Cisco’s management experiment ~ Management 2.0 developing social capital

A number of other blogs have posted on Cisco’s unusual management structure recently, see for example:

Henry Blodget, Business Insider: Has Cisco’s John Chambers lost his mind?
Brad Reese, Network World: Management vision of Cisco CEO John Chambers under fire
Ben Worthen, Digits (Wall Street Journal blogs): Cisco CEO John Chambers’s big management experiment.

As you’ll see if you read these posts (and can probably tell from their titles), these posts; readers’ comments on these posts; and also employee feedback (eg on Glassdoor.com) are quite disparaging.

I’ve also posted previously on Cisco’s network organisation structure design, and on their new Collaboration Framework. Both of my posts are broadly favourable (although they don’t deal specifically with this top level structure), so what’s going on?

Cisco’s management structure

During the last eight years, Cisco has been replacing its top-down divisional structure with committees of executives from across the company. More than 750 company leaders are currently involved in 59 committees (12 councils for $10m+ business opportunities, 47 boards for $1m+ opportunities, and below this, a number of working groups) - see Cisco’s top level organisation chart at the top of this post, and also take a look at a previous post of mine that also refers to some of this. Cisco’s current goal is to broaden participation on these committees to 2500 or more employees.

The motivation behind these changes has been to move from a command-and-control operation dominated by competing departments to a widely cross-functional, collaborative company which uses the various standing committees to facilitate executive decision-making, create cross functional alignment, and guide business initiatives. Cisco now makes 70% of its decisions in these committees (up from 10% just two years ago).

In addition, the new structure has enabled Cisco to increase the number of markets the company is targeting from two in 2007 to 26 today (each of which could soon reach sales of $1 billion, accounting for more than 25% of Cisco’s revenue) and this number could increase to 50 next year.

Cisco’s CEO, John Chambers has said that part of his goal in making the changes has been to make spread his executives thinly, making them rethink how they work and what they work on.

Eventually they "realize they can’t keep their head above water and if they want to swim they have to give [some responsibilities] to their teams". The new management structure "makes everyone uncomfortable, including the CEO," he says.

The criticism

While most commentators understand that Cisco needs to change, becoming more innovative in order to grow organically, rather than relying on acquisition as it has in the past, its recent changes have drawn substantial criticism.

The new structure is reported to add bureaucracy, remove accountability and slow down decision making. It’s also blamed for the company’s falling market share in certain key product categories.

My perspectives

Cisco’s structure is certainly different, and it must have been a brave, or foolhardy, decision to require top executives to spend 30% of their time serving on 10 or more committees.

I’ve worked myself in one public sector organisation in which I and other executives were required to spend significant time working in committees and this certainly generated a lot of waste there. So it’s easy to see how this committee based structure could result in a massive bureaucracy that simply produces slower and lower quality decisions.

But Chambers clearly believes that business needs to change – see these comments in a recent New York Times interview:

“I’m a command-and-control person. I like being able to say turn right, and we truly have 67,000 people turn right. But that’s the style of the past. Today’s world requires a different leadership style — more collaboration and teamwork”

“Big time, the importance of collaboration. Big time, people who have teamwork skills, and their use of technology. If they’re not collaborative, if they aren’t naturally inclined toward collaboration and teamwork, if they are uncomfortable with using technology to make that happen both within Cisco and in their own life, they’re probably not going to fit in here.”

If Chambers is right that collaboration is the ‘next big thing’ then it might have been a bigger risk to keep things as they were than to change.

To a certain extent, I think criticism of the changes bear similarities to push back against organisations allowing people to use social media technologies during work times (the ban Facebook debate).

Both this structure, and individual use of social media, may lower individual productivity. But that’s no longer the point. They key now is productivity of the group, delivering organisational speed and innovation.

Cisco doesn’t want to replicate the experience of Sony being take over by Apple for design of the ipod (Chambers had a similar experience to this at Wang where the company got left behind by the rise of the PC) and it obviously needs to organise itself differently if it’s going to produce different results.

And the scale of the transformation will certainly make it very clear to executives how their behaviour is expected to change – avoiding one mistake made by a lot of organisations undergoing change. But given this, a lot of employee feedback bound to be negative. I think Chambers is right too see the fact that over 20% of his leaders have left the company as a positive.

The Difference

I think the key to Cisco’s success (and I predict they will continue to be successful) is the way that they have made these changes. Yes, the top level structure could have degenerated into a paralysing bureaucracy, but I don’t think it has, and I don’t think it will.

See my earlier post on Cisco’s Collaborative Framework for a review of the approach it’s taken to support these changes, and which I think have been critical to ensure that they have been implemented well.

And probably even more important, has been Cisco’s single minded focus on collaboration. This hasn’t been something it’s tried to introduce lightly, or quickly, or half heartedly. So it’s been able to produce, what in my terms I call organisational capability – a capability for collaboration.

I don’t know if collaboration will be ‘the next big thing’ – although I believe it will. But I also believe organisations have access to a wide variety of other different options for competing. They key is to choose one and do it properly, not worrying too much about the way that business has traditionally been done.

So I guess John Chambers won’t be too worried by the recent criticism!

Also see: McKinsey’s conversation with John Chambers

And this interview on CNBC: