This interview originally appeared in BusinessPundit.com.
Focus on your core competency. Prioritize. Do one thing at a time. Business has used these mantras for at least the past 20 years. But Cisco SVP Inder Sidhu wants to ask you this: What if you can do both?
As in, pursue both new and existing business models. Be disciplined and flexible. “Invent like a startup” while you “grow like a giant.” Focus on your customers while nurturing your partnerships.
Sidhu’s new book, Doing Both: How Cisco Captures Today’s Profit and Drives Tomorrow’s Growth explores this strategy of mutual reinforcement. This practical book, which Sidhu describes as being “for practitioners, about practitioners, and by practitioners,” explores not only how Cisco has succeeded by “doing both,” but uses case studies from a host of other blue-chip companies to underline its main points.
I caught up with Sidhu to talk more about what doing both means, Cisco’s successes and failures, what companies should be using the strategy, and exciting projects inside of Cisco.
DK: Could you describe to me what doing both means?
When an organization has to wrestle with two different choices, I think the tendency is to choose one option over the other, and pursue it to fruition.
While there’s nothing wrong with focusing on things to get them done per se, I think that making trade-offs can sometimes be a false choice. I’ve been in dozens of situations like that.
For example, even in meetings with our own CEO, somebody will come up and they’ll say, “, John, we could give you this business that will grow dramatically and rapidly but unfortunately the margins are not going to be great.”
A lot of times, the message back is that there are a lot of people who can do growth without margins. There are also a lot of people who can do margins without growth. We need to figure out a way to actually deliver both.
Believe it or not, 9 times out of 10 these people will come back, when forced to do so, and find a more creative solution where they actually get results on both. It really works when you can find the multiplier between A and B. As opposed to saying “I’ll do A rather than B,” you do both A and B. The next thing you find is the multiplier that makes each side better.
It runs a little counter to the notions of you have to stick to your knitting, you need to focus on your core competencies. Most of us, when we go to business school, get programmed into a trade-off, you have to pick one thing or another.
Yet when it comes to our personal lives, we use the notion of doing both very easily. It’s like saying if you’re a gymnast, you need strength and flexibility. If you’re a carmaker, you need performance and safety. If you’re a parent, you need to give your kids roots that will keep then grounded and wings that will help the soar. You try to balance your personal life, be a parent and a worker.
We do all those things very seamlessly, because that seems to be the natural way. But when we put on our armor and go to work, we get into this mode of we have to pick this or that. We do that in such a focused manner that we forget that there’s a multiplier effect that can happen when we do two things in conjunction.
DK: How do you find that multiplier effect?
You have to force yourself to look for it consciously. Perhaps a way to illustrate it would be in the domain of innovation. Cisco was going along with its routers and switches, and we were doing that quite well, and making good money from it. But then we said we really need to do a lot more disruptive innovation even though were getting to be a big company.
We created a unit and started to do some disruptive activities within it. That unit helped us get into the voice business. We leveraged the voice technology and created technology that helped our mainstream engine. Then when we created the next generation of routers and switches, we took the technology from that, moved it over to the disruptive side, and entered the storage market, a whole new market. We then used the hardware and software from our storage market to create the next generation of switches. We used the operating software from the switches to go back into the computing market.
So we’ve got a scenario where we have the disruptive innovation and the sustaining innovation curve. On the sustaining side, we’ve got routers and switches that keep getting better and better. On the disruptive side, we’ve entered the voice market, storage market, compute market, etc. Each time we give one side’s technology to the other side, it results in a multiplier effect.
DK: Could you give me an example of a company or industry right now that is not doing both, but could really benefit from doing both?
Dell’s a great example. Dell’s a bit of a one-trick pony, but they were very good at process innovation and getting great efficiencies out of their product line. What they were not focused on was innovation.
So here’s a company that was doing a lot of operational excellence and not enough innovation. They eventually suffered as a result of that. Other people started coming up with more innovative offerings. Dell was trying to change that, but that’s hard to do overnight. Eventually Michael Dell came back and started to invest a little more in innovation. But they still struggle, I fear, with that challenge.
The flip side of it would be Apple, which seems to be everyone’s favorite example these days. Apple does sustaining and disruptive innovation. When you look at the iPods, iPhones and so on, the unique new device that comes out every year means they’re sustaining innovation, because it’s faster, better, cheaper.
At the same time, they do disruptive innovation with things like the iTunes platform, Apps Exchange, the mobile cloud service. Things like that have turned them from a product company into a platform company.
Apple is doing sustainable innovation, they’re doing disruptive innovation, they found the multiplier effect and they’re blending it all together. You have your iPod, you have your iTunes, you’re leveraging their platform because you’re on their platform, you buy their next device, and on and on.
It’s really the multiplier that has really worked for them, whereas for Dell, it’s been kind of the opposite, where they haven’t done both.
I think the contrast between Apple and Dell is quite striking.
DK: Could you tell me a little bit about Cisco’s $2 billion supply chain disaster and what you learned from it?
Back in the late 1990s, we were growing very rapidly. When the dot-com bust happened, we had a very dramatic slowdown of our business, because the equipment we were selling was being used by many dot-com companies. We went from a growth rate of more than 60% to -40% in about 30 days. It was a dramatic shift.
During the boom, we could barely keep up with the demand we had, including some people that were saying “look, I want one of these products from Cisco, and if I order three of them, then I’ll hopefully get one.”
We also thought that we were better than what we really were. There were managers, myself included, who probably had a little bit of hubris and so on–but we were challenged. And when the bubble burst, there were tons of components that nobody wanted. So we had to turn things around.
After the bubble burst, we started looking at our operations. They were not as good as we thought. We had to go down from 1300 suppliers to 300. We used to run our entire manufacturing on spreadsheets, even though we were a multi-tens of billions dollar company. We had to really optimize that. We had 20 different contract manufacturers and we had to optimize that down to four.
We did all those things. That helped increase the inventory turns by over 50% over a 3-4 year period. We had to do this optimizing, just to make sure that we were at the right place.
Even after we did that, we had still had to reinvent ourselves. That’s when we went from a supply-push model to a demand-pull model. We worked to reorganize all our roles in manufacturing so that it was much more centered around customers and synchronized.
Once we did all that and learned all the lessons around, such as, make sure your demand is real, make sure your customers are credit-worthy, make sure your component suppliers are not too many, make sure contract manufacturers are not proliferating, make sure your systems are synchronized with each other and driven off the customer, etc. Once we learned all those lessons, then things started to improve.
Also, although existing management was good enough to go into a phase of optimization, we needed new management to really take us through a reinvention. We had a goal, set by Angel Mendez our head of Supply Chain Operations, which was that we wanted to become world leaders of supply-chain management. I think I mentioned in the book that AMR Research, which ranks people for supply-chain excellence across all industries, has a list of the top 25 supply chain companies in the world.
We had never been on it, even though we thought we were the cat’s meow. So we started working at it. The first year, we got onto the list at number 18. The next year, we went to #11. The next year to #8, and then #5, and this year, we actually made it to #3.
That’s a list that has Wal-Mart in there, it’s got Toyota in there, it’s got Apple, and all these world class supply chain companies. So our story is kind of like a phoenix rising from the ashes.
But that was an interesting story in the book. It was a chapter that started out very grim. With a $2 billion write-off, the biggest company with the biggest supply-chain disaster anywhere was Cisco Systems. To recover from that in less than a decade to be the third-best supply chain company in the world…it was a lot of work, but that was the interesting element to the story.
DK: What’s Cisco working on right now that you are most excited about?
If I had to pick a couple, one is Smart and Connected Communities, and the second is our Council and Board structure, which is not understood very well in the business community right now, but which is yielding dramatic results for us.
Read Inder’s remarks on Smart and Connected Communities here.
The second thing I’m excited about is the council and board structure that Cisco has. Most companies have a formal organization structure that looks kind of like a pyramid. You’ve got the CEO at the top, and reporting to the CEO are different people who run sales and marketing and engineering, the different divisions. For us, these are different functions. Then, underneath those functions, you have the sub-functions and so on.
For nearly the last ten years at Cisco, we’ve created a parallel structure, another pyramid. If you want to call the first one the authoritative leadership pyramid, the second one would be the collaborative leadership pyramid.
That second pyramid is much more informal. Instead of the CEO at the top, it has the operating committee that sits at the top. This is a group of about a dozen people, including John’s direct reports and a few other other people, etc. Underneath the operating committee we have nine different councils.
A council is a collection of people we bring together from various functions. Their job is to go after a particular segment, or cross-functional opportunity. We make them responsible for real numbers. In order to be a council, you must run a $10 billion business. We measure you on all the usual financials for that segment, such as revenue, margins, profitability, customer satisfaction–all those kinds of things.
We’re able to get the best of both worlds because we’ve got both the pyramids operating at the same time. The pyramid on the left side of the page in the book, the classical pyramid, gives us a lot of efficiency, because we’re organized by function. Our customer service is very efficient, our sales is known to be world class, and so forth. That gives you speed and agility and so on.
Then, parallel to that, we have the cross-functional pyramid that gives you the ability to quickly make decisions that are very customer-centric. It allows literally hundreds of people to be on these councils, which are worth $10 billion each, and then underneath them the boards, which are $1 billion each, and underneath that our working groups to inform the boards. Because of this structure, there’s opportunity for hundreds and hundreds of people to basically come up with decisions and engage on projects.
It sounds a little bit like matrix management, but it’s very different. In matrix management, decisions generally degenerate to the lowest common denominator. With us decisions form around the highest possible aspiration. In our organization, we actually try to have everyone on the same incentive structure. Instead of holding off resources for functional benefit, people are therefore actually sharing the resources. We ask and require every person to make decisions at the table as opposed to having to seek permission from their bosses.
So you end up getting these councils and these boards making mega-decisions for the company. We could find a business problem that needs to be addressed. Traditionally, that would wait until it got percolated to the top of the corporation. Now, we just take a couple of executives and throw them at it. They put together a board around it, they execute on that.
Within forty five days, we’re standing in front of the Board of Directors with a plan, ready to execute, and then a bunch of empowered and motivated people actually executing it.
It’s given us a lot of agility. What’s interesting about it is that it’s very much an example of doing both. On the operating committee, I can’t tell you the number of times when we’ll be sitting and John or someone will say well, for this particular topic, which we’re going to discuss for the next 30 minutes, we’re operating in command and control mode. The next one after that, we’re in collaboration mode, etc. So you get that flexibility to deal with issues as you need to.
That’s given us tremendous acceleration in how the work gets done, how many people are involved in the work, and how we can systematically and rapidly drive change through the organization.
We have this structure, and it’s operating really, really well. We’ve removed management time as the scarce resource bottleneck that was previously constraining us. People have become huge fans of it inside the company. We’re getting a lot of benefit and we’re pursuing so many opportunities that we couldn’t.
The other thing that happens is you expose so much talent when you do that. I ran two councils at Cisco, the Emerging Countries Council and the Enterprise Business Council, and have seen first-hand how you get people bubbling up from the bottom and across the company who really want to engage in these things. You open up so much new management talent, it’s amazing.
Inder Sidhu is senior vice president of Strategy & Planning at Cisco and author of the forthcoming book, Doing Both: How Cisco Captures Today’s Profit & Drives Tomorrow’s Growth. Read more about his book and check out his blog at DoingBoth.com.