It’s been a tough few weeks for Cisco Systems (CSCO) Chief Executive John Chambers. His stock took a tumble after he warned in November that the networking giant would miss its sales targets. A month later he told analysts in New York that the company would cut its longer-term growth targets in light of the drop in emerging-markets business. Chambers spoke with Senior Editor Diane Brady. An edited excerpt:
You seem to be in a bumpy period right now.
We’ve had, I think it’s 16 quarters in a row of positive year-over-year growth. Look at almost all of the major IT players. IBM (IBM) has had, what, six quarters in a row of negative growth? Even a good company like Oracle (ORCL) has been up-down, up-down. Hewlett-Packard (HPQ) has had—I forget—six or seven quarters of negative growth. We’re actually outperforming, and I want to pull away from them. I think we can because of the technology and the role we play in the network. But when you do have a surprise, you want to analyze the underlying issues.
So what were the issues in emerging markets?
I think we’ll look back and realize that was largely macro. The GDP in Russia is an example. How many times has it been revised down? In Brazil, look at how many times it’s been revised down. Let’s say you’re a CEO. You’ve been very successful in emerging markets for—let’s make it easy—eight quarters in a row. You grew between, let’s say, 6 [percent] and 13 percent. Then all of a sudden it stops. You didn’t change the leaders. You’re in 20 countries around the world. Your playbook has been working remarkably well. Is that most likely a market phenomenon or something self-inflicted, when it changes that rapidly?
Most likely. I don’t like to use the word canary, because I like to think of us as bigger than a canary. In the coal mines, you would have a canary because they would sense first when the oxygen was running out. We are almost always, unfortunately, an indicator of when an issue is coming. In 2001, we saw it first and got beat up very hard. It turned out to be what I said, a 1,000-year-old flood. Six months later, everyone was in the same position.
What are you seeing now?
The U.S. feels like it’s turning up faster. In our enterprise accounts, going into this quarter—so I’m not commenting on the quarter—our pipeline increased in million-dollar deals, in $2 million deals, and in $5 million deals by over 20 percent. Comfortably over 20 percent. When that sort of thing occurs, there’s probably a transition going on. The whole world is dependent on the U.S. economy right now, and yet they’ve been disappointed in our country. Our country, especially in October, let down the world. If the U.S. comes out of this, you’ll see emerging markets.
How important is it to please shareholders?
We’re very much focused on full shareholder-value return. We have to get our stock moving. But I won’t do something in the short run that I don’t feel is right for the long run. That I’ve watched many CEOs do. You have shareholders, customers, employees, and partners. You have to balance all four. When you see a market trend, it’s three years before it’s meaningful to your shareholders, and it’s five years before you really leverage it. Half your shareholders are out of your stock every 18 months.
A lot of CEOs don’t last long, either.
You have to reinvent yourself. One of the compliments I got that first shocked me was from a competitor. He pulled me aside one day and said, “John, I just want to tell you. You’ve been able to reinvent yourself. Most of us do not. We have a certain bag of skills and tricks, and once we use them, usually every four to five years, it’s time for someone else to come in.” Route 128 in Boston used to be the high-tech center of the world, but we were so isolated. Now there are only two companies left. We were mostly minicomputer companies. We were not aware of how quickly the market could change to the PC and to software. In Silicon Valley, there’s more of a realization that you have to reinvent yourself or you get left behind. You’ve got to have the courage to fail.
You talked last year about preparing to step down. How is that going?
I have a dozen people in this company who could be a CEO anywhere else. A year ago, I said it would be two to four years. That’s still true. The definition of success is that the company doesn’t miss a beat. Do I love what I do? Oh yeah—I love it more than ever. You’ve got to have that energy level 24/7. But you’ve also got to make sure the transition is smooth. Being realistic, most high-tech companies haven’t done that well.
Why is it so tough?
I think it’s tougher in tech. The industry has to learn how to do CEO succession well. If your definition of success is Intel (INTC) or Microsoft (MSFT), or HP, or IBM, that’s not a good track record, and yet they are the most successful ones.
Do you worry that size is the enemy of success? That’s been a worry for some investors in General Electric (GE), for example.
Size can be a benefit or a detriment. If you have a large percentage of the market, it’s hard to grow faster than the market. The reason GE stopped growing at the pace it did, it used to just enter new markets and be No. 1 or No. 2. We learned from them, and that’s what we do. GE ran out of markets they could move into. Jeff Immelt is a very good CEO, but it’s harder to grow your aircraft engine business faster than the aircraft engine market, or your power plants faster than that market. Yet he has the courage to move into new areas. He doesn’t get the benefit that we do of the various divisions working closer together, and yet he’s reinvented GE.
The Internet of Things. It will change health care. It will change everything imaginable. This is one of those inflection points. We got growth for a decade off of the Internet. The Internet of Things will be even bigger. The power of a network is the number of devices squared. Think 50 billion squared.
Is government likely to get in the way?
I think it’s important we get back to where government and business and citizens work together on common goals. There’s no reason our economy shouldn’t be growing at 4 percent now. This is hard for a strong Republican to say, but Bill Clinton has been the best president in my lifetime in terms of generating economic return, 22 million jobs. He brought the Internet to life in this country. He understood the economic impact. If you look at [David] Cameron in the U.K., he gets it. We have more engineers in the U.K. today than we do sales people. We need leaders who are technology savvy. I used to spend a lot of time in Washington. Right now, it’s tied up. When you can’t get much action, it doesn’t make much sense to spend a lot of time there.
What advice do you give to people who want to be a CEO?
When I came to Silicon Valley, I didn’t understand the culture very well. I’d gone from managing 10,000 people at Wang to managing 400, maybe 100 more. I called up Lew Platt, who was the CEO of HP. HP had a remarkable culture. Everybody I’ve ever stolen from HP worked out remarkably well. So I said, “Lew, would you meet with me and teach me a little bit about the Valley?” and he said, “Yes.” I was kind of shocked. So I went over, and we had a good conversation for over an hour. At the end, I said, “Would you mind if I came back next quarter?” and he said, “Sure.” We met every quarter for almost four years. After the first year, he said, “You bring some members of your team, and I’ll bring some of mine.” At the end of the four years, we were on a roll. I said, “Lew, you made such a difference. What can I do to pay HP back?” His answer surprised me.
Don’t poach my people?
No, Jack Welch said that. [Lew] said, “Do it for the next generation. That’s the HP way.” So I coach a huge number of young CEOs. I go out of my way to do that. When new people come to the Valley, I reach out to them.
A lot of books have been written about you.
There’s never been an authorized book, by the way. I believe books should be written after you’re dead and gone. It’s like naming airports after pilots.
What do you think people don’t appreciate about you or Cisco right now?
Let’s take me out of the picture. When I look out three to five years, we can become the No. 1 IT company, in part because everything is coming to the network. There are more things connected to the Internet than people. We have more than 12 billion devices connected now, on its way to 50 billion, then 500 billion. The power of the network is the number of devices squared. We have to put these products together in an architecture that helps our customers solve their problems faster than anyone else. You have the power here to change the world. We believe we’re going to change the Middle East. We’re extremely active in Palestine, helping to take the GDP from one half of 1 percent to 6 percent through high tech. Israel will be the first digital country end to end. We didn’t focus on selling routers and switches, though I like when they buy that. We said, “How do we grow your economy? How do we help create jobs? How do you bring more of the Arab population into high tech? How do you do education, health care, startups? How do you create smart connected cities? How do you do security? We are literally going to create the first digital country in the world, which can be modeled in emerging countries or the major ones. I think you’re about to see technology change every aspect of our lives in a way that people just have not grasped. They’re just at the front-end wave of understanding this.