April 12, 2011, 1:32 PM — I have to admit, even after reading a couple of stories and the memo from the CEO about it, I still didn't really get what Cisco's big reorganization was all about.
The soul-searched, self-critical reawakening debuted with a warmish, pep-talky memo from CEO John Chambers was odd because it noted failures and weak execution of strategy, but dind't say how; neither did most of the stories talking about the reorg and whether it would help the company get back the one-third drop in share price it suffered during the past year.
Cisco is as big and powerful as ever, as far as I've heard talking to analysts and end-user companies. No one is throwing it out. quite the opposite.
But here came Chambers, with the kind of foggy directional memo that deplores a lack of focus or execution and promises to make everything right -- the kind of thing CEOs usually put out in the middle of an obvious financial emergency of the kind that has employees polishing up resumes and researching unemployment insurance options.
"We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders," Chambers wrote in a 1,500-word email to employees dated April 4. "That is unacceptable. And it is exactly what we will attack."
As much as his memo made the whole thing sound like a spiritual or motivational issue, the problem Chambers needed to correct was pretty concrete:
During the second quarter, revenue from Cisco's switching products, which bring in 41 percent of its total revenue, took a sharp drop.
Customers had begun switching to lower-cost Cisco switches that have higher price/performance ratios than the Nexus 7000, Catalyst 2960 and other high-end hardware on which Cisco's revenues had begun to depend too much.
So, led by Chambers, the $40 billion company that is master of all networking, the global giant whose switches and routers form the core of corporate, government and telecom networks the world over, announced the decision that would bring back its focus and bring its share price back to par: