Cisco has been called the backbone of the Internet for so long it feels like a trademarked slogan. But while much of its $49 billion in annual revenue still comes from its core business of switches and routers, the company has been busy in recent years finding new areas of business such as teleconferencing and cloud computing.
Staying relevant in a fast-evolving and hyper-competitive technology industry is tough for a company with $120 billion in market value and three decades of history (Cisco will turn 30 in December). As Cisco’s chief technology and strategy officer, Padmasree Warrior is tasked with helping to keep the networking company focused on new innovations.
In a recent interview with PandoDaily, Warrior discussed trends that will be driving tech innovation in coming years and how Cisco is responding to those trends. Her comments ranged from the coming marriage of engineering and design to how Cisco integrates its acquired startups, and from Cisco’s plans to expand into cloud services to lessons startups can learn from big companies (and vice versa).
How are you approaching innovation at Cisco?
Technology is changing at an amazing pace right now. Today, we have about 10 billion connected devices. We expect that number to go to about 50 billion devices by 2020. That in itself says connectivity is going to be rampant. At the same time, we know that there will be 77 billion applications that will be downloaded just in 2014. All of that suggests that the Internet is about to go through a major transformation. We think there’s an opportunity in being able to connect people, process, things and data. We call that the Internet of everything.
If you think about what this requires, innovation itself has to change. I think about it as a multi-domain innovation… Innovation itself is moving to become an intersection of multiple domains, so it’s not just a matter of having great engineering. It’s a question of, how do you combine that with industrial design? It’s interesting that Google, a search engine, is now partnering with Ray-Ban and Oakley on Google Glass. What an odd marriage in some respects. But in other respects it makes sense because you’re combining strengths from two different companies. It’s multiple domains coming together.
I use a toy analogy. If you’re a toymaker, you’re selling it to the parent as well as the children. It has to be safe and secure so the parent went to buy it, and the child would have to like it too. We have a portfolio of things in the collaboration space. Cisco has to sell to the CIO, but people in the organization have to like it. So we have to make sure that collaborative solution meets the stringent requirements for security and service level of the environment. But at the same time people will have to like those solutions. So design comes in in that as we’re refreshing our entire collaboration portfolio and taking that collaboration solution to the mobile and cloud space.
There is another area where it comes into play: How do you take a network and make it programmable? Most people, when they think of the network, they don’t want to think about it. They just want it to work. At the same time, all of these new applications – like Office 365 and Oracle database and Box and Evernote – have to run on the network. So we have to make sure the network can be programmable. And that is another kind of innovation that requires an easy way to do that. We don’t want people to need to understand network protocols to do that. We want anybody who is writing an application to take advantage of the network. This area is different from user experience or industrial design but it’s also design. It’s about the usability of these APIs that we create.
Aside from multi-domain innovation, what other kinds of innovation are you focusing on?
Today, the barriers to innovate today are much lower. So companies really have to figure out how to buy innovation in a way that lets it foster inside the company. Cisco is a very acquisitive company. Since 1993, we’ve acquired over 160 companies. We recently acquired two great companies, one in San Francisco called Meraki and another one on the East Coast called Sourcefire. When we acquire companies, we have to ask ourselves: How do we let them continue to innovate and not get stifled by the scale? That’s one area.
Another area is very unique to Cisco. We do something called spin-ins. We let our best engineers create a company that actually will commoditize our business. And we reward them for doing that. If they meet certain’s milestones, we acquire them back. It’s a captive startup that we’ve done a few times. We recently did a spin-in for [software-defined networking].
Startups often suffocate inside a big company after an acquisition. How do you make sure that doesn’t happen at Cisco?
I think this is something we’ve perfected over the years. I have to credit people who’ve been at Cisco longer than I have. We realize that acquisitions are not one size fits all. What works in one acquisition you cannot take and apply to other acquisitions. We look at them and see buckets based on their size. One bucket is for smaller acquisitions, which might be tech and talent acquisitions. We identify the key talent and making sure that we are retaining them five years later.
Then we have a category of mid-sized acquisitions. These tend to be trickier because if you leave them separate too long they don’t get the benefit of the scale you have to offer. If you integrate them to quickly, they get sabotaged in the larger bureaucracy of the larger company. In those cases we pay a lot of attention and apply metrics like revenue growth, more numerical and quantifiable metrics.
The third are what we call platform acquisitions, which allow us to enter a new product category or a new market. They have a brand. They have a sales force… The metrics we look at are not just for growth in the standalone company but are they pulling through, as we call it. We look at pull through, the brand recognition and things of that nature in addition to other things like retention.
What does innovation mean differently to a startup than it does to a large company like Cisco?
To me, the startup culture environment is really about just getting the product built. So you break down all the barriers and people are just focused on getting the prototype, and then the proof of concept, and then the product. In a large company, you think about innovation plus you have to worry about, how am I going to sell this to thousands of customers? How do the requirements in an emerging market like Mexico vary from a customer in the US? It’s about reliability, it’s not just about that one solution. And Cisco has to not just bring the solution, it has to fit in with the rest of our portfolio.
I think sometimes we have to be careful. We don’t want to overwhelm the startup. There’s a certain playbook we run when we acquire a company. We go through a checklist and sometimes that really frustrates the startup. And we have to be careful we don’t do that in a robotic way. To remember that there are people involved and the relationships that they have matter. So we’re being more thoughtful about that.
A frustration from a bigger company’s perspective may be, for example, a sales team saying, why can’t we sell this everywhere? And you have to let them know the solution has to be matured. So there’s a impatience on the big company side when you acquire a small company. These things are where it’s important to be thoughtful about integrating the company. That makes a huge difference.
You mentioned Box.com earlier. And I saw that you are joining the board of the company, and it made me wonder what is it that Cisco can learn from smart startups, and what is it that Cisco can teach those companies?
The thing that we can learn from companies like Box, as well as Meraki and Sourcefire, is how they innovate and how they grow with a solution very quickly, the pace at which they can create new products and the velocity at which they can enable new features. With 10 engineers you can do amazing things. Somehow in big companies you get into the habit of wanting to put a lot more engineers to solve a particular problem. How do you do amazing things with the smaller group? I think that’s a big, big lesson for most big companies.
What we can teach them is how to scale. What are some of the things that you should watch out for when you’re scaling? Things like reliability. If you make a false step or hit a barrier, it can be hard for the customer. One of the things that we do very well at Cisco is we have very tight relationships with our customers. We put a lot of effort talking with customers. Smaller companies are growing at such a tremendous pace, and they’re hiring a lot of people, but how do they develop that talent internally? That’s another area where I feel large companies can add a lot of value to younger companies.
This question comes up over and over again with startups. From your perspective, was the hardest thing for a startup executive to learn about scaling their company?
I think it’s just staying focused. The temptation is strong when you’re a young company and see a lot of opportunities and you want to go in all these different directions. Like I said, one false step can move you backward. As a bigger company, we think a lot about what areas we want to move into. Because once you commit you have to go all the way. It’s okay to branch into two or three things, but it’s really important to prioritize and stay focused.
The other thing is growing multiple functions at the same time. When you’re young startup you need a strong technical team. When you’re scaling you have to make sure that the website can take whatever you bring to market. You have to scale the adoption of customers and the sales force. Marketing has to scale, and support has to scale. All all of these different functions have to scale. Oftentimes startups underestimate that. All of these things are the traditionally unglamorous things that a startup has to do but that a big company is very good at doing.
Cisco recently said it’s spending $1 billion to enter the cloud services market. Amazon has been doing this since 2006, while Google getting more competitive on price. What can a company do to get in there at this point and be competitive?
I really believe that at the broader level all IT is going to be delivered as a service, which means that applications have to be moved to the cloud and delivered in a different way. And this is where SAAS comes in. Microsoft Azure is an example of that. They’re an important partner with Cisco, and so is Amazon. If you think not just of infrastructure as a service but IT as a service there’s still a huge opportunity. Were just beginning to do that. There is a huge runway ahead.
How do we enable these value-added applications to be delivered seamlessly across multiple cloud providers? Most companies are worried about losing control… Although we come a long way and give a lot of credit to Amazon for its achievements, there’s still a long way to go before transforming all of our IT services to be delivered by the cloud.
Who is the primary customer for your cloud service, and what kinds of needs will it serve?
Take any vertical retail vertical, for example. All of these business processes, CRM processes and other processes have to be connected. They’re going to have sensors embedded in their wireless access points in their stores. All of that information has to be analyzed so that they can make real-time business decisions faster. It all has to be delivered from the cloud.
That’s just one example. Oil and gas is another example. Those companies have a lot of sensors in their oil fields. All of the data goes back to their servers, and so there’s often a delay. We think we can provide them with real-time decision-making from the cloud.
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