Cisco's Controversial Organizational Model: Another Reorganization!

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As a leader in switches, routers, and other Internet technology, Cisco likened its business to that of a plumber, i.e., a plumber of the Internet. In the first decade of the new millennium, the industry Cisco operated in had changed drastically with the rapid pace of technological change and consolidation in the industry. The challenge before Cisco was how to change its business processes so as to cater to the changing market. According to Chambers, "The future's about, how do you add intelligence to that plumbing? And how do you do it architecturally from a technology point of view, going from any device to any content over any combination of networks and data, voice, video? ...

In order to achieve his objective of making Cisco a trusted business and technology adviser to its clients, Chambers realized that it would have to make a radical change in its management structure such that the company would be well-positioned to anticipate and capture market transitions. Cisco reorganized its management structure in 2001, forming cross-functional teams. Subsequently, he refined the model and came up with a structure comprising councils, boards, and working groups. These committees working at different levels were cross-functional in nature, and according to the company, lent Cisco the speed, scale, flexibility, and rapid replication required for a large company to remain innovative in a rapidly changing industry...

Cisco had established its first three councils - Service Provider, Enterprise, and Commercial – by early 2002. Initially, the Operating Committee set the agenda for the councils, but by 2005, that role changed. In 2003, Cisco established the Business Process Operational Council, which unlike the first three councils, was not market focused but internally focused. In 2006, Cisco added two more councils - Consumer and Emerging Markets - around growing customer segments. Chambers then decided to establish boards that would report to the councils. The emphasis on decision making through councils and boards grew stronger in 2007. By 2009, the company was operating with 12 councils and 47 boards....

Ricci claimed that the fiscal year 2008 saw "a tenfold increase in new projects" and that the company was also able to reduce operating expenses from about 38 percent at the height of the tech boom to between 35-36 percent. According to Chambers, this vindicated his decision to opt for the new management structure. The executives who had earlier jostled for resources and power were now working together with shared responsibility. They were now more focused on how to move more products into the market at a faster pace...

Some industry observers and analysts felt that Cisco's management structure and its collaborative approach to decision making were effective – potentially the organization of the future. With around 67,000 employees, decentralizing authority and improving communication had become a necessity as it was practically impossible for the CEO to oversee every decision of the company. Having a structure such as this helped Cisco to be flexible and put the best employee available on a given project, they said. Since the teams were cross-functional in nature, these employees collaborated without being bound to their department...

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