Why we should watch Cisco's perilous reinvention

All companies and governments should be watching how Cisco deals with the advent of cloud computing. The cloud offers a rare opportunity to lower costs but bringing this kind of change is not an easy task.

What is happening at Cisco should be an alert not only to those in the information technology industry but to all companies and governments.

Frankly, how companies adapt to cloud computing will determine whether they succeed or fail in the current environment.

In Australia we have bloated government costs and cloud computing represents a rare opportunity to reduce those costs and improve services – but you have to get it right.

As we saw with the Virgin breakdown, new systems can cause chaos if they get into trouble.

For IT companies like Cisco this is make or break time. Get it wrong and you head on a rapid road down. Earlier this month I described how vital cloud computing would be to banks and how SAP was attempting to transform itself as part of that revolution (A dividend danger is clouding bank fortunes, August 8).

Now at Cisco, the 64-year-old chief executive, John Chambers, who has been Cisco’s chief executive for 18 years, is faced with the task of once again re-inventing the giant computer company.

Cloud computing changes the rules for Cisco just as it does for its customers. Chambers has re-invented the company several times over his 18 years but this task will be his hardest.

Chambers’ first action is to take a step that large organisations hate. Instead of establishing massive committees to try and execute change (they never work) he is trimming his middle management and forming small groups.

But then he is also linking with another giant – Microsoft. Alliances between two giants can create the big teams Chambers is trying to avoid. That’s his first danger.

Second he has embarked on a string of takeovers, which can be disruptive in times of fundamental change, although the latest takeover takes Cisco deeper into security issues which are going to be vital in the new cloud world.

For Cisco customers cloud computing means that massive company by company investment in technology can be slashed because you can access one large global system.

The words of John Chambers could apply to a vast number of companies so I will quote them:

“Cisco is eliminating about 5 per cent of its workforce to speed up the company's response rate to customers' demands and changing technology.

"Now if we are going to lead in this industry, the one thing I have learned over the years is you have to be the first mover.

"We have to very quickly reallocate the resources... Those need to be done with small teams. We just have too much in the middle of the organisation."

According to the analysts, Cisco and its competitors have made 'private cloud' networks in which companies maintain cloud servers for themselves, so that data can be accessed securely from anywhere.

Companies are testing the new systems and delaying orders and when they do order these orders are smaller, reflecting the lower costs.