20-20 foresight

Cisco safely and slowly routes leadership change

John Chambers acquired more than just dozens of companies during his 20-year reign at Cisco. The way he is handing over leadership of the $150-billion network equipment company to Chuck Robbins suggests he picked up and applied some useful knowledge along the way, too.

Unrestrained optimism from the chief executive served Cisco well during the heady days of the dot-com boom when internet traffic was growing at a breakneck pace. Chambers took the reins in 1995, just as the boom was getting under way and in five years Cisco surpassed Microsoft as the company with the largest market value in the world.

The Panglossian attitude became a problem, however, as did Chambers' longevity. In 2000, he said Cisco could grow sales by up to 50 per cent annually over the long run. They increased by only about 7 per cent in the years that followed. Cisco squandered capital generated from its networking business to buy businesses in tangentially related businesses, such as set-top boxes and digital cameras. The stock went sideways for over a decade, a common fate for giant companies with long-tenured CEOs, including Microsoft and General Electric.

Unlike Steve Ballmer, who succumbed to aggressive shareholders last year after a 14-year run atop Microsoft, Chambers withstood an investor uprising and learned from it. Chambers experienced his Damascene moment in 2011, and avoided a full-fledged revolt by cutting costs, focusing on the company's networking core and paying a dividend.

Such a repudiation of past actions and strategy is rarely easy for an entrenched leader. The decision, however, should give Chambers' successor a steadier direction to follow.

Robbins, who joined the company two years after Chambers became CEO and who has been running Cisco's worldwide operations, knows the many threats. They include the rise of new networking software which can commoditise internet equipment. Even if Robbins doesn't serve as long as his boss, he inevitably will be confronted at some point with the need to reroute Cisco. Chambers at least has left a blueprint.