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Cisco’s John Chambers on the

digital era
March 2016

How significant is the digital era? It’s the biggest
technology transition in history, according to Cisco’s
executive chairman—and requires a proportional
response from companies.

When John Chambers became chief executive officer of Cisco Systems in 1995, the world
had barely entered the modern information age. About 18 million American homes were online,
but only 3 percent of users had signed onto the World Wide Web. had just
started, calling itself “Earth’s biggest bookstore.” And President Bill Clinton’s White House had
only a year earlier gone online.1

By the time Chambers stepped down as Cisco’s CEO last year, to become executive chairman,
the information age had fundamentally transformed almost every aspect of society. Yet
Chambers believes it’s not over. In this interview with McKinsey’s Rik Kirkland, he says the
world has now entered a digital era that will be “the biggest technology transition ever.” He
describes the changes Cisco has implemented to cope with the accelerating pace of change
and argues that companies that fail to adapt are just likely to fail. An edited transcript of
Chambers’s remarks follows.

Interview transcript

If you’re a leader in today’s world, whether you’re a government leader or a business leader, you
have to focus on the fact that this is the biggest technology transition ever. This digital era will
dwarf what’s occurred in the information era and the value of the Internet today. As leaders, if
you don’t transform and use this technology differently—if you don’t reinvent yourself, change
1 See “World Wide Web
your organization structure; if you don’t talk about speed of innovation—you’re going to get
timeline,” Pew Research
Center, March 11, 2014, disrupted. And it’ll be a brutal disruption, where the majority of companies will not exist in a meaningful way 10 to 15 years from now.

but it really means you’re dealing with intelligent networks—a next generation of the Internet. That’s what got companies in trouble in the past. if you will. you’re going to get displaced “Making collaboration by. you want to think about the intelligence of an architecture. Business models will rise and fall at a tremendous speed. McKinsey. Evolving the organization When many people think about this. It’s the process change behind it. When I said that two and three years ago. which speaks to what a CEO has to do differently. The hard part is how do you change your organization structure? How do you change your culture to be able to think in terms of outcomes for your customers? It’s all about speed of innovation and changing the way you do business. They have to reinvent themselves. a small company that has just a CEO and a CIO and has $1 billion in sales. John. where you can get access to any data. So you’ve got technologies like cloud or mobility and cybersecurity and the Internet of Things that are very important. but I think that’s way too aggressive. The majority of companies will be digital within five years. Focus more horizontally on how things work together as opposed to silos.” McKinsey Quarterly. March read more about breaking down internal silos. Probably 40 percent of enterprise customers around the world will not exist in a meaningful way ten years from now. see “Making collaboration across functions a 2016. reality. any point and time you want. our healthcare system. you’re talking about digitization being an integral part of the fabric of a company’s business strategy or the way it interfaces its supply chain with its customers. they get left behind. Not stay doing the right thing too long. They have to reinvent their company. But connecting 500 billion devices doesn’t get the job done. my CEO counterparts said. But it will also result in tremendous disruption. perhaps. That’s actually the easy part. That’s the size of the US economy. Felicita Holsztejn Tarczewski. you called the other transitions right. regardless of their size—that you either disrupt or you get disrupted. (To across functions a reality. It will create huge opportunities— probably $19 trillion in economic value over the next if you will. incremental above what we’re seeing today. “Hey.” I think now most CEOs would agree. bunch of silos in your company that don’t really talk to each other. And this is where it’s so important—whether they’re countries or companies. It will transform our lives. plus some.”2) 2 . Today. How Cisco has changed 2 Ruben Schaubroeck. yet the majority of their digital efforts will fail. If they don’t change. If all you do is have a and Rob Theunissen. She or he has to think much more outside the box. This digital age is the connectivity of going from a thousand devices connected to the Internet to 500 billion. It’s simple to describe. It will transform business. Not enabled by technology—technology will become the company. But the rate of change then was much slower.

Rik Kirkland is the senior managing editor of McKinsey Publishing. Secondly. which is one of the top sales organizations in high tech. The first step is merely making it an independent group. and we’re number one or number two in 16 major product families. To just crank it: do a little bit better each year. because if you do it inside your organization. We’ve done 184 acquisitions. But it’s about to change again. And that’s what gets so many of us trouble. the majority on their own profit and loss. this is what we did ourselves. And it caused us to change our top leadership. architectures. Our targeted minimum market share is 40 percent. Finding innovation The sources of innovation have to move from being something you do on the fringe to something you have to do mainline. We worked across the groups. cut expenses a little bit. That’s not something I’m terribly proud of. So why do these transitions fail or succeed? Companies fail to understand the implications of how quickly this technology will transform their business. in theory. when I talk about. and speed-to-market delivery. which we hit most all the time. John Chambers is the executive chairman of Cisco Systems. grow the top line. they stay doing the right thing too long. We changed probably 40 percent of our top leadership over the last two years. Yet we changed 41 percent of the client interface and execs because they were selling routers and switching technology. refocused on leaders who could work horizontally together as opposed to in silos.000 people. because we’re trained to get a 3 to 5 percent increase in productivity. We use M&A as a way to enter new markets. We have to do this faster. not business outcomes. 3 . And they underestimate what it really means to their economic growth or that of their competitors. most people would agree with that description. taking out about 5. So. All rights reserved. Copyright © 2016 McKinsey & Company. what CEOs need to do. We changed our sales organization. based in McKinsey’s New York office. We’ve been in this transition for almost 20 years at Cisco.We transformed our engineering organization from being in silos to being horizontal. This is about exponential change. your existing culture will kill it. We have to create an environment of really rapid innovation internally. but it’s something that we had to do so that we disrupt as opposed to be disrupted.