Case Study – Cisco

1. Why did Cisco centralize marketing and R&D in 2001?

Cisco centralized R&D to promote more rapid technical innovation by limiting overlap. Also,
marketing was centralized to move the focus from customer group specific decentralized
function to a centralized one.

As one senior manager observed in the case, each product line was repeated for each
customer segment resulting into lots of redundancy. Market downturn of 2001, warranted the
need for consolidation and avoiding redundancy.

2. What were the tradeoffs and biggest downsides of the reorganization?

Reorganization allowed Cisco the much-needed consolidation and re-focus amid the slow
down of 2001. It helped Cisco remove a lot of redundancy and helped the organization become
a lot more nimble. The reorganization also allowed the firm to focus on product innovation,
increase number of products in portfolio and cut down on the overhead and duplications costs.

The biggest obvious downside of reorganizing company around product and not customer
groups was the risk of making the company less customer-focused. Under the new org
structure, each functional unit was committed to a specific technology, which entailed the risk
of dismissing the customer.

Culture and informal ties still allowed Cisco to stay customer focused, however maintaining
same level of custom focus became difficult as Cisco grew. CEO Chambers realized that losing
customer focus carried risk and took various steps to ensure that the culture would not change.
Given that the company had groups structured around technologies instead of customers
caused lack of all the relevant information on a given client to be able to know the holistic view
of requirements. It caused situations where part of client needs were unmet as both technology
and sales team were focused only on serving needs for their products.

3. Why did Chambers create business councils? And why only a handful of councils?
What challenges did Cisco likely face in establishing the business councils? How did
Cisco anticipate and deal with some of those challenges? Finally, what issues do you
think remain unresolved?

Chambers created Business councils as one of the initiatives to address the concerns of
fading customer focus as Cisco grew. Chambers wanted to make a cultural shift that
emphasized teamwork and collaboration. Councils were created with the goal to align
organization and drive productivity gains through better cross-functional collaboration while
ensuring that customer mindset remains the company’s focus at every step of the game.

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 The goal of the councils was customer focus and hence to start with, there were only 3
councils each focused on the customer segments – Service Provider, Enterprise, and
Commercial. Only a handful of councils were created as each council meant significant amount
of commitment from the members. Each council had to include members from all major
functions to be able to promote cross functionality. As the councils were essential in developing
and driving Cisco’s initiatives and cross functional efforts, each council member had to be VP
and above. Also, council membership could not be delegated, and availability was important for
council members. The council had no funds/budgets and hence it was required that all council
members can reprioritize work in their functions to be able to commit resources to the
initiatives launched by the council. Because of all above reasons, only a handful of councils
were created to ensure effectiveness and authority.

Cisco’s councils struggled mostly due to competing priorities, miscommunication, and in

some cases a general inability to communicate. One of the challenges was the governance
models of the councils. For instance, many councils had members who could not speak to the
priorities of their organizations. Another problem was that the councils were run in a command
and control style which did not support the collaboration goal. The councils tended to be
problem-fixers instead of being influence over the functional groups.

A big relief for the challenges faced by councils was the support from CEO Chambers.
Chambers emphasized the importance of councils in every speech which helped revitalize the
enthusiasm and participation. The governance model of the councils was tweaked to facilitate
trust and teamwork, for example – three-in-a-box model. To ensure effectiveness of the
councils, members chosen on councils were ensured to be ones who thrived in collaborative,
cross-functional environment. To promote a replicable model in councils, Cisco leadership
provided a framework of infrastructure and processes to the councils. Cisco hired
communications champion for every council to ensure that the council’s efforts are transparent
and communicated well. Also, metrics were encouraged to ensure common taxonomy and
consistency among the councils.

The council initiatives meant commitment of lots of resources and bandwidth from senior
leadership. It also meant overhead on part of Operating council and CEO to ensure the council
model evolves. Each council focused on its own market segment and so was not able to see the
holistic picture. Finally, Councils were not built to identify opportunities or trends outside of
their own market segment.

4. If you were Chambers, how would you redesign the business councils to make them
more effective? Pick one of the initial three councils and develop a detailed design;
specify whom to select, as well as the council’s governance structure, resources, and
incentive systems. What skill sets do employees working on the council need?

I would work on providing clear accountability and responsibility to business councils. I would
work towards making the councils autonomous and empower them to be able to create
strategies to address the market and client needs. The goals and objectives of the councils

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would be set to reflect the needs they address, the value they deliver. Councils should be
further extended to be able to handle the adjacency issues. Councils should be given a line of
budget to address key strategic initiatives and market studies. Leads on the councils should be
independent leads who don’t necessarily have affiliation with one functional group and can
work on achiving the holistic goals. Further, councils should have a mix of full time executives
and consulting executives. Full time executives wont have pressure of the council being
additional overhead and would be the primary job, this will help ensure remove bias for one
functional group and will also remove conflicts in priorities. Consulting executives would bring
to the table the needs and serve the demands for their functional groups. However, they would
have lesser workloads to allow them to still perform their duties on their functional groups.