Cisco CEO Sings the Wrong Tune

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Our market is in transition,
and our company is in transition.
And the time is right
to define this transition
for ourselves and our industry.

I understand this.
It's time for focus.
-- "Message From John Chambers: Where Cisco Is Taking the Network," by John Chambers, 2011

Chambers' "I'm sort-of sorry" note to his employees lends itself easily to poetic diction. Now all I need is a drum machine and an autotuner, and we'll have a viral YouTube hit on our hands.

A grand tradition
The mildly apologetic memo from the CEO of Cisco Systems (Nasdaq: CSCO  ) to his troops brings back memories of similar statements from the past. The "Peanut Butter Manifesto" by Yahoo! (Nasdaq: YHOO  ) senior vice president Brad Garlinghouse lambasted the online powerhouse for a lack of focus and decision-making prowess. On a break from his CEO duties, Starbucks (Nasdaq: SBUX  ) leader Howard Schultz wrote a cold, hard Valentine's memo to a coffee chain that had lost its soul. More recently, freshly installed Nokia (NYSE: NOK  ) CEO Stephen Elop compared the Finnish phone company to a burning oil platform.

Most of these missives, however scathing, sent the critiqued stocks upward for a while. The exception is Nokia, though that particular memo came with a side of platform commitment to the Microsoft (Nasdaq: MSFT  ) Windows Phone software -- a fairly obvious strategic blunder that deserved swift punishment.

Cisco could sure use a boost after watching its shares decline 34% over the past year even as the broader market kept climbing. Chambers is getting what he wanted: Cisco jumped more than 5% today.

The message
There's no writerly flair in the vein of peanut butters, burning rafts, or soulless coffee shops here; Chambers is all business. The memo promises bold decisions and stricter discipline. At the same time, Chambers says that his strategy is sound and he "will not fix what is not broken." Taken together, these promises might add up to a leaner and meaner Cisco, one that's ready to shed underperforming units in spinoffs or sales and refocus on the core networking business that brought the company this far.

The danger here is that Chambers might not agree with you, me, or the networking market on exactly what is and isn't broken. The way I see it, Cisco's downfall began when it made rivals out of longtime partners including IBM (NYSE: IBM  ) and Hewlett-Packard (NYSE: HPQ  ) , all in a bid to sell end-to-end datacenter computing solutions. Chambers still likes his Unified Computing project and is only pouring more gasoline on that fire, which I suppose is the correct action at this point because it's just too late to go back.

I'm afraid that the string of bad calls that started there is likely to continue. Bold action would cut Cisco down to a focused networking company with a smattering of closely related side projects such as bandwidth-hungry video conferencing and perhaps some cloud services. Instead, Chambers outlines five "company priorities" that cover pretty much everything an HP or IBM would do for its customers.

The next step
John, the world already has one IBM and a ton of wannabes. We don't need another one. Your next memo needs to go a lot further than this one did. The transition is under way, just like you said. I'm just not convinced that you're taking Cisco in the right direction. This is the time to lose the machismo, admit that you were wrong, and start doing what's right.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Microsoft is a Motley Fool Inside Value pick. Starbucks is a Motley Fool Stock Advisor recommendation. Yahoo! is a Motley Fool Global Gains pick. The Fool has created a bull call spread position on Cisco Systems. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of International Business Machines, Microsoft, Starbucks, and Yahoo!. Motley Fool Alpha LLC owns shares of Cisco Systems and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 06, 2011, at 10:59 PM, techy46 wrote:

    Blah, blah, blah. Chambers is a j e r k

  • Report this Comment On April 06, 2011, at 11:06 PM, BradReeseCom wrote:

    Hi Anders,

    Why Cisco CEO John Chambers has got to go!

    Accountability starts at the top and in my personal opinion Cisco CEO John Chambers is soley responsible and should be held soley accountable for what ails Cisco, meaning, he's got to go! (as the video interview confirms).

    I mean, in the video, a megalomaniac John Chambers (at least in my opinion), is preposterously proposing that all of Cisco's business and government customers model their own management structures after Chambers' convoluted management structure at Cisco.

    Then audaciously and shamelessly this week, John Chambers' wrote a memo that blames Cisco employees for what ails Cisco (below, I've corrected a small portion of Chambers' memo in yellow to make it accurate in my opinion):

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

    "That said, today we (I) face a simple truth: we (I) have disappointed our (my) investors and we (I) have confused our (my) employees. Bottom line, we (I) have lost some of the credibility that is foundational to Cisco's success - and we (I) must earn it back. Our (My) market is in transition, and our (my) company is in transition. And the time is right to define this transition for ourselves (myself) and our (my) industry. I understand this. It's time for focus."

    In a stunning rebuttal of his memo above, Cisco CEO John Chambers was quoted in The Wall Street Journal:

    One way he teaches his direct reports to delegate is to "spread them thin," he says. Eventually they "realize they can't keep their head above water and if they want to swim they have to give [some responsibilities] to their teams. Thirty [new businesses] is more than almost any senior executive thinks is manageable," Chambers adds. "The real point of going to 50 is to keep people open minded."

    The CEO says he doesn't have a limit in mind for the number of new businesses that Cisco can pursue. "We honestly don't know if the right number is 20 or 30 or 40" new growth initiatives, Chambers says. But he adds, "It's no longer a question of will the structure work."

    Again in my opinion, the head of Cisco CEO John Chambers has got to roll, and if Cisco's Board of Directors are not up to making that decision, look for Cisco's shareholders to make it for them.


    Brad Reese

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