Cisco's John Chambers: 'The Majority of Big Tech Companies Won't Be Relevant in Five Years'

John Chambers, like Cisco (CSCO) , the tech giant he served as chairman and CEO of for over 20 years, has been in an almost constant state of reinvention. 

The gregarious 66-year-old Chambers has shepherded Cisco through countless shifts from an initial focus on routing to switching to voice over the Internet to video and data centers, and now to the cloud and the Internet of Things, engineering a whopping 180 acquisitions during his tenure. 

Now, the long-time public face of the 31-year-old tech giant has embarked on yet another makeover. In May 2015, Chambers announced that he would step aside as Cisco's CEO and move into an executive chairman role, serving as sort of a godfather to his hand-picked successor, Chuck Robbins.

While the decision to pull back from the day-to-day running of Cisco somewhat shocked Wall Street, which had grown accustomed to his eloquent post-earnings TV appearances and constant dealmaking (about 180 acquisitions done during his 20-year tenure), it was something Chambers began planning for years ago.

"I have been thinking about this leadership transition for 10 years," Chambers told TheStreet. "Cisco is my family, and as I watched the high-tech industry change in the last 20 years and as most of my peers rotated out multiple times, I watched how poorly high-tech handles these transitions in leadership."


John Chambers in 1995, when he took the helm as Cisco's CEO.

Since settling into his new executive chairman position, Chambers has been traveling to places such as India and France to meet with leaders to promote what he calls "country digitization." To Chambers, the digitization of countries -- in which entire countries and their residents are connected to the Internet and to each other -- will be the next big thing in tech. 

Cisco predicts that 50 billion devices will be connected to the internet by 2020, and 500 billion by 2030, as smarter Internet-enabled equipment is unleashed.

Ultimately, the trend toward digitization and the Internet of Things is one that's driving yet another reinvention of Cisco, but this time with Chambers in an advisory role and Robbins calling the shots.

"I think the world of what John created, and I think that Chuck Robbins is really stepping it up," said Jim Cramer, TheStreet's founder and manager of the Action Alerts PLUS portfolio, which owns Cisco.

TheStreet talked with Chambers about his leadership of Cisco, why most big tech companies are bound to get disrupted, the current start-up environment and the big lesson he learned from legendary GE CEO Jack Welch. What follows is a condensed and edited version of our discussion.



"Leadership is very lonely, you must always make the decision that is right for the long-term," says Chambers.

TheStreet: Does it feel strange not being the CEO of Cisco anymore?

Chambers: No, it actually doesn't. I enjoy tough challenges, it's a unique part of my personality -- the tougher it is, the more I try to see how to solve things and do it differently. I have been thinking about this leadership transition for 10 years, and when I originally announced that I would retire in two to four years, I really meant it. After almost three years to the day I announced it, people were a bit surprised when it happened. Candidly, Chuck is doing a very good job on the transition.

TheStreet: How did you find new CEO Chuck Robbins and develop him for this role?

Chambers: If you look at our history, we do a lot of things very well. If you were to ask what Cisco does better than our peers, aka our secret sauce, we are driven off of market transitions. They could be technological, economic, evolution of customer expectations, or leadership transformations you have to make in your company.

The second thing is that we are customer-driven, we are not an Apple (AAPL) where Steve Jobs just had an unbelievable talent like I have never seen before and we won't see again in knowing what the customer wanted.

Third, we build off architectures, where you combine the products in a way to help achieve business outcomes much quicker with less risk and less operating expenses.

Candidly, we invented the acquisition in high tech when we did the first one in the early 1990s, while others failed at it. We got a process down that has allowed us to do 187 of them, with me doing 180 and Chuck doing seven of them. You didn't even notice a transition when we did these.

Within the CEO role, we did the process more formally where the board did an amazing job in the selection process, and my job was to get them three to five candidates that were ready. We also looked at external candidates. But it was very obvious that Chuck was the right person at this point in time. You see very few companies in our industry being able to do this without causing disruption.

TheStreet: Both you and Cisco seems to have gone through a number of reinventions in the past 20 years. Is that fair to say?

Chambers: We were a classic router company, and switching was something that the dark side did. So we changed from being a router company to a networking company. When we acquired three switching companies, we knew it would be a much higher revenue stream for us and quicker growth than routers.

Another one was to focus on countries early -- we were the first major company to invest and really double down in China in 1995. It was one of the very first decisions I made as CEO. At the same time, unfortunately we invented outsourced manufacturing.

We then moved from routing and switching to voice over the Internet, while our key competitors such as Lucent, Nortel and Alcatel said Cisco can't even spell telephony -- now we have 65% market share. So we completely disrupted them.

Then we did the same thing with video and data centers. Hewlett Packard (HPQ)  said very directly Cisco would exit the server and data center business within a year. And we took huge market share from them. Cloud then followed, as well as networking and storage and processing power. Now it's digitization with the Internet of Things. 

Each time we did this we reinvented segments of the company. As CEO, I moved very much from a command-and-control approach to driving basic principles, which you have to do as a CEO. Name me another company that has maintained their market share over two decades like we have done in routing and switching -- over 50% share. Yet, many of our competitors from 15-20 years ago are gone. 

TheStreet: Now that you have stepped away from the day-to-day operations of Cisco and are traveling the world, have you had any epiphanies?

Chambers: The one thing that may not be an epiphany, but it's something I have always believed and almost nobody writes about, is that you are more a product of your setbacks and how you handle those setbacks than how you handle successes.

Yet most people in your industry [journalism] beat the tar out of the CEO on the setbacks as opposed to realizing what General Electric's (GE) Jack Welch once told me in the late 1990s when I asked what does it take to have a great company. He said "John, you have to get knocked on your tail and have a near-death experience, and you have to come back from it, both from the CEO level and also the company level."

One of the things I am most proud of is that when I move into new markets I play the chess game out again and again to the end. I don't make one or two moves and then say that's it. Our competitors often fall into one or two moves at a time, but we got them once they do that.

TheStreet: Under Armour's (UA) founder and CEO Kevin Plank recently had some blunt advice for start-ups to not accept losing money. What would John Chambers tell Silicon Valley start-up CEOs today after what looks to be a few challenging months for the space?

Chambers: That's exactly what I talked about last night during a speech. Where I would start with is that there is not a right or wrong way on many issues. In our industry, the best technology doesn't always win -- it's who executes the best.

I agree with Kevin Plank's comments about not accepting losing money, and that's what Cisco has always done from the beginning. We never start with, we are going to lose a lot of money for many years before we will make money. Dr. An Wang [the founder of Wang Laboratories] taught me that many years ago about China -- don't think you are going to sell one Coca-Cola to each person in China and be rich. You have to make money as you go on it.

For others, it's about market share early and number of eyeballs. Amazon's (AMZN) Jeff Bezos has done that better than anyone. So multiple approaches work when it comes to start-ups. You have to understand that with each approach there are strengths and limitations. If you are a start-up and are losing money and get caught in an economic downturn, and you can't get your neck around the financial resources at reasonable terms -- then you are roadkill. The advantage of being profitable each step of the way allows you to navigate through the turns better than anyone else.

Also I would say that cash is king about every other five years. It's back to being king again along with profits.



The future for Cisco: Country digitization.

TheStreet: How do you view the next five years for big tech?

Chambers: I think that answer is very simple: I think the majority of big tech companies won't be relevant in five years. And that includes Cisco if we don't change. The thing we must do is to disrupt ourselves. Every company will either be a disrupter or you will get disrupted -- we have always chose to lead with disrupting ourselves and the market as opposed to someone else doing it to us.

Out of the top six big tech companies, only the two or three will remain relevant in five years. When I said this a year ago, many people disagreed. I don't think people are thinking too much right now about this. And if you watch during this time period as we have been talking about this, we have outperformed every one of the main traditional big tech companies in terms of year-over-year earnings per share growth -- we have only been negative one quarter out of the last three years. 

TheStreet: Cuba seems like a massive infrastructure opportunity for a company such as Cisco, no?

Chambers: This will surprise you, but I am much more interested in the digitization of India and France. Those will be models for the developed and developing worlds. It will transform every person in those countries, and will get to what Bill Clinton did in the 1990s through creating 22.5 million jobs, 18% growth in real GDP and 17% growth in real per capita income.

Watch what prime minister Narendra Modi does in India. France, I think is a place where people really want to invest. People thought I was crazy when I said this 18 months ago, but fast forward to today, and France in January and February was the top country in Europe with venture capital invested in start-ups -- twice that of Israel.

TheStreet: You have long been known as the ultimate salesman, always upbeat. What's the secret to how you close?

Chambers: Never sell something that you don't believe in. My customers trust me. China trusts Cisco. And the reason we are back growing over 40% per year is that customers trust us in terms of what we are doing on protecting our products and code -- we don't give that to any government in the world, including our own government.

Trust is the basics of my leadership style. I am far from a perfect leader, lord knows I have made mistakes, but it's the ability to develop that trust that when I commit they know I will deliver.

Even when I was making acquisitions, I made it on a handshake and trust and then asked the lawyers to clean it up. If I couldn't trust the other side, or they couldn't trust me, we didn't do the deal.

TheStreet: You essentially built Cisco. How are you going to feel as Chuck Robbins makes changes? 

Chambers: Well, it's like the younger members of your family. Many times when they make decisions, I am very proud of them that they had the courage to make them. There are some decisions that I may not agree with, but when they work I go wow, that was really exciting. And there are some decisions that occasionally my kids make, or Cisco makes, that I think, what were you thinking -- I just know the outcome, but you have got to let them learn.

That is part of leadership, you can't second guess the next leader. You have to say here are the positives, let me teach as much as I can, and then you have to let them make the decisions that are right. My job is to prepare and advise them.

TheStreet: Looking back over the course of your career, do you have any regrets?

Chambers: Normally I don't look back at all -- it's just a part of my personality. I believe you learn what you've done well and what to do differently. I have never been to one of my graduations -- for high school, college, my MBA or law degree. By the time graduation came around I had already moved on to the next thing on the agenda. It's just how I have lived my life, and lead Cisco.

Are there things you should do differently? Absolutely. Are there patterns and principles in running a company that can get you into trouble? Yes. Every mistake we have made as a business has been when we haven't moved fast enough or when we move too fast without a replicable process behind it. For acquisitions, every time we move we first make sure it's replicable.

I believe one of my core strengths as a leader is not starting a chess game until I have played it backward and forward. It's not a transactional move one at a time. It's always about a replicable approach with the market.

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