Cisco Uses Change and Innovation To Capture Marketshare

I start my day, every day, with what I call a daily news briefing.  I first read the daily newspapers, Financial Times, International Herald Tribune, and the Wall Street Journal.  During my daily news briefing last Saturday (July 25th), I was captivated by an article that appeared in the Wall Street Journal Saturday Edition titled, Silicon Valley Survivor“. This piece was on one of this industry’s CEOs that I admire and respect highly for his insight into the long-term direction of the industry; John Chambers of Cisco Systems.

I’ve often written about using change and disruption as a competitive weapon in business, but John Chambers is the epitome of using change and disruption as a way to gain market share and outrun his competition.  I’ve stated in previous articles “change presents opportunities”.  The ability to adapt to change is a key advantage in business.  To survive, compete, and win, enterprises must adapt.  However, because change is often disruptive and expensive, few organizations are prepared to take advantage consistently of the opportunities that change presents.  This is not the case with Cisco.  As the article points out, Cisco has over $34 billion in cash during this economic nightmare which gives them a serious leg up to exploit the opportunities that are being generated by this crisis.  Mr Chambers states that, “you never want to waste a good crisis” and by looking at the company so far, they aren’t.  Cisco under the leadership of Chambers has used downturns to expand the company through aggressive – and successful – acquisitions.  The company has trimmed “an incredible $1.5 billion in OpEx” which has garnered them an “outperform” recently by Credit Suisse.  They must be doing something right.  What amazes me even more is that Cisco has had “no major layoffs during this economic downturn and made no salary cuts.” compared to the rest of the industry.  Even is the midst of the worst recession is generations Cisco announced its “intention to pursue 30 disparate new market areas – from sports to the smart grid to cloud computing – simultaneously.” Chambers – in typical Chambers fashion – announced publicly that Cisco will average “12% to 17% annual growth over the course of the next five years whatever happens to the economy in the short term.  We basically wrote the press release for five years from now.”  The Wall Street Journal called this “mighty bold talk”.  My opinion? yes, mighty bold, but so insightful into the long term direction of the economy in general, but more importantly the technology industry.  This industry is headed for the next boom period and it’s companies like Cisco that will lead the way; but there are still issues, challenges, deeply ingrained processes, that need to be changed in regards to IT before things really start to take off.

The real issue here is that IT organizations are still seen as a roadblock to business agility.  This is somewhat ironic because new information technology should be a key part of the solution.  But IT innovation causes so much change, that it is difficult to reap the benefits of this innovation.  Accordingly, CIOs have often paid close attention to cost, quality, and risk management concerns.  Because of the complexity of the business environment and underlying technologies, the desired end state was typically stability of operations, with changes managed as initiatives delivering new functionality while ensuring ongoing stability and controlling costs.  In the coming period of technology advancement we will see more of a focus on the exploitation of IT and how to take better advantage of the investment in technology that is being made.  Cisco is going to be right there concentrating on helping their customers exploit the technology to their advantage.

In all of the work I’ve done inside some of the biggest companies in the world I’ve learned a lot from those customers on the subject of making innovation work, and the one thing that it comes down to is the culture and leadership of the company.  Culture has many components, but I think one of the most important is the leadership of the company.  John Chambers has had a significant impact on the innovation culture that grows inside Cisco.  As CEO he is the key role player in making innovation part of the company culture and it’s obvious he’s successful in the performance of this company.  I’m sure we’ve all seen and heard other CEOs and executives just talking about innovative culture, but just putting the strategy and systems in place is not nearly enough you need to execute and that is one of John Chamber’s strong points.

One of the best books I’ve read around the culture of innovation is The Art of Innovation by Tom Kelley.  Tom and his brother David Kelley run IDEO, one of the leading industrial design firms in the world.  This company is the epitome of innovative culture right up there with the folks at Cisco.  David Kelly did an interview back in 2003 with the Harvard Business Review where he said, “some companies seem more comfortable going through the methodological motions than making the cultural commitments that ongoing innovation demands.”  CEOs have to work on and in the innovation culture.  It’s blatantly obvious that Chambers does just that.  It’s always very interesting to look around companies and see what kind of innovative culture they have.  Some of the companies that I’ve been to have had the technology folks in charge of innovation, but the business folks managing the process.  This is the stage-gate process.  Then I’ve seen where the business side is in charge of the innovation and they invite IT to the table with the goal of achieving this sense of collaboration.  Here is where the leadership of the CEO has to be intimately involved.  For innovation to work both functions have to be managed together.  One great example that I can think of is John Chambers.  He is clearly the innovation leader at Cisco and he pushes very hard to make sure that business and technology have effective collaboration.  He has reorganized Cisco “around small, fast-moving product groups – called councils and boards – and sent them off in hot pursuit of markets in full expectation of every one turning into a billion-dollar business.  Innovative for sure and more readily able to adapt to change in age of globalization.

Every executive and mid-level management person can take a lesson from John Chambers; focus on the long-term health of your company, and “not to treat symptoms but the underlying problem.”  Amen to that John Chambers.

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