Chambers: I am at the altar waiting for Nortel

John Chambers, the CEO of networking giant Cisco Systems, has publicly sent an olive branch to rival Nortel Networks.

Chambers met with along with other international press at the now-concluded Partner Summit in Vancouver.

During this session Chambers discussed three major transitional themes the company wants to bring across international markets. The first is the concept of intelligence moving the network where users will be unable to distinguish whether the intelligence is on a PC or any other device. The second theme is data transport — routing, switching and content is blurring. Finally, he said, the network is allowing the business process architecture changes that will allow for huge customer productivity gains.

But it was Chambers’ seriousness about a potential partnership with Nortel that he spent most of his time on. Chambers did not go into any detail about why he wants partner with Nortel, except to say that current IT partnerships are based on mutual selling of each others’ product, or that one company is in trouble. He believes that partnering is the way of the future, however. “Acquisitions have a more than 90 per cent failure rate and partnerships is higher than that,” he said. But, he has made partnering part of Cisco’s overall strategy. The company built a process during the nineties where they spent more than US$20 billion on acquisitions.

He added a Cisco/Nortel partnership could in the services route environment possibly produce more revenue together than apart. Chambers also said he has a great admiration for Nortel engineers. “Nortel has to make a strategic decision and it has to be a leap of faith,” he said.

Chambers, who is in his 15-year at Cisco, also discussed his personal mission with straightening out the healthcare industry around the world. Are you still trying to form a partnership with Nortel and if so are they any more receptive now? 

John Chambers: May I take a step back? We are in Canada and we are really proud to be here. Also, Canada has provide a lot of my best leaders. Rob Lloyd, the head of Europe, is Canadian. James Richardson, the head of marketing, is Canadian. Gordon Astles, the head of Asia Pacific, is Canadian. Nortel is very important to this country and it is key that Nortel do well. I have always viewed Nortel as both a competitor and potential partner. I am very upfront here: I would rather partner. I think it is in the best interest of our joint customers to partner as we move forward. I have a great deal of respect for Bill Owens and Gary Beshner, both whom I know and who are very good people. I have always been open to a partnership. I do not know how to do large combinations, so therefore I will not do them. There has never been a high-tech large combination that has ever worked well. And, you do not have to do these differently because there is no reason to follow through and work harder and smarter on this. Many other people have tried. I would like to partner with Nortel. There have not been any substantive discussions on that. Let me be very open: I am at the altar waiting to partner and if they liked to I would be honoured.

ITB: We do not want to hammer you about Nortel.

JC: But, it isn’t hammering. It is all about how the industry evolves. Who are the survivors? Who is going to grow? Who is going to make profits? Who is going to create jobs?  And, will the philosophy be to go it alone or acquiring or partnering? What will work best is fascinating to me. So I enjoy this.

ITB: Late last year we interviewed Bill Owens, the new CEO of Nortel and he said respected Cisco’s partner profitability strategy and added he was open to all sorts of partnerships. Having said all that why is he leaving your at the altar?

JC: I can’t comment on a specific company. But, let me talk philosophically. Most strategic partnerships are developed when companies are in trouble. That is the wrong time. I partner in periods of strength. I believe in partnerships that are large to large, and acquisitions that are large to small. Secondly, when a culture has been really successful in general it is hard for a company to change direction. This is why I have always listen to my customers and do what my customers said. My customers have said, “Pay attention, I will buy more through channels than I will direct.” So I moved to channels. Customers said, “We would like you to get closer to systems integrators and with that you’ll get more sales,” and so that is what I do. That is our philosophy. We are customer-driven. There were these painful experiences with companies that were very successful — IBM and Wang – (where I was) watching when you did not listen to customer and catch marketing trends. It isn’t just your customers who suffered but your employees and your shareholders too. So we have a philosophy of changing before the market forces you to. By the time it becomes obvious to everyone what you have to do, it is already too late.

Unfortunately, I do believe this industry will have brutal consolidation, and it will be more musical chairs than large combinations. Some might work well but the breakage is huge in the process. It also has to do with culture and attitude. We realize we can be left behind. There is an attitude in Silicon Valley and that is only the paranoid survive. We know we can be left behind. We know that how well we do over the next five to 10 years will determine if we are the leader 10 years from now or one of those companies you talk in the past tense. Unless you have that philosophy and we have that down to the individual support person, admin person, secretary and sales person. It is hard to have a company that really adjusts to change and drives it through. We are a company that prides itself on change and moving fast. This might surprise you, (but) every mistake I have made in my career is because I have moved too slowly. So even if people say I move too fast I can argue that in reverse. Most of the times it was because I did not see a trend coming quickly enough and did not move on it. That would be an indirect way of talking about partnership and why they ought to occur. Some companies lead with them and some companies do it as an after thought when they are in trouble. And, some companies do not believe in it. 

ITB: Over the years you have always spoken about health-care in your keynote address. Yesterday, in your keynote, you went into great length about it and in great detail. Is the health-care market a personal issue for you? 

JC: The health-care market is a personal issue for me. Both my parents were doctors and I thought for a long time I would be a doctor. It is challenging when both your parents are successful. My dad literally combined hospitals and universities. My mom was in internal medicine and psychiatry. So no matter what happened to me I got no sympathy — they just fixed me. My brother in law is a CEO of a hospital chain down in North Carolina. My other brother in law is a CEO of a pharmaceutical company. My sister is a master nurse. So it is an industry I am very familiar with. But the reason it changed is health-care costs are spiraling out of control and I know technology can change that dramatically. But, it requires a process change. It was an area where we were evangelists before. We wanted people to think about it. Now it is the reverse. People want to know how you will implement it.

The reason why I went into so much depth is that I will never ask my partners to do something that I am not willing to do myself. So I am asking them to move to solution sells. The last thing I want to do was to go up there and tell them to do this. I’ve got to do it myself. So I wanted to lead by example and use my level of knowledge on the area I am asking them to go after. Health care is one example of that. In the U.S., health care is a US$1.8 trillion challenge, and it is escalating five times the inflation rate. Japan has the same issues. Europe has the same issues. We need to be able to say, “Here is what you can do about it. Here is the reason why it wasn’t solved in the past. Here is why we think the time is right and be able to take technology such as wireless and security and say it can be solved. And, here is how you do it.” So it was an example of where we see the market going. Health care is one of the fastest growing verticals for us and also for our partners. I wanted to share what I was doing differently. Not just selling routers, switches and transport and being able to talk about the solution sell and why I thought it would help us sell more, not less, over the long run. 

–With files from Greg Meckbach

Comment: [email protected]

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