In 2001, as the dot.com boom turned to bust, CEO John Chambers of Cisco saw a massive $460 billion of Cisco’s overall stock market value evaporate before his eyes. Game over? Not really. At that moment, Chambers started a reinvention of the company — from a “cowboy” mentality where people worked in silos to a collaborative approach. It has paid off so far. Revenues are up 90% since 2002, while profit margins are up to 20.8% from 16.3%. And Chambers earned the #4 spot on our best-performing CEO ranking, published last month by Harvard Business Review. Not bad.
Chambers created the following 5 pillars to drive collaboration, an approach we can all learn from. These amount to what I call disciplined collaboration in my book Collaboration: focus on business value, tear down barriers, and create a new organization architecture. (Full disclosure: last autumn I met with the top 50 leadership team at Cisco to discuss collaboration; the information here is all from public sources, however).
1. Change leadership style. It started with Chambers himself. You can’t create collaboration if you’re an excessively command-and-control leader. By his own admission, Chambers used to be just that. But as he told the Financial Times, “The hardest thing you do as a leader is to change something that is working well. And yet I believe that companies and leaders who do not change will get left behind. And so I had to move from a command-and-control leader (to collaborative).” Collaborative leadership means “letting go” by involving others in decision making, listening to ideas, finding common ground, and striking compromises.
2. Change incentives. Steve Kerr, former chief learning officer at General Electric, once wrote a famous article called, “On the folly of rewarding A, while hoping for B.” In this case, that would be “rewarding individual work, while hoping for collaboration.” That doesn’t work. Early on, John Chambers told his senior team that he would start measuring them on how well they collaborated. As a result, some 15% of the top management team left — those who did not like the new approach or could not do it. You may think it is bad to lose that talent. I think it is good; the key is not to have just any talent, but the right kind of talent.
3. Change the structure. If your “org chart” makes you work in silos, then that’s what you get — silos. At Cisco, people worked in independent business units prior to 2001. Chambers changed all that. He broke it into a functional organization (development, marketing, sales, manufacturing etc.). But a functional structure can be just as siloed. Chambers thus layered on top of that boards and councils. They are essentially cross-functional groups consisting of 10-15 managers who join a group to pursue a $1-billion-plus (board) or a $10-billion-plus (council) opportunity. Each group pursues a new market opportunity, such as collaboration software, connected homes, mobility. By now, these groups are pursuing a staggering 30 new business opportunities.
4. Change how you work. To make sure collaboration in these groups didn’t become unwieldy, Chambers and his team invented a process. It’s called Vision-Strategy-Execution. First, develop a vision: what does success look like in three years? Then develop a differentiated strategy: how can we win in this market? Then move to execution: who needs to do what over the next 12 to 18 months? Work turns less collaborative as it moves to execution and specific functions (manufacturing, for instance). This process has a huge benefit: a common language. That clarifies and speeds up work. People can concentrate on the creative part of work, not how to work. Process provides a script.
5. Use new social media tools. In many companies, people sit in different buildings, locations, and countries. Work is spread out geographically these days. For Cisco, with its 60,000 employees, that can be a nightmare when collaborating. To solve this, Cisco uses its own high-definition video conferencing system about 4,000 times a week. They also use a host of other enterprise 2.0 technologies. Now people often meet virtually — that’s faster and cheaper.
The biggest benefit of this approach is that Cisco can pursue many new opportunities. It’s also flexible because the right people can quickly be put on a board. Executive Keith Goodwin explains how they rapidly moved into the small business segment:
“In the spring of ’08 we recognized we could tap a $10 billion opportunity by better serving organizations with fewer than 100 employees. In less than two quarters, the Council was formed and shifted $ 100 million budget and some 500 engineering, marketing, sales and services headcount to focus on that market.”
There are clearly risks to this 5-pillar collaboration approach, as some commentators have noted . I see two risks in particular. One is that managers get overloaded. As one executive explained; “I am on a litany of them — three councils, maybe six boards.” The other risk is over-collaboration: too many boards, until one day it tips over into chaos. Obviously, Chambers need to manage this diligently. The story is still unfolding, so we can’t yet declare final success. But it’s a fascinating organizational story to watch.
Morten T. Hansen is author of Collaboration: How Leaders Avoid the Traps, Create Unity, and Reap Big Results and is a management professor at University of California, School of Information, and at INSEAD, France.