Bob's Gutsy Leadership Blog

Cisco: The King of Complexity Pays the Price!

During the period from 1991 to 2000, Cisco Systems was the leader in providing the switches and routers that were the heart of internet infrastructure.  During that period, Cisco’s revenue grew averagely about 50% per year.  At one point, they were in fact the most valuable company on Wall Street as measured by market cap.

Things have changed dramatically since then.  In fact, since 2010, the company grew averagely about 3% per year.  Concerning the stock price there has been virtually no growth in the past 10 years; it is roughly the same $30 per share as it was then.  During that ten year period, the S&P 500 has grown almost 70%.

In analyzing the Cisco business over the last ten years, writers at the Wall Street Journal point to a chaotic management structure put in place in 2008/2009 which included 59 internal standing committees.  Each executive sat on up to 5 of these committees and was expected to devote a third of their time to them.  These committees split their focus across the existing product lines and more than 30 new product initiatives.  A second problem which emerged was that Cisco entered into some completely different area of business; for example, video conferencing and various consumer electronics products.

The result of all of this was an amazing increase in the bureaucracy and complexity. This made it difficult to get things done at Cisco.  Also, there was a loss of focus on the core products that made Cisco famous to begin with.  The most damaging implications of all of this were the loss of some very key people and the fact that competition began to come out with some clearly superior products.  For example, the fast growing company Arista now has the fastest and least expensive switching equipment and is growing very significantly and hurting Cisco.

Stepping back from all of this, what Cisco failed to do was follow the tried and true principles in managing a business:

1.) Develop a Plan to Win – At every juncture, the leader needs to thoroughly understand the market, the customers and product capabilities, and launch initiatives to improve their core offerings to either achieve or further extend their leadership position.

2.) Make Individuals Responsible – Every initiative needs to have a single leader who knows the company is betting on them and that it’s their responsibility to make good things happen.

3.) Measure, Modify, and Repeat – Once fresh efforts are launched,  there should be constant measurement of progress and modification of plans, and when success is achieved, go back to step one and start all over again.

It all sounds so simple.  Why some leaders make it so complicated is continually surprising.  Cisco is just the latest example.

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