Cisco's display of strength
The first step was to reorganize the company into "probably the world's biggest functionally aligned organization," as Charlie Giancarlo, Cisco's chief development officer, puts it. Translation: Unlike GE (Charts, Fortune 500) or 3M (Charts) or Citigroup (Charts, Fortune 500) or pretty much any huge corporation you can think of, Cisco has no divisional presidents or country chiefs with permanent separate armies, all backed by their own support staffs (sales, marketing, engineering, and so on). Instead, at Cisco those functions are all centralized. Whenever the company tackles new markets or geographical areas, the folks responsible for business units must assemble teams drawn from troops controlled by the functional heads.
Why reinvent the standard org chart? One reason is to save money. During the go-go years of 100% annual growth and ceaseless acquisitions (23 in 2000 alone!), Cisco garnered a nickname in Silicon Valley, "the Borg" - after the aliens in Star Trek who expand across the universe by absorbing new species into a hive mind. But by 2001 the hive mind had developed a bad migraine. Cisco's operating expenses soared above 50% of sales as groups charged with entering new markets, such as telecommunications, threw money and bodies at the problem. The new setup instantly cleared away things like overlapping sales and marketing groups. Better still, it continues to enable Cisco to run remarkably lean. Though the company has nearly doubled in size since 2002, operating expenses today are only 39% of sales.
Reorganizing around functions also forced Cisco's brutally competitive culture to learn a new way to grow. The old method, says VC and consultant Geoffrey Moore, who delved into Cisco in his recent book Dealing With Darwin, was to hand an executive fearsome financial targets and tell him to make like a Spartan - "You know, either come back with your shield, or on it." The new Cisco would keep the goals but demand collaboration. Compensation changed too: Instead of getting paid just for meeting targets, top people got rewarded based on how peers rated them on their teamwork. "It's no longer about doing the diving catch," Chambers says.
It wasn't an easy transition. Everyone hated the new way at first. Executives didn't like sharing resources; joint strategy-setting and decision-making was cumbersome. "Things ground to a halt," says Giancarlo. "The first two years were very painful," admits Chambers. Some of the most successful people in the old regime left after their bonuses went poof thanks to the new compensation system. Others were asked to leave. Overall, Chambers estimates, about 10% of his top team "couldn't make the transition."
Today Cisco operates through six business "councils," each formed around potential $10 billion markets (e.g., consumer, enterprise, emerging markets). Reporting to the councils are some 30 "boards" that zero in on newer markets with at least $1 billion in possible sales (connected homes, mobility, sports and entertainment). Most of the leadership serve on three councils or boards, so it pays to be flexible.
Case in point: treasurer Dave Holland, who is also the unlikely co-head of Cisco's new sports and entertainment board. He started out negotiating the sale of some company-owned land to the Oakland A's; next thing you know, he and his team are planning the construction of what will be the A's "Cisco Field" and courting folks from the NFL, NBA, and NASCAR to consider what Cisco technology might do for them. Quick: Name any other big company that would give its treasurer oversight of a potential growth business.
This year Chambers began pushing his company into its next incarnation, which he calls Cisco 3.0. That's shorthand for a range of things Cisco is doing to spur even more teamwork and innovation. Take telepresence: 50 big companies, among them Verizon, Aflac, McKesson, BT, and SAP, have bought systems since the launch last winter. (List price: $299,000 for three 65-inch plasma screens in a special conference room and $71,000 for a single-screen setup.) "It was phenomenal," says Wal-Mart CIO Rollin Ford, who saw a demonstration recently. "I believe it's a technology we will embrace." P&G is installing more than 40 telepresence rooms worldwide over the next nine months. "We are rocking and rolling here," says CIO Filippo Passerini. "To have a breakthrough in the way we operate, we needed a big leap." But no one is more excited about the productivity potential than Cisco itself. Since December, Chambers has rolled out 120 telepresence centers across the company (paid for by ordering every department to cut its travel budget 20%).
Another tool is social networking, that new-time religion that Cisco has embraced with a convert's fervor. In September it launched a website that is a microcosm of everything evoked by the phrase "Web 2.0." There's a Ciscopedia, where people can build an evolving body of lore about anything fellow Ciscans might want to know. There are text blogs and video blogs, discussion groups, and "problems and solutions links." There's an internal version of MySpace, which provides not only title and contact info but also personal profiles, job histories, interests, and videos. Soon it will show whether a person is reachable by, say, office phone, cell, IM, or telepresence, and offer a one-click connection.
And there's more. "We're going to use social bookmarking to allow us to take the pulse of the organization," says Jim Grubb, who built the website (and whose day job is putting together John Chambers' demos). They'll do that by aggregating the tags employees create into "tag clouds" when they click on sites. Tracking these will allow a Cisco honcho to get a snapshot of the current hot-button issues for marketing or finance. If an employee is tagged as the go-to person for virtualization, say, he could earn a bonus for this previously unacknowledged expertise. That's down the road. Asked for a here-and-now example, Cisco marketing head Sue Bostrom laughs (proudly) and recounts the six-month online campaign to develop and select a five-note "Cisco sound" for TV and Internet ads. "Ten thousand employees voted," she says, "and 1,200 partners also participated."
Ah, yes, partners. More than most businesses, Cisco relies on outsiders - "the ecosystem," as they call it - to purvey its goods and services. "Channel partners account for some 92% of our sales," says Paul Mountford, who managed those relationships for years before moving to head emerging markets in 2006. One tool for husbanding the ecosystem among smaller businesses is WebEx, the online-meeting hosting service Cisco bought for $3 billion last May. Of the roughly 600 telepresence sessions now held each week within Cisco, roughly one-third involve big customers and partners. Those connections should proliferate as more systems get sold and as Cisco and others eventually lower prices and develop ways to take telepresence down to smaller screens (like the desktop), all connected using open Internet standards.