Cisco's new structure key to success, Chambers says

The company needs multiple "councils" to enter new markets, he told financial analysts

Cisco Systems' whirlwind of activity over the past few months wouldn't have been possible without the company's spread-out management structure, in which about 650 people are involved in cross-functional 'councils' and 'boards' that search out potentially profitable new markets, Chairman and CEO John Chambers told a financial analyst conference on Tuesday.

"We are the most aggressive this last year that we have ever been," Chambers said. He ticked off several big moves the company made just between Oct. 1 and mid-November, including four acquisitions around the world and a partnership with EMC and VMware. The deals included the major acquisitions of wireless IP infrastructure vendor Starent Networks and of video powerhouse Tandberg. Cisco couldn't have done all that without a new management structure introduced in the past few years, which he said ended the classic "command and control" organization in which one or a few top executives drive all new initiatives.

The management system has raised some skepticism since it started to take shape at a large scale in 2007. Chambers has defended it as necessary to enter 30 new markets adjacent to Cisco's core networking business, a task the company is carrying out now and that Chambers wants to expand. Cisco can now get a new initiative off the ground in less than 60 days thanks to these cross-functional teams taking the initiative, he said.

Chambers struck an optimistic note as he kicked off the annual conference at Cisco's San Jose, California, headquarters, calling the company's fiscal first quarter ended Oct. 24 "phase one" of an economic recovery. That recovery is "still very fragile," he added, but said he is more comfortable than ever with his standing forecast of year-over-year revenue growth between 12 percent and 17 percent over the long term.

Chambers identified video, collaboration and virtualization as the most significant areas. "Video and collaboration are the two major moves we're going to make this year," Chambers said.

Looking farther forward, Chambers pointed to the electrical transmission industry as an area that might benefit from Cisco's brand of experience. That industry has 360 protocols and virtually no security -- much like the early Internet, where Cisco first made its fortune as the pioneer of routing, he said.

Chambers downplayed the growing field of competitors Cisco is facing as it expands, especially with its UCS (Unified Computing System) architecture that includes its first servers, introduced earlier this year.

"I know you want me to talk about HP, or you want me to talk about Huawei," Chambers said. "We don't react to what a competitor does. We react to market transitions."

Reacting to them quickly will have a big payoff for Cisco, he said.

"There's a window of opportunity where the network will have a chance to become the key enabler of the future of IT and the key enabler of the future of communications. ... That's where we can become the number-one IT and communications company," Chambers said.

Chambers said Cisco doesn't try to compete on individual products, or it would end up in a price war with Chinese competitors such as Huawei. Instead, it is becoming a partner with large enterprises and governments, selling entire architectures to help them cut costs and boost productivity in the long term.

That was nothing new to analyst Sam Wilson of JMP Securities, who attended the conference.

"Cisco never wins when it's product to product," Wilson said. Its architectural approach succeeds because a broad set of connected products makes CIOs comfortable, he said. "CIOs are risk-averse. They don't get paid to take risks," Wilson said.

That approach has often worked against Cisco's traditional competitors, such as Juniper, but it's still not clear whether it will work against new rivals such as HP and IBM, Wilson said.

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