Chambers Promises Changes For Cisco After Disappointing Investors, Confusing Employees

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In a candid admission that left the technology world buzzing Tuesday, Cisco CEO and Chairman John Chambers told Cisco employees that aspects of Cisco's current "operational execution" are flawed, admitting that Cisco had disappointed its investors, confused its employees and lost some credibility in the market.

According to Chambers, Cisco will "make a number of targeted moves in the coming weeks," and as Cisco moves toward its fiscal 2012, to get back on track.

"Bottom line, we have lost some of the credibility that is foundational to Cisco's success -- and we must earn it back," wrote Chambers in a memo to Cisco employees this week. "Our market is in transition, and our company is in transition. And the time is right to define this transition for ourselves and for our industry. I understand this. It's time for focus."

The nearly 1500-word memo, which was an internal message from Chambers, was originally sent to Cisco employees Monday. It was published in full on Cisco's Platform blog Tuesday in response to what Cisco called "a few media inquiries."

"As I've said, our strategy is sound," Chambers said in the memo. "It is aspects of our operational execution that are not. We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders. That is unacceptable. And it is exactly what we will attack."

Chambers' comments come as Cisco continues to play defense following two less-than-stellar quarterly earnings reports and the loss of nearly one-third of the value of Cisco shares over the past year.

In the most recent of Cisco's earnings reports, for Cisco's second quarter, Cisco reported year-over-year profit declines, a decline in its switching revenues, and disappointing guidance for upcoming quarters.

Cisco's major vendor rivals, especially HP, have also sharpened their attacks on Cisco's core businesses, and are touting substantial market share gains as a result. At the recent HP Americas Partner Conference, for example, HP cited several Cisco Gold Partners it had successfully recruited, and said that HP's networking business grew 183 percent in the first quarter including the computer giant's acquisition last year of 3Com.

"Our goal is to change the market and we are doing that," said David Donatelli, executive vice president and general manager for HP's enterprise storage, servers and networking (ESSN) business at the conference. "Today we are number two in worldwide global share in networking. We are growing. The leader is shrinking."

In his memo, Chambers reserved plenty of praise for Cisco's bright spots. He reiterated a number of the advances -- including stellar growth in new product segments like data center, collaboration and video -- that he had mentioned on Cisco's most recent earnings call, and also in a February interview with CRN.

"It is clear to me that we have incredible foundational strengths -- our people, our relationships, our innovation, and our strategy to extend the role of the network," Chambers wrote. "We have anticipated market transitions and made good decisions in capturing them. We are disrupting the data center space. We are redefining the collaboration market. And we have gone big on video, a market that is changing society and business completely."

As for the "targeted moves" Cisco plans to make, Chambers laid out four guiding principles. First, he said, Cisco "will not fix what's not broken," and second, Cisco "will take bold steps and we will make tough decisions."

Next, Chambers wrote, Cisco will "accelerate our leadership across our five priorities and compete to win in the core," highlighting switching as a specific area of improvement, and one where Cisco was challenged by competitors.

"Again, our strategy to extend the role of the network will not change," he wrote. "Our approach to leadership in the core amidst this transition will change. In switching we understand that our customers are buying across broader segments and specific needs in this market. We understand that our competitors in this area are fierce, with different models and architectures. We will not be defined by them."

Chambers closed his list by promising to "make it easier for you to work at Cisco, as we make it easier for our customers and partners to work with Cisco."

"As I've said before, we will look back at this time in Cisco's history and remember it as challenging, and important to the future of the company," Chambers wrote at the end of the letter. "Plain and simple -- we need to roll up our sleeves and work it out, together. I'm ready, your leadership team is ready, and I know you are ready."

Next: Cisco Channel Partners And Observers React

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