Chambers, the CEO of Cisco has had, much like his company,
a torrid two years. Fuelled by hype surrounding the internet and
telecommunications businesses (and by the fact that for a brief
period in those heady days, the company was more valuable than Microsoft),
analysts and publications labeled Cisco, the organisation of the
future, and Chambers, one of the best CEOs going. Then the bottom
dropped out of the market. Circa 2003, however, as Chambers points
out repeatedly in the course of this interview, Cisco hasn't done
too badly for itself. It is still the market leader and has weathered
the bad times better than most of its competitors. Chambers is also
confident that Cisco has hit upon the perfect business model for
the future, one he calls a network virtual organisation. He spoke
to BT (which sought the interview to understand how one of
tech's gold standards had weathered the tech slowdown) in Cisco's
New Delhi office through the company's internal network on a Cisco
IP telephone, a product that is increasingly finding customers among
companies keen to reduce the cost of intra-office communications.
As he tells it in this interview, sometimes it does pay to eat your
John, it's been two years since you were
in India and the Indian telecom market has really grown. Are you
happy with what your Indian subsidiary has achieved in this period?
I think it's more than a subsidiary sales arrangement.
If you watch what we are attempting to do in India-and we've done
this only in three, maybe four countries around the world-we are
focused (on the country) from a R&D perspective and a service
perspective; we have key strategic partners in India, and a subsidiary
for sales operations. With a combination of the four, I am very
pleased with where we are.
What are the expectations you have of Cisco's
I have very high expectations of our engineering
services and sales operation in India. I also have very high expectations
of India as a whole because of its education system and the opportunities
it has for carving a future where education and the internet will
be two great equalisers.
There has recently been a change at the
top in Cisco India...
Cisco India has been performing well and is
a top performer in the region. I am confident that this will continue
under the leadership of Rangu (Ranganath Salgame, the new President,
India and SAARC operations).
|"Cisco has reorganised itself, restructured
itself and focussed itself"
You have a large development centre in Bangalore.
How critical is this to Cisco?
What is the future of business? We think the
model for the future is what we call a network virtual organisation.
This simply means that you focus on your core expertise and outsource
to others what they have major advantages in. To make this work
effectively, you have to maintain very high control over the strategy
and the execution. This is what we are doing with our centre in
India. It actually serves the organisation across the world (in
terms of engineering services). (To put this in perspective), as
an organisation Cisco has outsourced manufacturing for 12 years.
The pace of acquisitions made by Cisco has
come down in the last couple of years. Is growth through acquisitions
becoming more and more difficult?
No. I don't think so at all. I think you shouldn't
think about acquisitions in isolation, but in the context of your
overall strategy. We have the unique position of leading the whole
networking industry. Our market capitalisation is around 70 per
cent of the entire industry's market cap. That's a nice way of saying
that the expectation of the financial community from us, as compared
to (expectations) from our top three or four competitors is higher.
If you look at companies that are successful innovators, they did
it themselves during the 1970s and 80s; in the 1990s, they did that
and they acquired (companies that had innovated technologies). Cisco
led the way in acquisitions all through the 1990s. In this decade,
it's doing it yourself and acquiring companies and partnering. If
you look at our pace of acquisitions, it is starting to pick up
If there is one thing that sets apart Cisco's
products and Cisco's technology from that of the competition what
would it be?
Let's make it three. If we look at what Cisco
is able to do that our peers in the industry struggle with, it is
the ability to transform technology into business process; change
productivity. That's what most of the people see Cisco doing.
Second, we are the only company that has positioned
itself to play across technologies in its business: to be the leader
in your own network, to be a leader in the internet, to be a leader
in the wireless networks, to be a leader in the cable networks.
So, if you look at applications that will enable a network virtual
organisation, you can choose any combination.
The third element that I think we bring to
these companies is the ability to protect their investment: (for
instance), we can add a card to a switch and make it a router; or
add another card for security; and another to bestow it with a PBX
(internal exchange) capability.
When you came down here in 2000, Cisco was
on a roll. I think it had just come off being the most valuable
company in the US for a couple of days. Magazines were calling it
the organisation of the future. But the last couple of years haven't
been kind to you have they?
I think every it company in the world has had
a very tough last couple of years. The NASDAQ has fallen by over
80 per cent. If you look at our top 11 competitors, their market
capitalisation has gone from $937 billion to $40 billion, the same
as it was in 1995. Our market capitalisation since 1995 is up over
1,000 per cent. I think our relations hips in the industry and the
relations hips with customers and key strategic partners have become
dramatically better, not just over the last two years but over the
last seven in a way that our competitors have not managed to do.
I think world-class companies have to handle the good times well
and have to handle the challenging times well and I think most analysts
would say that we have led our industry in both times.
Could you elaborate on how you've handled
the challenging times well?
When you are in challenging times, the lesson
to learn is very simple. First, you need to understand whether it
is an industry phenomena or something you did yourself. Second,
you determine-if it's not something you did, (that is)-how long
it (the recession) is going to last and how deep it is going to
be. And third, you get ready for the eventual upturn. That's true
regardless of industry in challenging times. We said it (the challenging
times) would last longer and run deeper that anybody expects. (We
said it would be) the 100-year flood. We were right about this prediction
and during that time-period we came up with a plan that really got
our company ready to run a different implementation of our strategy
at a different pace. We also got ready for the upturn: (we focused
on) productivity and fast growing new technologies and segmented
Our productivity increased by 22 per cent just
by moving resources to new markets. So we have over 40 per cent
of our engineering resources (focused) on router-research in new
countries and it was nowhere near that two years ago.
We've used technology ourselves to dramatically
increase our productivity.
Your key customers must be equally focused
on costs. So has that put your profit margins under some kind of
We deliver continued price-performance improvement
to our customers at an unbelievably fast pace that exceeds (the
pace defined by) Moore's Law, and that of our industry. We did offer
peak performance price reduction on strategic products. We're coming
down the price performance curve at a rapid rate and yet we have
done what no one in the industry has done: increased our gross margins
(while lowering price and improving performance). That, most people
would agree, is world-class execution and we've used our own technology
(to increase) productivity, as well as some very fundamental business
practices to achieve that.
Remember that this industry lost $500 million
in the first quarter of this year and we made a billion in cash.
Cisco has reorganised itself, restructured itself, and focussed
Have the last couple of years changed you,
your style of leadership?
I think you learn more about a leader and a
company during tough times than you do in good times. To lead in
hyper-growth periods is very difficult, very challenging, but I
think most people would agree that to lead in periods on contraction
is even more challenging. It can't be much fun. Most people would
say that once we got over our initial surprise, nobody in the industry
executed (the revival) strategy better than Cisco.
Whether its our leadership team, including
myself, or the company, we have emerged from periods of rapid growth
and rapid contraction stronger, a much more effective company with
closer relations with customers, a company that has learnt to master
productivity. In most people's opinion, we are well positioned to
lead our industry by a long way. At the same time we are focused
on staying customer-driven and we have a management team that probably
planned the best (strategy for bad times) as a team. Our overall
strategy and our architectural process has not changed at all; in
fact we are better positioned in our industry than we were even
two years ago.