25 Telling Talking Points From John Chambers

Hot Topics With John Chambers

Cisco's longtime Chairman and CEO, John Chambers, has a lot on his mind. From data center virtualization to collaboration, economic productivity to channel services growth, HP and IBM to Cisco's competitive advantage, and plenty more.

Here's a look at hot topics Chambers addressed during a 30-minute interview with CRN editors earlier this month.

On Cisco's Foresight

At the 10,000 foot level, what's most exciting is that many of the market transitions we anticipated happening are happening. The network is becoming the platform not just for all forms of communications and IT, but it's going to enable a different generation of productivity around collaboration, it's going to change the data center, it's going to change health care, it's going to be at the center of everything from security to video. The exciting thing about Cisco and its partners is we're going to play there together. We are better together.

On A Decade Of Productivity

If you look at the breadth and depth ranging from such issues as collaboration, it will drive a decade of productivity. The first time I've ever heard [it] at the World Economic Forum, with top economists from Europe, the U.S. and China, we talked about GDP growth for the next three to five years and beyond, and I asked about productivity and expected a candid answer of one to one-and-a-half percent, which is what they always say, 'You can't drive faster than that.'

All of them agreed -- all of them agreed -- that we were in for a decade of productivity growth that was probably two to three percent or more. When I asked them what's going to cause that, they said, 'What you're doing, John.'

On Being A Disruptive Data Center Player

There hasn't been a new hardware player in the data center for decades, and contrary to all the prognostications, we are breaking away there. We have very much established ourselves. We are in the top three x86 players. We're winning a lot in the cloud, which is the second generation of virtualization data centers. The product is winning most of the performance awards. And it isn't servers separate from the network separate from storage. It's that combined, first in a physical data center, then in the cloud, then all the way in your home. And [we] build VDI and other capabilities off of it.

On The Power Of Video

Video is the next voice. It's going to be how we communicate. When we built a router, nine years ago now, that did a billion phone calls -- voice, if you will -- everyone thought we were crazy. Of course, 5- or 6,000 CRS-1s later, and 500 customers-plus, we are now building a router than does a billion videos. I think you'll see the same exponential curve on that, except video will have much more cost justification whether it's entertainment or productivity, whether it's how you enable a collaboration, how you enable virtual organizations together, whether it's just permitting you to travel halfway around the world. It enables opportunities and meets tough issues.

On Cisco's Network Plumber Legacy

We have moved from being a provider of routers and switches to more and more, we're providing the technology architecture, and with our leading edge customers, we're starting to provide business and government architecture. Who would have thought that Cisco would be the key to innovation as the leadership in Russia started to transform their country? Who would have thought that when there were issues in the Middle East, we'd be right in the middle in terms of how you create jobs and balance that, where high tech can play a key role and help raise jobs for all? Who would have thought in America we can talk about the future of this country and the way we grow out of it is through productivity and job creation though these new technologies -- by the way, all enabled by the network.

On Spreading Cisco Too Thin

Have we spread ourselves a little bit thin? I've always spread us thin at Cisco. The key is market transitions wait for no one. This verticalization, whether it's good or bad, is happening. And unlike our peers that we're competing against, we share the majority of our direction with our partners, including even the services level where I would expect our partners to generate five, ten times the services revenue we do, even though we're all needing to move to a services-led sell and services-led implementation. So while there will always be bumps in front of us, and there's probably a few -- though to be candid, no one handles those bumps better than Cisco, though I always wish I was smarter to avoid them -- we eventually get it right and get a process going.

On Prioritizing Cisco's "30 Adjacencies"

First of all, be realistic given the market. Which areas do you have differentiation and which areas do you want to invest in? The good news is, it's a portfolio play. And the portfolio will come together every time, so you can reconnect at a future time. In terms of one of the charts I'll use at the partner conference, I'll talk about the very top of our big bets, and I'll separate them into categories. Small to medium business, IP NGN [Next Generation Network], Borderless Networks, and then the next generation, data center virtualization, video, and then the next generation after that, clouds and what we're doing with EMC, and the generation after that, smart grid.

On VARs Playing To Strengths

I wouldn't try to be all things to all people. I would say based on the business case, where do you move, but what has to change is you don't want to take on a competitor on a single, standalone product. Our products are the most competitive -- they've been since I've been here at Cisco. You see that in our market share, in awards for that, but if you're selling a single, standalone product, you're ignoring perhaps the strongest thing Cisco does, which is an architectural approach, which protects their investments, allows them to move into new markets relatively seamlessly, and while they might not move into quote "video" or cloud today, or security architecture today, what we build is the vehicle that allows them to do it from an architectural play, and is how you change business process and government process.

On Changing Sales Techniques

When I talk with the leaders of large retailers, you can imagine I don't talk routers and switches, I talk, 'How does your physical world come together with your virtual world? How does your supply chain change? What are your competitors doing that you need to do differently? How does the customer buy today versus how they used to buy? How can we help change that in a store, physically and virtually?' Same thing in the automotive arena. Don't talk routers and switches, we talk about what are your incremental revenue streams, we talk about your design cycle, how do you do time to market, and as you design your car of the future -- people forget -- it's a network car. We can play a role there that's very unique.

On Cisco's Portfolio Play

The nice thing about our partnering portfolio is, yes, I think we've hit the market transitions right, yes we win in many of the areas, we are spread a little bit thin just like our partners, and if you have to prioritize, pick and choose based on the customer segment you're doing.

But the nice thing is that you can re-engage across the board for an element you decide on later, because it's an architectural play. That's different from our peers. And we treat partners different, we've always been number one and focused on partners.

On Cisco Partner Differentiation

I think the most important thing to realize is that these market transitions wait for no one. Many of our partners will say what level of differentiation they want to add. So there's room for just making the architectural stack work well together. There's room for saying, 'We need to go sell that in a given geography or industry vertical.' And that's much better than their counterparts that are selling stand-alone unified communications, stand-alone security, stand-alone wireless, stand-alone routers and switches -- which, by the way, were designed to work together.

On Partners Need To Change

All of us have to move. Merely providing a router and a switch and responding to an RFP is probably not going to make either one of us very much money, although I want them to win it like I want my team to win it. Playing at the level, the ability to make money is going to be more in services so services will be a key element of the future. [We'll] watch our services probably grow five to 10 percent faster than our core business and that should be true of our partners as well.

On Key Differences From HP and IBM

We are an ecosystem partner, and that's a lot different than what HP and IBM are doing. They clearly want it [services revenue] for themselves, and it's an afterthought to have their partners do it.

On HP CEO Leo Apotheker

Leo is a good person and a good friend, and I wish he weren't at HP. Same thing with Ray Lane, their chairman. And I will feel very guilty beating them!

On Cisco Vs. HP

It's hard to change the culture and direction of a company. We spend 13 percent of our revenues on R&D. We acquire a huge number of companies every year. In the last year alone, we spent over $6 billion in acquisitions. That's hard to do.

On Cisco's Acquisition Success

Our success rate on acquisitions has been off the chart. The Tandberg success, the Starent success, just amazingly good. And while 90 percent of this industry's acquisitions will fail, ours, 70 percent hit or exceed what we expect. We will have some misses of course, and if we don't, we're not taking enough risk in terms of the direction. So what I'm really saying is that we've got a very good lead.

On Cisco Data Center Skepticism

We in many ways caught the market transition on data center virtualization, and our large peers, by surprise. Much like we did when Nortel, Lucent, Alcatel, Siemens, Ericsson said, 'Cisco, you really don't understand telephony, you really don't understand this market.' We didn't do bad. We became the number one player, probably five times the market cap.

The data center in this market has similar characteristics. Make no mistake about it, they see us coming -- this time we're not going to sneak up on anybody -- but this really is the breadth and depth we offer to our partners that no one else does. We are a partner-driven organization. Our other peers, you don't hear that from any of them.

On Cisco's Supply Chain Crisis

I want to apologize for the lead times last year and communications with the partners. We clearly hurt them and hurt ourselves and hurt our customers, and it look us too long to fix it. But if you look now, all the lead times, with very few exceptions, are within range where we want it, and we've got a different process that, while there will occasionally be bumps during the year or surprises from a supplier, I think you'll watch us handle it differently. We didn't just handle the transaction, we had a systemic issue. Did we make a mistake? Absolutely. Did it take us too long to fix it? Absolutely.

On The Next Five Years

Three-to-five years down the line is going to have a lot to do with organizational transformations and the effectiveness that goes with it. That will drive a decade of productivity, that's really big. It'll save some of these systems close to bankruptcy in health care and it will transform education, internally to companies as well as education in K-12 systems and higher education.

On Business Process Change

You will also see, if we're right, the organization structure [change]. Suddenly, and I would argue it's going to be the network IT will be so deeply embedded in the business process that you won't talk about business process and IT enabling it. They will be one and the same. That in people's minds might have been a stretch three to five years ago, but when I talk to the top five percent of CEOs in the world, they not only get it, but when you sit and listen to them, you can't tell what's IT and what is their business. It's starting to occur, and plays extremely well for Cisco and our partners.

On Future Acquisitions

You will see constant, if we do our job right, game-changing acquisitions. We don't do them just to acquire. We do them when the market is right, when the price is right, and we try to catch market inflection points.

On Competitive M&A

If you're setting your strategy off your competition, by definition, you are two to three years behind. That's how I know we're doing well, when our competitors start to say 'end-to-end.' When our competitors, who haven't been able to acquire, start to acquire. When our competitors who haven't believed in a vertical stack begin to do a vertical stack. So, to me, it's about execution. I do not minimize the hurdles in front of us or our partners, but the opportunity is really exciting. Definitely some bumps in the road for all of us. The nice thing is, we partner for life.

On Holes In Cisco's Portfolio

Oh, constantly. The nice thing is we're right on this architectural issue and there are going to be constant holes you've got to firm up. Security is our number one emphasis across the whole company, mainly because it's our customers' No. 1 issue. There is no such thing as a secure data center or network. That is huge for the future and huge for the industry, and probably has to be solved in the network.

On Cisco's Security Play

So that's an area where we have to do dramatically better. You can't unless you're in the data center, unless you're in enterprise, unless you're in service provider, unless you're in wireless, unless you go all the way to consumer, any device to any content. I don't know how to resolve the issue without this. On the positive side, it's great, it's the focus. On the negative side, you've got to say, what took you so long. 'If you're the only architectural play, which you probably will be, why don't you move faster?' And that's probably fair criticism.

On Security Architecture

Security in and of itself can cause a huge upgrade cycle. It's an architectural play if we're right on that.