Cisco's Controversial Organizational Model: Another Reorganization!

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Cisco was founded by a group of computer scientists, who had together designed a software system named IOS (Internet Operating System), which could send streams of data from one computer to another. This software was loaded into a box containing microprocessors specially designed for routing, and sold as a package to businesses. The company was incorporated on December 10, 1984, and was headquartered at San Jose, California, USA. Cisco was a pioneer in developing innovative forms of customer support using new technology. In the 1990s, it was known as one of the "4 Horsemen of IT" (other three were: Microsoft Corporation, Intel Corporation, and Dell Computer).

Cisco had a product-focused structure, but in 1997, the company was organized around three specific lines of business to address two major new market opportunities: the service provider migration to Internet Protocol (IP) services and the adoption of IP products by small and medium-sized businesses through channel distribution. These three specific lines of business were Enterprise (IT departments of corporations, government, and education), Service provider (telecommunications carriers and Internet service providers), and Commercial (small and medium size enterprises).

Chambers took over as CEO of Cisco in January 1995. Between May 1991 and December 1999, Cisco stock rose 33,991% from US$0.22 a share to US$75 at a compound annual growth rate of 97%. For a brief period in the 1990s, Cisco was the largest tech company in the world. It strategically acquired many of its competitors. It enjoyed a dominant position in the routers and switches markets and was generating close to US$10 billion annually in cash which placed Chambers in the league of leaders considered as celebrity CEOs. The dotcom bubble burst, and in December 2000, Cisco’s stock dropped to around US$17. In 2001, Cisco reported its first loss since becoming a public company. In August 2001, Cisco restructured the company to one core business with centralized engineering and marketing organizations in response to some major changes in the networking industry. The new engineering organization focused on 11 new technology groups (Access; Aggregation; Cisco IOS. Technologies Division (ITD); Internet Switching and Services; Ethernet Access; Network Management Services; Core Routing; Optical; Storage; Voice; and, Wireless), while marketing focused on communicating Cisco’s technology differentiation.

With the Internet becoming the driver of all information globally in the 1990s and the first decade of the 2000s, trends evolved around it in the form of cloud computing, mobilization, social networking, virtualization, etc. Cisco was the leading company that offered networking gear that ran the Internet. It was the market leader in ethernet switches and overall router markets with market shares of nearly 70 percent and 50 percent respectively. It was the market share leader in all the segments in which it operated. Cisco’s market capitalization of US$109 billion in July 2009 was in multiples of the combined market capitalization of its top 11 competitors (US$19 billion). Cisco grew at a rapid pace in terms of both sales and profits, which the company attributed to its ability to capture market transitions

In addition to its business performance, Cisco had also made a name for itself for its HR practices, flat organizational structure, and customer-focused culture. According to Brian Schipper (Schipper), senior vice president, HR, at Cisco since October 2006, the organizational culture had a direct relationship to the company’s long-term success. Its flat and virtual organization helped Cisco expand into new market adjacencies both in terms of commercial and geographic markets.

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