Cisco’s John Chambers on the digital era
How
significant is the digital era? It’s the biggest technology transition in
history, according to Cisco’s executive chairman—and requires a proportional
response from companies.
When John Chambers became chief executive
officer of Cisco Systems in 1995, the world had barely entered the modern
information age. About 18 million American homes were online, but only 3
percent of users had signed onto the World Wide Web. Amazon.com had just started,
calling itself “Earth’s biggest bookstore.” And President Bill Clinton’s White
House had only a year earlier gone online.1
By the time Chambers stepped down
as Cisco’s CEO last year, to become executive chairman, the information age had
fundamentally transformed almost every aspect of society. Yet Chambers believes
it’s not over. In this interview with McKinsey’s Rik Kirkland, he says the
world has now entered a digital era that will be “the biggest technology
transition ever.” He describes the changes Cisco has implemented to cope with
the accelerating pace of change and argues that companies that fail to adapt
are just likely to fail. An edited transcript of Chambers’s remarks follows.
Interview transcript
If you’re a leader in today’s
world, whether you’re a government leader or a business leader, you have to
focus on the fact that this is the biggest technology transition ever. This
digital era will dwarf what’s occurred in the information era and the value of
the Internet today. As leaders, if you don’t transform and use this technology
differently—if you don’t reinvent yourself, change your organization structure;
if you don’t talk about speed of innovation—you’re going to get disrupted. And
it’ll be a brutal disruption, where the majority of companies will not exist in
a meaningful way 10 to 15 years from now.
This digital age is the
connectivity of going from a thousand devices connected to the Internet to 500
billion. It will transform business. It will transform our lives, our
healthcare system. Business models will rise and fall at a tremendous speed. It
will create huge opportunities—probably $19 trillion in economic value over the
next decade, incremental above what we’re seeing today. That’s the size of the
US economy, plus some.
But it will also result in
tremendous disruption. And this is where it’s so important—whether they’re
countries or companies, regardless of their size—that you either disrupt or you
get disrupted. Probably 40 percent of enterprise customers around the world
will not exist in a meaningful way ten years from now. When I said that two and
three years ago, my CEO counterparts said, “Hey, John, you called the other
transitions right, but I think that’s way too aggressive.” I think now most
CEOs would agree. If they don’t change, they get left behind.
Evolving the organization
When many people think about this,
you want to think about the intelligence of an architecture, where you can get
access to any data, any point and time you want. It’s simple to describe, but
it really means you’re dealing with intelligent networks—a next generation of
the Internet, if you will. But connecting 500 billion devices doesn’t get the
job done. It’s the process change behind it. So you’ve got technologies like
cloud or mobility and cybersecurity and the Internet of Things that are very
important. That’s actually the easy part.
The hard part is how do you change
your organization structure? How do you change your culture to be able to think
in terms of outcomes for your customers? It’s all about speed of innovation and
changing the way you do business. The majority of companies will be digital
within five years, yet the majority of their digital efforts will fail, which
speaks to what a CEO has to do differently.
She or he has to think much more
outside the box. They have to reinvent themselves. They have to reinvent their
company. Not stay doing the right thing too long, if you will. That’s what got
companies in trouble in the past. But the rate of change then was much slower.
Today, you’re talking about digitization being an integral part of the fabric
of a company’s business strategy or the way it interfaces its supply chain with
its customers. Not enabled by technology—technology will become the company.
How Cisco has changed
Focus more horizontally on how
things work together as opposed to silos. If all you do is have a bunch of
silos in your company that don’t really talk to each other, you’re going to get
displaced by, perhaps, a small company that has just a CEO and a CIO and has $1
billion in sales.
We transformed our engineering
organization from being in silos to being horizontal, taking out about 5,000
people. We worked across the groups, refocused on leaders who could work
horizontally together as opposed to in silos, the majority on their own profit
and loss. We changed our sales organization, which is one of the top sales
organizations in high tech; most people would agree with that description. Yet
we changed 41 percent of the client interface and execs because they were
selling routers and switching technology, not business outcomes, architectures,
and speed-to-market delivery.
And it caused us to change our top
leadership. We changed probably 40 percent of our top leadership over the last
two years. That’s not something I’m terribly proud of, but it’s something that
we had to do so that we disrupt as opposed to be disrupted. So, when I talk
about, in theory, what CEOs need to do, this is what we did ourselves.
Finding innovation
The sources of innovation have to
move from being something you do on the fringe to something you have to do
mainline. We’ve been in this transition for almost 20 years at Cisco. We’ve
done 184 acquisitions. We use M&A as a way to enter new markets, and we’re
number one or number two in 16 major product families. Our targeted minimum
market share is 40 percent, which we hit most all the time. But it’s about to
change again. We have to do this faster. We have to create an environment of
really rapid innovation internally.
The first step is merely making it
an independent group, because if you do it inside your organization, your
existing culture will kill it. So why do these transitions fail or succeed?
Companies fail to understand the implications of how quickly this technology
will transform their business. And they underestimate what it really means to
their economic growth or that of their competitors.
Secondly, they stay doing the right
thing too long. And that’s what gets so many of us trouble, because we’re
trained to get a 3 to 5 percent increase in productivity. To just crank it: do
a little bit better each year; cut expenses a little bit; grow the top line.
This is about exponential change.
http://www.mckinsey.com/industries/high-tech/our-insights/ciscos-john-chambers-on-the-digital-era?cid=digistrat-eml-alt-mip-mck-oth-1603
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