Cisco’s John Chambers: Management and Leadership with Vision
Cisco’s John Chambers has proven to be a strong, visionary leader. With him as CEO and president, Cisco has garnered many awards for his leadership and vision of a company that is at the forefront of technology. The company has made more than 70 acquisitions in its short history, and many acquired companies live on as autonomous Cisco business units. However, Cisco does not install new leadership for those business units; managers of the acquired companies usually have the independence to run their business units.
To wit, Cisco’s senior management is filled with executives from acquired companies. These entrepreneurial managers are not pushed out of the company; their skills as leaders are valued at all levels of Cisco.
As a secret, “good leading and good managing” was always the mantra of John Chambers. Cisco was back from the devastating tech bust and starting to enjoy another benefit cycle. John’s strategy for Cisco is as clear as his leadership: “ In today’s environment, it’s all about getting back to the basics in terms of focusing on the areas that a company can influence and control: cash generation, available market share gains, productivity increases, profitability, and technology innovation.
These factors determine who will survive in this challenging economy” (Cisco Newsroom, 2006).
Indeed, John Chambers and Cisco Systems have been recognized for excellence in the communications field. He and the company received Best Investor Relations by a CEO twice, the Top 15 Best Places to Work, Second Most Admired Network Communications Company in America, Number One Best Employer, and the Spirit of Achievement awards. This year was even a glorious year for Cisco because the company received the Award for Corporate Excellence as the multinational enterprise winner. The US government gives the Award for Corporate Excellence to recognize the important role that U.S. businesses play abroad as good corporate citizens (US Department of State, 2006). In January 2006, Chambers was named the Best CEO in America in the “Telecommunications, Data Networking” category by Institutional Investor magazine, and in February he was awarded the prestigious Excellence in Corporate Philanthropy Award from the Committee to Encourage Corporate Philanthropy (CECP), an international forum of more than 120 CEOs and board chairpersons focused on corporate philanthropy (Chamber’s Biography).
However, all were not rosy for Chambers as he struggled to attain success in his company. In the past Cisco has faced numerous challenges, Chambers cut fast and deep after disposing of some $2 billion in antiquated inventory, and immediately refocused the firm on building for the future. According to Peter Solvik, CIO of Cisco, “Cisco’s Internet-based business model was instrumental in its ability to quadruple in size from 1994 to 1998 ($1.3 billion to over $8 billion), hire approximately 1000 new employees per quarter while increasing their productivity, and save $560 million annually in business expenses.” Specializing in enterprise network solutions, Cisco used, according to John Chambers, Cisco CEO, a “global virtual manufacturing strategy.” As he explained, “First, we have established manufacturing plants all over the world. We have also developed close arrangements with major suppliers. So when we work together with our suppliers, and if we do our job right, the customer cannot tell the difference between my own plants and my suppliers in Taiwan and elsewhere” (Lakenan, Boyd & Frey, 2001).
This approach was enabled by Cisco’s single-enterprise system, which provides the backbone for all activities in the company and connects not only customers and employees but also chip manufacturers, component distributors, contract manufacturers, logistics companies, and systems integrators. These participants can perform like one company because they all rely on the same Web-based data sources. All its suppliers see the same demand and do not rely on their own forecasts based on information flowing from multiple points in the supply chain. Cisco also built a dynamic replenishment system to help reduce supplier inventory. Cisco’s average inventory turns in 1999 were 10 compared with an average of 4 for competitors. Inventory turns for commodity items are even more impressive; they reach 25 to 35 turns a year.
John Chambers put it well when he said: “Make your customer the center of your culture” (O’Neil, 2004). As a company strategy, Cisco classifies its customers into four main categories. These include large enterprise businesses, service providers, commercial customers and consumers. Large enterprise businesses are defined as a business with 1,000 or more employees working in multiple locations or branch offices. Cisco’s commercial customers are primarily small and medium-sized businesses with less than 1,000 employees. These customers have a need for own networks, along with connectivity to the Internet and to business partners. The consumer segment primarily includes individuals and businesses operating in small offices or home offices, with infrastructure and networking needs of a smaller scale.
Cisco sells and distributes its products through its own sales force as well as through a network of channel partners. Cisco products and services are sold to the end customer through both direct and indirect sales channels. At the end of fiscal 2005, Cisco employed approximately 14,000 sales and marketing personnel worldwide. Field offices selling products and services directly and through channels are located in more than 60 countries. In addition, Cisco sells via a network of over 40,000 channel partner relationships, globally. Product sales through various channel partners accounted for over 84% of net sales in fiscal 2005.
As perks, Cisco offers various incentive programs to its channel partners, such as the Value Incentive Program (VIP), Opportunity Incentive Program (OIP) and E-agent program, which enable channel partners to reap rewards, rebates and other compensation for Cisco product sales. Cisco primarily employs an outsourced manufacturing strategy that relies on contract manufacturing.
At present, Cisco Systems, Inc. claims to be the leading networking company that manufactures networking and communications products and provides services associated with that equipment and its use. Cisco prides that networks are an essential part of business, education, government and home communications, and Cisco’s Internet Protocol-based (IP) networking solutions are the foundation of these networks (Cisco Corporate Overview). As its headquarters is located in San Jose, California, Cisco provides a line of products for transporting data, voice and video within buildings and companies, across campuses and around the world.
According to Euromonitor International (1 October 2005), the networking hardware market in the United States is quite concentrated, with the top five players analyzed accounted for over 68% market share. In 2004, Cisco Systems was the leader among this group, with 21% market share. Dell came in second with 18% market share, and IBM and HP were head to head with almost 15% market share each. In the servers sector, IBM leads the pack with almost 30% market share, although it recently lost share to both HP and Dell. Meanwhile, in the router sector, Cisco slipped during the third quarter of 2004, but still remained the leader with market share above 50%.
At Cisco, Chamber’s success might lie in the way he treats his employees: “What I’m after is a teamwork mentality and people who like to compete. I like to compete. While I don’t like getting beat, if you play well, that’s OK. I’d rather play well and get beat than not play at all or beat somebody who’s not very good” (O’Neil, 2004).
Prior to becoming president and CEO, Mr. Chambers was a senior vice president when he joined Cisco in 1991. He previously had held positions at Wang Laboratories and IBM. His management style is one of a fast-talking and energetic executive, who values customers and always puts their concerns first. He dislikes a rigid command system like the one under which he worked at IBM. His trademark quality is his ability to have open communications with his employees. He motivates his employees by providing compensation and recognition based on team success.
The loyalty of employees at Cisco is remarkable, and primarily is due to how they are treated by the CEO and those who work for him. However, Cisco has participated in several acquisitions over the past few years, which usually means that employees may lose their jobs. Regardless of that, in an acquisition of Cerent in 1999, only 4 employees were lost out of 300. Overall, the annual turnover rate is 7.1 percent, much lower than one would expect in such a large corporation. These statistics show where the priorities at this company lie, and that all goes back to the attitude of its CEO.
Chambers said that “customer focus, open communication and the ability to balance long-and short-term goals are crucial to the mix” if someone wanted to succeed in business (O’Neil, 2004). Although the company has been successful in such ventures in the past, other companies are challenging Cisco with the use of optical technology for the next generation of Internet technology. The Cisco CEO felt that his employees will step up to the challenges posed by companies and technology and that, because they are the company’s best asset, they will lead the company on more trailblazing successes in the future..
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Lakenan, B., Boyd, D. and Frey, E. (2001). Why Outsourcing and Its Perils? Strategy Business, no. 24.
O’Neil, W.J. (2004). Chapter 46: Cisco Systems’ John Chambers—He Makes Sure The Customer Is Always First. Business Leaders & Success: 55 Top Business Leaders & How They Achieved Greatness, 5th ed. NY: The McGraw-Hill Companies.
U.S. State Department. (2006). Award for Corporate Excellence. Retrieved 14 September 2006 at http://www.state.gov/e/eb/cba/bs/ace/
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