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.

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

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