10-15 years. Gerstner, a strategist recruited from RJ Reynolds, prepared IBM by divorcing software from its subordinate position to hardware and driving an overall "solutions" sales approach emphasizing software and services, according to Mizuho Securities USA.

Cisco needs to initiate and complete a similar redefinition and transformation if it is to thrive in the era of data center re-engineering and cloud computing, Mizuho states in a recent bulletin. But it also asks if CEO John Chambers, a sales-centric executive, is the right man to lead it - or if Cisco needs a strategist like Gerstner.

Our concern is whether Cisco's Board of Directors recognizes the extent of the changes that the company must undergo and the time limitations imposed by rapidly developing market forces. The Board must candidly assess whether the master salesman CEO who drove the company's growth and valuation during the golden years is appropriate for this undertaking, or whether a strategy CEO is better suited in defining Cisco's place in the IT world.

The bulletin was authored by Mizuho analysts Joanna Makris and Gabriel Lowy. In it, they argue that, beyond cost cutting and product/market rationalization, Cisco must assess the dependence it's placed on partnerships going forward while the IT "elite" are farther along in building out their portfolios for cloud computing.

Mizuho argues that these dependencies have left Cisco "exposed" relative to its cloud computing and IT competitors:

Amidst a backdrop of intensifying competition, the paradigm shift toward virtualization and cloud computing architectures has required networking companies to evolve from technology to full-solution providers. This shift has also generated unique network complexities which again underscore the importance of software and IT services. 

Cisco has failed to develop these capabilities in-house, instead relying on partnerships with BMC, EMC, VMWare, Capgemini,Wipro, etc. Ultimately, the Cisco VBlock coalition faces its most formidable challenge on the services front, where the capabilities of this alliance clearly lag those of IBM and HP. While we expect Cisco (and its partners) to expand and develop its services capabilities, these efforts will take time and will require profound cultural changes-particularly for a sales force conditioned to sell hardware. 

That's where the Chambers/Gerstner dichotomy comes in. Chambers was a driven salesman and a very successful one at IBM and Wang, and he instilled that into the ranks at Cisco. As a result, Cisco is a very successful, sales-driven company. 

But is this the right formula going forward as the emphasis on data center/cloud computing shifts to software, service and solutions, and away from hardware? And is Chambers still the right guy to steer the ship into these waters after almost two decades of focusing on end-to-end hardware sales? And after some significant recent missteps, like the ambitious but failed foray into consumer products and the bloated management structure

Mizuho suggests that many of Cisco's 145 acquisitions, especially some of the more recent ones, missed the mark for a company looking to broaden its influence beyond networking and into IT. Thus, the time might be right for a change of captaincy - a change that will install more of a strategist at the helm and less of a salesman: 

For a company of Cisco's size and stature not to own these critical (software and IT services) component pieces on the cusp the most significant industry wave change in over 25 years puts the company at a gaping competitive disadvantage, in our view. It also marginalizes the relevance of its messaging at a time when more customers view Cisco as an over-priced purveyor of commodity networking gear. Cisco is not in the position of being a trusted advisor to its customers because it cannot deliver meaningful value through software and services to help evolve organizations toward cloud computing architectures.

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