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Cisco's Troubles May Need a Bigger Fix

NEW YORK ( TheStreet) -- As Cisco's (CSCO - Get Report) prospects fall, questions of its leadership have risen.

After a series of financial disappointments over the past six months has resulted in a 28% drop in the stock, Cisco chief John Chambers realized -- out loud -- that the company has gone adrift.

Now, analysts and investors ponder whether Chambers is the right person to get Cisco back on course. See our readers poll on whether Cisco is better with or without Chambers.
Cisco chief John Chambers

Last month, Chambers admitted an inability to recognize and respond quickly to the deterioration of Cisco's business rocked the firm's credibility. To help fix the situation, he made a few obvious moves, including the shutdown of Flip, its consumer video camera business, and the collapse of Cisco's nine division councils to three last week.

Leadership coaches may applaud Chambers' ability to finally acknowledge a problem and take the responsibility to fix it.

But turnarounds are tricky. And while Chambers has opted to take the consolidation route by making the company smaller, some analysts have pushed in the other direction, calling for a major breakup of the company into separate units.

This latest turnaround attempt will be a big test for Chambers. And if the troubles turn out to be bigger -- and not fixable with Chambers' proposed solutions -- then a more dramatic move may be necessary.

The scale of the problem typically determines the size of the solution, said Bruce Kogut, professor of leadership and ethics at Columbia Business School.

"If there's a sense the company has to go through a radical change, it would make sense to look for someone else," said Kogut, referring to businesses broadly -- not specifically to Cisco. "You probably want to have a clean transition to make these changes."

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Chambers has been Cisco's CEO for 16 of the 20 years he's been employed there. He led the company through its greatest period of expansion during the Internet building boom and through two subsequent downturns. Chambers is widely liked both internally and on Wall Street. He's not only the energetic frontman for the company, but he's also routinely called upon as the deal closer when big sales are on the line.

Every heir apparent who has eyed the job -- senior VPs like Charlie Giancarlo, Mike Volpi, to name a few -- has moved on after realizing Chambers is firmly attached to his position. Chambers has said he's staying on to 2015, and the company has said it keeps a list of six to eight possible replacements as part of a succession plan.

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