Cisco’s efforts to set up another global headquarters in Bangalore hasn’t exactly gone to script
Five years ago, John Chambers, chairman and CEO, Cisco Systems, devised a bold emerging markets plan for Cisco, where the company would have two nerve centres: One headquartered in the West (San Jose, California) where the company began its life and went on to become the dominant networking company, and a second one in the East (Bangalore, India) where the future markets of the company lay.
He entrusted the task of setting up Cisco’s second global headquarters, called Globalisation Centre East (GCE), to 60-year-old Wim Elfrink, a Dutch, who is his friend and a key member of his leadership team. The GCE, with a campus spread over one million square feet, was unveiled in 2007.
The idea was that it would be a laboratory from where new products and business ideas would emerge.
Other global technology companies—IBM, GE, Microsoft, Intel—also had strategies to tackle the next frontier of growth, but none had sent a senior official like Elfrink to live on this side of the world, and no one had such a grand plan as Chambers’. Cisco has invested several hundred millions of dollars to make India a second global headquarters.
Now, nearly five years on, questions are being asked internally on what exactly has come out of these investments.
The backdrop to this is the fact that growth has stalled and profits have fallen. Last year was one of the worst in Cisco’s history, forcing Chambers to initiate a complete rehaul, cutting back investment in or exiting at least a dozen categories. With Chambers committed to cutting a billion dollars in expenditure this year, there is now greater scrutiny on every dollar that the company is spending. There are other pressures too. Chinese players like Huawei who have the advantage of low-cost R&D, have given Cisco a run for its money in markets like India and have now set up beachheads in the US.
Over the last few weeks, Forbes India spoke with Cisco executives across various levels, analysts, partners and industry experts, to understand if the centre in Bangalore had created an impact on Cisco’s performance.
The short answer: Not yet.
GCE’s outcomes have been incremental. In other words, what looked like a great idea on paper has been a very difficult thing to execute on the ground.
Chambers and Elfrink have a different view. “When you make revolutionary changes, people often ask why? They often doubt [it] but it takes four, five or six years before you see results,” says Chambers. “It’s an entirely different company from five years ago. I had a three-year plan. Looking at my goals, I will say I have met them all,” says Elfrink.
To be fair, globalisation has been tough for other companies as well. Pankaj Ghemawat, professor of global strategy at IESE Business School, and author of Redefining Global Strategy, says, “Cisco is an early mover on something that quite a few large companies are now trying in different ways. While the details vary, what is common is some degree of dissatisfaction with how sales are being built up, or other functions being performed in such markets.” The reason for that, he says, is that “if you are a large company with a large business in the West, those units are controlled by people who are focussed on those markets”.
To make matters worse, just one year after the centre was inaugurated, the world economy suffered one of its worst recessions. Apart from globalisation, Chambers had opened up 30 other transitions, including a major push into consumer markets. The company was spread too thin. Chambers was under severe attack from analysts and shareholders and his attention was diverted in dousing fires at home. In April 2011, Chambers sent a memo to Cisco employees, admitting that the leadership had been slow in making decisions and that the company had slipped on operational execution. “We have lost some of the credibility that is foundational to Cisco’s success—and we must earn it back.”
(This story appears in the 11 May, 2012 issue of Forbes India. To visit our Archives, click here.)