Photo: Associated Press
Cisco was once the most valuable tech company in the world, with a market cap of more than $500 billion.The company is still a powerhouse with more than $40 billion in annual revenue, but the company’s last two earnings reports have been disappointing, and the company delivered a bad outlook on its last earnings call in February, sending the stock diving.
Cisco CEO John Chambers admitted in a memo published today that the company has lost its way by trying to focus on too many things at once.
As Chambers wrote, “We have disappointed our investors and we have confused our employees. Bottom line, we have lost some of the credibility that is foundational to Cisco’s success – and we must earn it back,” he wrote.
He plans to get the company back on track by focusing on five core areas:
- Core routing, switching, and services (Cisco’s traditional business)
- Collaboration (WebEx and related services)
- Data centre virtualization and cloud (helping companies use their hardware more efficiently)
- Architectures (underlying technology)
- Video (Cisco sells lots of consumer video products, including Scientific Atlanta cable set-top boxes, the Flip cam, and a home videoconferencing system called Umi.)
That still seems like a broad set of businesses to be in, but at least it cuts out some of the outliers like wireless home audio and smart grids for utilities.
Chambers also warned that he’s ready to shake up the ranks: “Our approach to leadership in the core amidst this transition will change.” (Emphasis his.)
The full memo in all its corporate-speak glory is below:
As many of you know, my values and approach to leadership are grounded in part by what I learned from my parents. Both doctors, they taught me to fuel what’s healthy and to heal what’s not. They taught me to seek solutions to challenges, not symptoms. Over the years as your leader here at Cisco, I’ve also learned many things. I’ve learned to read market transitions by listening deeply to our customers and partners. And I’ve learned to adjust when and where it’s needed, quickly and transparently.
With this in mind, I’d like to share with you my thoughts about Cisco, as Gary Moore also shares his perspective after the first 30 days as our COO. About what’s working well and is fundamental to who we are and what we stand for. And about aspects of Cisco today we need to change, what you can expect from me and what I expect from you as we execute against our decisions and move forward, together.
First, as always, let’s start with our customers. I’ve spent significant time recently reaching out to many of them around the world. I’ve had extremely candid conversations about why they buy Cisco, why they don’t, and what they think we do best. These conversations reinforce what I have known to be true about Cisco: our customers believe we are a company of passionate people that take time to imagine what’s possible, and to do what it takes to make them successful.
I’ve also solicited very direct feedback from many of you—as individuals, in small group meetings and through your participation in my blog postings and our CEC discussion forums (internal Cisco forums). You are telling me that there is a reason you are at Cisco – our culture, our values, our vision. You’ve also made it very clear that we must make it simpler to do the work we love to do, and to accelerate the impact we know we are making for our customers.
It is clear to me that we have incredible foundational strengths – our people, our relationships, our innovation and our strategy to extend the role of the network. We have anticipated market transitions and made good decisions in capturing them. We are disrupting the data centre space. We are redefining the collaboration market. And we have gone big on video, a market that is changing society and business completely.
We are a $40B company that for the last decade has seen a virtual explosion in market opportunity. The Internet has taken on an entirely new form– and our growth strategy has been based on capturing the incredible opportunity afforded by this massive demand for the network. Many say that in the face of this expansion, Cisco needs more discipline. I agree.
To be clear, I am confident that our vision and fundamental strategy is right –we are aggressively capturing the opportunity to take the network where our customers need it to be. No one has the breadth and scale of Cisco in networking. No one has Cisco’s breadth of innovation, the scale and reach of our customer delivery model or our talent and expertise. Cisco’s value to our customers is differentiated and it is simple: we globally deliver network-centric platforms that make them more competitive. Our strategy is just as clear—we are extending the network platform to enable collaboration, data centre / cloud transformation and video architectures that expand our technology and business relevance to customers and partners on a global scale.
As I’ve said, our strategy is sound. It is aspects of our operational execution that are not. We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders. That is unacceptable. And it is exactly what we will attack.
Cisco’s mission—on each of our badges—is to shape the future of the Internet by creating unprecedented value and opportunity for our customers, employees, investors and partners. Barring the tech downturn over a decade ago, few have questioned Cisco’s ability to achieve this mission in our 26+ years as a company. Time and again we’ve had the vision to take the network to places most argued was not possible. Cisco is a great company – we have much to be proud of, and much to look forward to.
That said, today we face a simple truth: we have disappointed our investors and we have confused our employees. Bottom line, we have lost some of the credibility that is foundational to Cisco’s success – and we must earn it back. Our market is in transition, and our company is in transition. And the time is right to define this transition for ourselves and our industry. I understand this. It’s time for focus.
We now need to prepare ourselves for what’s next, as you will see Cisco make a number of targeted moves in the coming weeks and as we move into FY12. These actions will be based on uncompromising integrity and will represent a very simple set of guiding principles:
- We will not fix what’s not broken. There are numerous areas where we’re executing incredibly well for our customers and partners. In these areas, you will see no disruption and you will see nothing less than support and empowerment. Simply put, we will not get in the way of our success. Our five company priorities are established: leadership in core routing, switching and services; collaboration; data centre 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.
- We will take bold steps and we will make tough decisions. With change comes disruption, and you will see this necessary and healthy disruption as we make meaningful decisions in a timely, targeted and measureable way. We will address with surgical precision what we need to fix in our portfolio and what we need to better enable.
- We will accelerate our leadership across our five priorities and compete to win in the core. Again, our strategy to extend the role of the network will not change. Our approach to leadership in the core amidst this transition will change. In switching we understand that our customers are buying across broader segments and specific needs in this market. We understand that our competitors in this area are fierce, with different business models and architectures. We will not be defined by them. Most important, we understand that our customers want to stay and grow with Cisco. They know we will partner with them to make their business successful and their technology investment sound. They know us well and understand that we will not leave or devalue this business. We need to give them the right reasons to make this transition with us, and we will.
- We will make it easier for you to work at Cisco, as we make it easier for our customers and partners to work with Cisco. We will simplify the way we work and how we focus our attention and resources. We will significantly rework our systems, tools and funding models to do this. We will reshape the operational foundation in order to empower our teams, integrate our major functions, and allow our people to focus on inspiring and important work. We created the role of COO to expedite this effort and Gary Moore and I will drive these changes with the leadership team.
We are all responsible for driving operational excellence across Cisco. As you’d expect, I’m asking each of you to play your part in this transition. The responsibility does not fall on one leader or one team. It will not be easy and I expect your participation, flexibility and feedback along the way. As I’ve said before, we will look back at this time in Cisco’s history and remember it as challenging, and important to the future of our company. Plain and simple – we need to roll up our sleeves and work it out, together. I’m ready, your leadership team is ready, and I know you are ready.
I want to leave you with a question: what do you want Cisco to be? I want it to be a company that keeps changing the way the world lives, works, plays and learns. A company that knows how to win and intends to continue that track record. A company that’s taking the network where it needs to be, with focus. And at a place that puts people, customers and communities at the core of its values. That’s Cisco, no excuses.
Thank you for being part of Cisco. You have my commitment, my respect and my appreciation. Let’s define and win this transition together. This is our start.
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