Charlie Rose Talks to Cisco's John Chambers

Cisco Systems’ chairman and CEO talks about the need for constant reinvention, his company’s missteps, and the ease of doing business abroad
"We'd gotten too fat. And when you get fat, you're slow in decision-making" Photograph by Simon Dawson/Bloomberg

The tech industry is changing fast. How would you describe what’s happened and what’s coming next?
Almost everything’s changed. If you look at what’s occurred over the last five or six years, we’ve become much more social in terms of how we interface through technology, much more visual, and much more virtual. In many ways, with respect to the Internet, you’re now more interested in the opinion of your friends, perhaps, than you are of an expert you look up online, and it speaks to how quickly this transition’s occurring. Companies that don’t change get left behind. Since I became CEO [in 1995], 87 percent of the companies in the Fortune 500 are off the list. What that says is that companies that don’t reinvent themselves will be left behind. I also think that’s true of people. And I think it’s true of countries.
Did you wake up one day and realize Cisco wasn’t where it should be and say, “We need to retool ourselves”?
We’ve done that about every three to six years. Sometimes we’ve got it very much to plan, catching market transitions, changes in technologies, going into the cloud or changing technologies to enable voice and video over the Internet. Our competitors of 15 to 20 years ago, all of them are gone. Our competitors of just a decade ago—great companies like Alcatel-Lucent, Nortel, Siemens, Ericsson—are a shadow of what they were. And our competitors that many people were concerned about when we tripped about a year and a half ago, that were going to beat us pretty bad—Hewlett-Packard, Juniper, a number of startups—they’re shrinking in terms of revenues. And we’re getting share at a very rapid rate. As I alluded to, we’ve done this five or six times over my tenure. So it wasn’t waking up one day. It was realizing that we were out of sync with the industry.
What was wrong?
We’d gotten too fat. And when you get fat, you’re slow in decision-making. It had been so easy to say we’re the best in our industry, we don’t need to change, but that’s exactly how you disappear.
You just bought video software company NDS for $5 billion. How important is that to Cisco’s future?
Every device, five years from now, will be video. That’s how you’ll communicate with your kids, with work. What NDS did is allow us to move into video capability with large service providers or cable providers—and the ability to do this out of the cloud. And that allows you to do it faster.
Then there was the Flip Video acquisition. What happened there?
With Flip, we missed the transition. The transition was not about a device that could do really cool video … it was about software that goes into the cloud—the way you’re going to really deliver information in the future. We should have been developing our software for the cloud as opposed to the device. And we missed that window of opportunity. Now, we had the courage to say we missed it, to take our losses.
I’ve heard you say it’s easier to do business in many places, including China, than in the U.S. Why?
The No. 1 country in the world to do business in is which one? To locate where you want to create jobs, where you want to have a great market? It’s Canada. Even in Russia, you can build a Silicon Valley outside of Moscow. If I say I want to open a campus in China … they’ll say, “What do you need?” They’ve also educated their leaders, both business and government leaders, in a way that is a lesson for much of the world. They move them around from job to job. And we’ve had these leaders visit Cisco, home and away, us learning from them, them learning from us, for four years now. We’ve got to think about not looking to the past in our country, to imagine what’s possible and realize that right now we’re falling behind.
What percentage of your revenues come from overseas?
Over 55 percent. And 70 percent of my growth will come from overseas. Yet we still have the majority of our employees in America. And we’d like to keep the majority of our future hires here.
What needs to happen for you to be able to do that?
The real underlying issue is that our tax policy is broken. Our job creation engine is broken. The tax policy was designed before Microsoft went public. We throw so many hurdles in front of companies, especially small ones, to locate here. When you and I first met, we did 500 IPOs in the U.S. China did less than 100. Today we’re down closer to 100. They’re closer to 400.