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

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