Cisco's new 'streamlined' structure won't matter until it produces results

Networking equipment vendor vows to streamline operations, improve focus

Usually when a company says it plans to "streamline" operations, it really means layoffs are around the corner.

And that may well be one result of Cisco Systems' announcement Thursday that it plans to adopt a "streamlined operating model" to replace the cumbersome "management by council" structure that has slowed down decision-making, frustrated employees, caused a loss of market share in the company's core router business, and triggered an exodus of top talent in recent years.

(Also see: John Chambers to Cisco employees: Quit messing up my brilliant strategy!)

However, based on early April's mea culpa from chief executive John Chambers, it's clear the shift announced Thursday is more about fixing the process than trimming costs (though again, that may be a result).

"It's time to simplify the way we execute our strategy, and today's announcement is a key step forward," Chambers said in a statement.

Specifically, the Wall Street Journal writes:

Cisco said Thursday that it will streamline its sales, services and engineering organizations to focus on what it said are "the five areas driving the growth" of networks and the Internet: routing, switching and services; collaboration; data-center virtualization and cloud computing; video; and architectures for business transformation.

The move to streamline Cisco's structure comes after Mr. Chambers conceded in a memo last month that the company had suffered a lapse in operational execution, and had confused customers and disappointed investors.

True enough. Shares of Cisco (NASDAQ: CSCO) are down nearly 50 percent since November 2007 and the networking equipment giant has disappointed Wall Street with its last several quarterly reports.

Meanwhile, Cisco has all but abandoned its consumer market strategy, a decision underscored a few days after the Chambers memo was reported in the media when the company said it would discontinue making the Flip camcorder, for which Cisco paid nearly $600 million two years ago, even though the Flip was the most popular video camera in the U.S.

Now, regarding Cisco's "council" structure, it does sound epically stupid. Bloomberg has a good description of how it works (and I use that last word loosely):

Chambers set up the councils to support his push into more than 30 new markets, including computer servers, consumer videoconferencing gear and corporate social-networking software. Unlike the traditional command-and-control management structure Cisco used to have, a series of interlocking councils would have the authority to tap resources from around the company without having to wait for Chambers’s approval.

Yet by requiring employees to petition groups of people for department budgets, the councils slowed decision making, said former employees and other people familiar with the matter. It left managers without full control of units, said the people, who asked to remain anonymous because they aren’t authorized to speak for the company.

This craziness has been going on since 2005, when Chambers started the council system. No wonder the company lost its focus. Can you imagine all the turf battles, power grabs, passive-aggressive behavior and second-guessing enabled by this hellish system?

Of course, for all of Chambers's assurance that the structural change marks a "key step forward" for Cisco, it's all just talk until results can be measured. Which probably explains Wall Street's tepid reaction Thursday. Cisco shares were up a scant 6 cents to 17.53 in late-morning trading. Clearly investors will believe Cisco has righted its ship when they see tangible evidence, like better financial results.

Which won't be for awhile. Cisco said the majority of its changes "will take place over the next 120 days, with the new sales organization in place at the start of Cisco's fiscal 2012 (July 31, 2011)."

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