Channel Business

Cisco: The One Question John Chambers Took Too Long to Answer

Forgive the headline. The VAR Guy isn't suggesting Cisco Systems is doomed. At $40 billion, Cisco remains a networking giant.

April 7, 2011

Cisco CEO John Chambers

Forgive the headline. The VAR Guy isn’t suggesting Cisco Systems is doomed. At $40 billion, Cisco remains a networking giant. But these days, even CEO John Chambers (pictured at Cisco Partner Summit 2011) concedes that Cisco has “disappointed our investors and we have confused our employees.” So what’s really ailing Cisco Systems? The VAR Guy checked his time machine and found the answer in 2002, in 2007 and again in 2011. Here’s the nagging Cisco problem, which shows itself every few years.

The calendar:

Rewind to 2002. Cisco Senior VP Bill Nuti headed for the exit to join Symbol Technologies, eventually emerging as Symbol’s CEO and more recently NCR‘s CEO. Some Cisco insiders thought Nuti was on the fast-track at Cisco — potential president or chief operating officer material. But those designations never materialized.
Fast forward to 2007, and Cisco Executive VP Charles Giancarlo — the heir apparent to Chambers — resigned to join an investment firm.
Jump to February 2011, and Chambers finally named a clear number 2 at the company — Chief Operating Officer Gary Moore. It’s the first time Cisco has had a COO.

The Obvious Question…

What took so long? The VAR Guy and Network World’s Jim Duffy ask Chambers that awkward — but important — question during Cisco Partner Summit in March 2011. Specifically, had Chambers waited too long to name a Chief Operating Officer? Chambers offered answers in this FastChat Video:

Chambers said he’s been thinking about creating a COO post for about 10 years. But Chambers actually pulled the trigger and created the post in February 2011, a few days after announcing an earnings outlook that concerned some investors.

Hmmm…

Checks and Balances

Cisco’s decision to wait so long to name a No. 2 executive points to larger challenges at the company:

Cisco’s board should have been managing downward, pressing Chambers to delegate more responsibility to a clearly appointed No. 2.
Cisco’s executive team should have been managing upward, pressing Chambers to focus Cisco on fewer initiatives.

Over at Telemanagement.com, Tim Wilson makes a rather succinct argument, writing:

“The mistakes were a long time in the making. Over the past decades, the value chain has shifted from hardware, to software, to services. Cisco, which has taken to thinking of itself as a software company, has had limited success shifting off of its hardware focus, and has only a small presence in professional services … as partners look over their shoulders at HP and Juniper, it might be time to completely rethink Cisco’s core value proposition. The truth is, in all of its main areas – switches, routers, videoconferencing – the company is getting hit hard.”

Getting Back on Track

So what should Cisco do? The VAR Guy suggests Cisco should slim down before bulking back up.

Back in 2009, Cisco was talking about competing in 50 adjacent markets. Some partners were confused. Some employees were confused. But in recent months, Chambers simplified the message. A memo from Chambers to employees earlier this week stated:

“Our five company priorities are established: leadership in core routing, switching and services; collaboration; data center virtualization and cloud; architectures; and video. The importance of delivery to market through our partners is also clear – and we will do nothing but reinforce this.”

Chambers added:

“We will address with surgical precision what we need to fix in our portfolio and what we need to better enable.”

Read Between the Lines…

Translation: It may be time for Cisco to exit certain markets. The VAR Guy’s peer, David Courbanou, recently suggested that Cisco sell off or spin off its consumer products. It’s time to retreat from those lower margin businesses — especially since consumer electronics companies already load up the Internet with video content that drive Cisco network sales.

Other potential steps:

Double down on the Cisco Unified Computing System (UCE), which partners seem to be embracing eagerly.
Double down on VCE (Virtual Computing Environment), backed by VMware, Cisco and EMC.
Accelerate ISV relations to get more applications certified on both UCE and VCE.
Promote Executive VP Rob Lloyd to president. Sources say COO Gary Moore has no interest in succeeding Chambers as CEO. But perhaps Lloyd has a long-term eye on the CEO crown. If so, shift him to the president slot now to drive more delegation and eliminate longer-term successor questions on Wall Street.

Proper Perspective

And of course, let’s all keep Cisco’s challenges in proper perspective. Unlike IBM of the early 1990s and Apple of the late 1990s, Cisco isn’t in financial distress. Over the past four quarters, Cisco’s net income has ranged from $1.52 billion to $2.19 billion, according to Yahoo Finance. And John Chambers has done quite a lot right for Cisco — building the company into the No. 1 or No. 2 player in most of its core markets, with 80 percent market share in some segments. Plenty of rival IT companies would crave that type of success… even if it means taking on Cisco’s current challenges.

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