Cisco’s John Chambers on the digital era

Why Strategy

How significant is the digital era? It’s the biggest technology transition in history, according to Cisco’s executive chairman — and requires a proportional response from companies. Here is an excerpt from an interview of John Chambers for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, and register to receive email alerts, please click here.

To learn more about the McKinsey Quarterly, please click here.

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When John Chambers became chief executive officer of Cisco Systems in 1995, the world had barely entered the modern information age. About 18 million American homes were online, but only 3 percent of users had signed onto the World Wide Web. Amazon.com had just started, calling itself “Earth’s biggest bookstore.” And President Bill Clinton’s White House had only a year earlier gone online.

By the time Chambers stepped down as Cisco’s CEO last year, to become executive chairman, the information age had fundamentally transformed almost every aspect of society. Yet Chambers believes it’s not over. In this interview with McKinsey’s Rik Kirkland, he says the world has now entered a digital era that will be “the biggest technology transition ever.” He describes the changes Cisco has implemented to cope with the accelerating pace of change and argues that companies that fail to adapt are just likely to fail. An edited transcript of Chambers’s remarks follows.

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If you’re a leader in today’s world, whether you’re a government leader or a business leader, you have to focus on the fact that this is the biggest technology transition ever. This digital era will dwarf what’s occurred in the information era and the value of the Internet today. As leaders, if you don’t transform and use this technology differently—if you don’t reinvent yourself, change your organization structure; if you don’t talk about speed of innovation—you’re going to get disrupted. And it’ll be a brutal disruption, where the majority of companies will not exist in a meaningful way 10 to 15 years from now.

This digital age is the connectivity of going from a thousand devices connected to the Internet to 500 billion. It will transform business. It will transform our lives, our healthcare system. Business models will rise and fall at a tremendous speed. It will create huge opportunities—probably $19 trillion in economic value over the next decade, incremental above what we’re seeing today. That’s the size of the US economy, plus some.

But it will also result in tremendous disruption. And this is where it’s so important—whether they’re countries or companies, regardless of their size—that you either disrupt or you get disrupted. Probably 40 percent of enterprise customers around the world will not exist in a meaningful way ten years from now. When I said that two and three years ago, my CEO counterparts said, “Hey, John, you called the other transitions right, but I think that’s way too aggressive.” I think now most CEOs would agree. If they don’t change, they get left behind.

Evolving the organization

When many people think about this, you want to think about the intelligence of an architecture, where you can get access to any data, any point and time you want. It’s simple to describe, but it really means you’re dealing with intelligent networks—a next generation of the Internet, if you will. But connecting 500 billion devices doesn’t get the job done. It’s the process change behind it. So you’ve got technologies like cloud or mobility and cybersecurity and the Internet of Things that are very important. That’s actually the easy part.

The hard part is how do you change your organization structure? How do you change your culture to be able to think in terms of outcomes for your customers? It’s all about speed of innovation and changing the way you do business. The majority of companies will be digital within five years, yet the majority of their digital efforts will fail, which speaks to what a CEO has to do differently.

She or he has to think much more outside the box. They have to reinvent themselves. They have to reinvent their company. Not stay doing the right thing too long, if you will. That’s what got companies in trouble in the past. But the rate of change then was much slower. Today, you’re talking about digitization being an integral part of the fabric of a company’s business strategy or the way it interfaces its supply chain with its customers. Not enabled by technology—technology will become the company.

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Here is a direct link to the complete interview and the video that accompanies it

John Chambers is the executive chairman of Cisco Systems. Rik Kirkland is the senior managing editor of McKinsey Publishing, based in McKinsey’s New York office.

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