BBD CEO Tour: Cisco

Surprisingly Cisco does not offer free wifi to all-comers at their executive sales center. To get on the guest wifi network one needs a ‘Cisco Sponsor’ and have to agree to not ‘create any liability for us or cause use to lose (in whole or in part) the services of our suppliers’, amongst a host of other clauses. The center itself is very impressive, but I get the feeling that visiting it comes with similar strings, and that it would be very difficult to leave without signing a multi-million dollar contract. In short these folks are aiming at the big end of the market, and  do so very very well. The room we were in was the best set up so far, with dual projection screens, large chairs and power at each table place.

We were here to hear about innovation at Cisco. Entertainingly speaker Stan Baginskis, the leader of their internal Innovation Group, used to work at both Intuitive Surgical and SurveyMonkey, our last two visits. He gave an superb presentation, hence the lengthy notes.

Cisco uses a variety of approaches, including acquisitions, incubating new technologies, partnering with others, designing and developing new products, spinning in (reabsorbing a spin out) and generating new business models.

Cisco’s Innovation Group superficially has a fairly standard approach to incubation – finding and filtering the best ideas, then initiating, accelerating and delivering the product. The difference is that the idea is not passed between teams, but kept within a separate development group until it has several hundred million in revenue. The teams are full time on each idea, generally 10 people in each. Overall they have a 50% success rate for getting to maturity and handing to the Cisco group, general five to seven years from idea. Cisco can of course more rapidly scale these efforts than a pure start-up, but that 5-7 years resonates with other evidence of how long it takes to develop a real business.

Cisco’s Telepresence business is a graduate from the group, while Smart Grid and Digital Security are current incubating companies. The Innovation team is well funded, but still has to go through an annual budget cycle to get money allocated. This can be a real problem for corporate innovation in general, but from the few words I heard it seems Cisco does it pretty well, and the team is protected from most corporate interference.

Three books touted by Stan were Clay Christensen’s Innovators Dilemma, James Surowiecki’ Wisdom of Crowds and an new one for me, Dealing with Darwin (2005) – by Geoffrey Moore, who also wrote Crossing the Chasm.

For new switches and routers that Cisco launches within the main group they can go global with immediate margin and revenue expectations. For new products and businesses from the Innovation they have a leaner approach, restricting the number of customers initially and learning as they go. They start pitching the idea to customers with a with a Powerpoint deck 18 months before launch, generally targeting 3 verticals, across selected geographies and looking at certain pain points. The do a road show with the development team to meet 10 customers in each vertical, bringing the business case to them and seeking feedback. This tends to narrow down to one vertical and one set of customers – say 5 or 6 charter accounts, who they build the solution with. The innovation teams get introductions to target customers through the existing sales force, looking for fit to the product and a very good relationship.

The first year after launch the focus in on expanding the first vertical, with 30 target accounts and an expected sell through rate of 50% with 5-8 referenceable sites. They don’t measure performance based on revenue in that first year, waiting for the next year and then waiting longer again for margins to be a concern.

Funding milestones are embedded in the process, but the first real milestone is not until the decision to launch the business. After that there are semi annual or annual reviews, where three year plans are presented and tracked. Continued non performance means attempts to change and then eventual deletion, though everything sold has the Cisco brand and so they seek an exit that makes sense for Cisco and customers.

Apparently Ed Roberts from MIT Sloan school says it’s twice as difficult to enter new markets than to deliver new technologies, and Stan says it’s even harder for Cisco who are technology led. Cisco do not see themselves as good at self-disruption, at changing the way they do business, and the Innovation Group prefers ideas that disrupt business models as well as technologies.

Stan put up a slide asking why large companies struggle with innovation, which is an excellent question. The answers were too much money, too much time, too many people, too much love, too much hate and black sheep.

Solving for these means, for Cisco, limiting the size of the team and budget, protecting them by running them in stealth mode* within Cisco, and having a very aggressive schedule. Too much hate means the presence of highly opinionated driven entrepreneurial types who would conflict with Cisco approaches, so they keep all the new and old incubating companies together. I’m not sure what the black sheep one was, but the answer, apparently, is to have the department only focus on innovation and get away from the Cisco margin and revenue pressures.

*They even keep the CEO out of the loop.

I would emphasize making sure that teams are full time, housed in a separate location and completely protected from corporate interference. This includes getting them off the standard big company systems and management practices.

Cisco ran a crowd sourcing idea generation iPrize process, soliciting ideas with a $250k prize. This delivered the smart grid idea, which is in incubation.

Cisco’s criteria for evaluating those and other ideas are

1: Opportunity for disruption
2: Adjacency to corporate priorities
3: Ability to have enduring differentiation
4: Ability to capture significant value
5: A plausible route to market.

Which are a solid set of standard criteria. Stan sees that a target market needs to be worth at least $3 billion for them to be interested, so that Cisco’s share (they assume there will be decent competitors) will exceed $1 billion. This size of the opportunity knocks out most ideas. His team is full of people with very broad experiences – combining tech experience and education with MBA and business experience. Sounds familiar.

Market trends. 

Stan sees that the mobile phone is still hugely more important globally than smart phones and computers. That describes a huge opportunity for change.

Cisco sees an approaching wave of market inflections, but the innovation team is not that interested in the relatively short term. The next wave, hitting 5 years out, is more interesting for them, and they see it including sensor networks, education, augmented reality, healthcare and BYO device into the enterprise.  After that wave (beyond 5 years) they see media metrics insights, networked transportation, next generation manufacturing, robotics/AI and rich media access.

Their overall approach to hiring is to find passionate people who like to think big and look for the large disruptions, but who can solve the small pain points first. They want people who are unafraid to drive to be leaders in the market, evolving and iterating quickly.

Learnings

1: Separate your new business team (innovation group) from your new product in existing businesses teams. Give them the space, budget and time to create and grow their businesses.

2: Provide access to your major resources, but don’t impose your own systems, management processes and overhead on the group. Let them choose what they will adopt, and what they will do themselves.

3: Review progress of the innovation team slowly, allowing the team to rapidly develop outside of the standard business planning processes.

About Lance Wiggs

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