Cisco restructures, streamlines operations

Responding to criticism of its management structure after consecutive quarters of uninspiring performance, Cisco this week restructured operations in an effort to streamline sales and engineering in five key product areas.

Cisco's management structure of boards and councils was instituted in 2007 to make the decision-making process less siloed and more horizontal, and to improve the company's coordination and efficiency in product development.

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Lately, however, this structure has come under fire -- most recently for lacking focus, speed and ability to execute -- following quarters in which Cisco's growth slowed. Revenues and profits slumped in both core markets and new markets.

Cisco CEO John Chambers implied there would be changes in a memo to employees last month, and analysts have been calling for Cisco to streamline or even abandon the board/council structure. This week's move is a response to that.

"The broad-based Council & Board structure ... made sense on paper but appears to have been slowing down the decision-making process, while accountability was less clear," Brian White of Ticonderoga Securities stated in a report on the Cisco reorganization.

Cisco said it will streamline its sales, services and engineering organizations as it focuses on the five areas it's targeting for growth: routing, switching and services; collaboration; data center virtualization and cloud; video; and business process architectures. Cisco says the changes reflect a plan to improve customer, partner and employee interactions, simplify its operating model and improve focus on the five priority areas.

"Cisco has driven transformational change before, and we are again transitioning to the next stage of the company's evolution," Chambers said in a statement. "Today, the market is driving toward simplification and it's why the network matters. It's time to simplify the way we execute our strategy, and today's announcement is a key step forward."

The majority of changes will take place over the next 120 days, with a new sales organization in place by July 31, the start of Cisco's fiscal 2012.

On the board/council management structure, Cisco will scale this down from nine councils to three for cross-business consistency and focus, and time-to-market expediency. Cisco has also narrowed its major areas of business down to three, from four: Enterprise, Service Provider and Emerging Countries, vs. the previous Enterprise, Service Provider, Commercial and Consumer.

Cisco lopped off a huge chuck of its Consumer operations last month by killing its Flip videocam business, realigning operations and laying off 550 people. But Cisco is not exiting the consumer or commercial -- aka, smaller enterprise -- markets, a company spokesperson said. Rather, Cisco is simplifying how it operates by placing more accountability on fewer leaders, the spokesperson said.

Changes in sales include the reorganization of Cisco's Worldwide Field Operations into three geographic regions: the Americas (U.S., Canada and Latin America); Europe, Middle East and Africa; and Asia Pacific/Japan/Greater China. Each region will have dedicated teams for enterprise customers, including large enterprise, public sector, commercial and small businesses; service providers; and Cisco channel partners. Worldwide Field Operations will continue to be led by Executive Vice President Rob Lloyd.

In engineering, Senior Vice Presidents Pankaj Patel and Padmasree Warrior will lead the organization. Within engineering, a dedicated Emerging Business Group, led by Senior Vice President Marthin De Beer, will focus on early-phase businesses and on integrating Cisco's Medianet video architecture across the company.

The engineering organization under Patel and Warrior will continue to report to Cisco COO Gary Moore.

Moore will also head Cisco Services, which will organize around customer segments and better align with Field Operations.

Ticonderoga's White is positive on the changes overall.

"We believe today's changes will make it easier for customers to work with Cisco, increase the company's focus on its core businesses, raise accountability within the organization and reduce bureaucracy," White stated. "In our view, this represents another step in the right direction for Cisco."

Ticonderoga believes Cisco will also abandon its 12 per cent to 17 per cent annual growth targets for more conservative goals.

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