Staying Ahead of Disruptive Change

Disruption.

It’s the word of the moment in Silicon Valley technology circles. Companies like Uber and Airbnb are securing millions in funding by disrupting existing old fashioned industries like taxis and hotels. In this environment, Uber now has a valuation of $50 billion and Airbnb $22 billion, ranking it just behind Marriott Hotels.

This development might seem like a unique moment in history but Uber and Airbnb are just the latest manifestations of a long-standing tradition. As chronicled in Clayton Christensen’s “The Innovator’s Dilemma”, old industry stalwarts being eaten up from below by cheaper, more technically sophisticated upstarts, is a centuries-old tradition in business.

It’s a tradition former Cisco CEO John Chambers knows all too well. Over the course of his career, he saw several iconic tech companies disappear - Wang, Digital Equipment, Sun Microsystems - as they failed to anticipate where the market was heading. How did he avoid this fate and grow Cisco from $70 million annual revenues in 1995 to $46 billion in 2015 when he left?

Disrupt Yourself

The list of market changes are long in tech, including the development of cloud computing, mobility, and the internet of “things.” As he recounts in his interview in the Harvard Business Review, Chambers kept Cisco ahead of changes by “making tough decisions and immersing ourselves in a process of disrupting the market and, at times, ourselves.” That often meant re-interpreting disruptions as threats and thinking of them as opportunities.

Chambers’ big learning moment came during his time at Wang Laboratories, where he worked with Dr. An Wang, the company’s founder and, according to him, “the most brilliant man” he ever met. It was there that Chambers witnessed the fall of Wang after the company failed to anticipate the shift from microcomputers to PCs. The experience was painful as he oversaw five rounds of layoffs in 18 months, but he learned companies need “the courage to disrupt themselves.”

Wizened by the experience, Chambers made a habit of detecting market shifts through close observation and regular communication with customers. When notable Cisco customers Ford and Boeing both talked about a transition to a networking protocol called Fast Ethernet, Chambers moved quickly to acquire a company, Crescendo Communications, that was a leader in the field. Likewise when customers appeared to be moving towards more wireless communication, Cisco acquired Meraki, a maker of Wi-Fi networking gear.

Three Methods to Adapt

1. R & D - Chambers used three different methods to adapt to shifting markets. One was using the traditional R&D route, spending close to 15% of revenue on developing new products. Part of that was through an Entrepreneurs in Residence program with all the necessary financing, guidance, and collaboration opportunities.

2. The Right Leadership - The second method was to acquire leaders in the emerging field. Chambers never shied away from this approach – acquiring 174 companies in his 20 year reign. While there were some failures along the way, like Flip Video, the majority of the acquisitions were successful.

3. Smaller Can Be Better - The third method for adaptation was called a “spin-in” – basically a group of engineers and developers working on a specific project in an off-site location. These spin-ins featured a startup-like culture, free from the corporate bureaucracy of Cisco, with financial rewards based on success of the project.

By always keeping his ears to the ground to pick up the latest changes, Chambers grew Cisco from small tech firm into a Fortune 500 colossus. The lessons from his experience are many and include the value of listening to suggestions from employees and customers alike and rewarding innovative thinking.

So, don’t get bogged down by the threat of innovation. Innovation will never stop, but that doesn’t mean it has to be negative. Turn a potential threat into an opportunity and let the wave of innovation work in your favor by keeping your ear to the ground, and gaining insights from your team.

And if your team is ready to start harnessing those insights, or looking for a new way to be innovative, then it’s time to call Vocoli at 888.919.5300.