What CTOs Can Learn From John Chambers

What’s the Cisco CEO’s number one rule? Don’t acquire companies with a different culture, he told a roomful of CTOs at the non-profit CTO Forum at Stanford on Friday. And don’t acquire companies to squeeze headcount or cut costs.

“NationsBank didn’t care about culture when it acquired Bank of America,” he said. “It bought geography and customer sets. I’m acquiring current leaders and current engineers and next-generation products, and you must protect them at all costs.”

[login]If you don’t protect them, he added, your acquisition will be a failure. He believes 90 percent of all the acquisitions companies do are failures.

“As CEO, you need to do well both in the existing quarters and over the years to survive,” he told the group. “Any CEO who thinks only in terms of this quarter or this year doesn’t last long.”

CTOs and other executives who make presentations to Chambers at Cisco have to have their five- to 10-year vision, their three- to four-year strategy and their plan for execution over the next one to four quarters included in the first three slides. If they don’t, they have to sit down and pay Chambers $100.

“My team smiles, because while I bark pretty loud, I’ve never raised my voice in my 20 years at Cisco,” he said, nodding toward the other Cisco employees in the room. “But this is as simple as how you prepare for meetings with customers and shareholders.”

One reason for the presentations to Chambers is that Chambers reorganized Cisco in 2001 after the dot-com bust to push more authority down into the company, a teamwork structure that is still being refined.

Cisco survived and ultimately managed to thrive when many other companies suffered or failed, but it went through what former GE CEO Jack Welch told Chambers later was “a near-death experience.”

Chambers agreed. Although Cisco has grown through acquisitions and was already acquiring companies so it could move into new markets — “market adjacencies,” Chambers called them — it hadn’t made enough acquisitions to make the revenue required to carry the company through lean times. Chamber said he vowed he would never put Cisco in that position again.

He also did away with Cisco’s top-down, command-and-control structure because hierarchical organizations are “a thing of the past — slow-moving, ineffective, bureaucratic, and not designed around technology and how collaborative it must be.”

Cisco now has 30 cross-company groups that take present and future markets into account. “I had most of the data, and I had to give the teams the chance to get the data, then offer rewards (for making decisions) — not just money, but who gets ahead,” he said, in answer to a question on how cross-company teams should work. “You’ve got to be direct on who has the decision responsibility, and you have to learn to budget across the group. Sometimes I say ‘we’re going,’ and other times I say, ‘I need your input.'”

Chambers is 60, and Cisco’s next generation of leaders will be “collaborators,” he said. Cisco is already training and preparing for his eventual departure — five to seven people, not yet chosen, who will lead the company. The one who is CEO will have the most votes.Chambers polled the CTOs in the room. If they could only choose one thing for their companies, what would it be — innovation or operational excellence? Operational excellence won, which Chambers said was the right answer — although the key, he added, is whether executives can do both.

He also asked the CTOs whether they were more a product of their successes or challenges. Challenges won – the right answer again, Chambers said.

“The biggest mistakes you can make are moving too slow or too fast,” he said. “Being too early (in a market) is as bad as being too late…It’s how you handle your challenges that determine who you are.”

CTOs and CEOs have different roles, and it took time at Cisco to work that out, Chambers said. CEOs drive costs down and productivity up while transforming the company to expand revenue and move into new markets. CTOs need to figure out how to become relevant to the key business or government objectives they work under, and how to enable technology and business and educational processes to achieve those objectives.

“The number one rule in negotiations is to walk in the other person’s shoes — especially if the other person has your budget,” he said. That line got a laugh from the CTOs.

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