In the 15 years, John Chambers has been CEO of Internet equipment maker Cisco, he has taken the firm from a $1.2-billion provider of Internet plumbing — routers and switches that direct traffic on the web — to a diversified $36.1-billion networking company. He achieved this through dozens of acquisitions, 70 per cent of which delivered more value than anticipated—an astounding statistic considering that, typically, just one in five buyouts adds value to the acquiring company.
After a planned meeting with BT during his recent India visit to attend the India Today Conclave was squeezed out to a cramped schedule (and a suddenly confirmed meeting with Prime Minister Manmohan Singh), Chambers made up with a videoconference interaction arriving at his San Jose office at 7 a.m. to talk with Rahul Sachitanand in Bangalore and Josey Puliyenthuruthel in New Delhi. The conversation ranged from what goes into making Cisco's secret sauce, how disruptive emerging markets can be, what to expect next in the Internet era, and other broad technology trends. Edited excerpts:
There's a lot of talk on how emerging markets will throw up new thrifty business models. How do corporations such as Cisco ensure that you don't kill your core products in the process?
I have been through the mainframe days with IBM, minicomputer days with Wang and I have watched the PC industry... If a market transition is going to occur you have to be able to read it. We have announced low-end routers with three times the performance at the same price. That's a nice way of saying in our industry that Moore's Law (which says that computing power doubles every two years at the same price) is a way of life. Taking an analogy of the auto industry, different parts of the world want to drive mid-range cars, luxury cars, SUVs and sub-compacts. We will similarly design different products and functionality based on a customer's requirements. It's a nice way of saying that market transitions wait for no one.
Where do you see Cisco positioned as a company today?
From an ambition point of view, we want to make Cisco synonymous with the Internet. There is an opportunity to change every aspect of our lives. This is not just about how you work, learn and play but also the opportunity to increase productivity around the world by 3-5 per cent...bring health care, education and job creation to around three billion people. So, at the vision level, we want to be the best company in the world and the best company for the world. From a high-tech industry perspective, we're moving from network plumbing to becoming the top company in communication and IP (Internet Protocol). We think that communication and IP will not just enable your strategy, but they will be deeply embedded into strategy with video and collaboration. We're good at getting market transitions right; our core capability is to lead.
We do internal start-ups such as Telepresence and Smart Grid and we've acquired 137 companies and we expanded our technology architecture with six new products recently. What's different about Cisco's mergers and acquisitions (M&A) strategy? We set the pace of using M&A to enter market adjacencies; we don't acquire competitors. We look for markets where we have a realistic chance of becoming No. 1 and a minimum of 40 per cent market share. We like to enter a market 3-5 years before it takes off so that we can do thorough development ourselves. This trend will continue if leaders drive it. If someone can offer one-two best products in each segment, whether you're a consumer or the company in the world, it would be too good an opportunity to pass up.
We've also changed our organisation structure from command and control—something I was very comfortable with—and we've had 57,000 people move to a model built around councils and boards. This is basically social networking with a lot of processes and discipline around it.