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Lessons from the chair: the chairman of Cisco Systems' board talks about acquisitions, the company's culture and the coming revolution in education

As chairman of Cisco Systems--which just celebrated its 20th anniversary--71-year-old John Morgridge gives 50 speeches a year and still finds time to teach at Stanford University's school of business.

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A former CEO of the company, he was recently in Toronto to announce a long-term charitable alliance with Big Brothers and Big Sisters of Canada and Boys and Girls Clubs of Canada. During that stop he held a question and answer session with the IT trade press and analysts.

CDN: How much of a threat or concern is offshoring?

John Morgridge: About one-third of our employees are outside of the U.S.... You have to accept the fact that it's now a global economy and some share of your employees are going to be outside your country of origin. That's why Toyota has 190,000 offshore employees in the United States, building cars for the U.S. market ...

If a country invests in its human capital in the next several decades, that's going to be a major determining factor in where people create and build products. If we're going to be competitive, we'd best invest in our people and make sure they're qualified to keep the jobs and keep us competitive.

CDN: What was it like for Cisco at the beginning?

J.M.: Good startups always start with a good engineering team, at least in the high-tech world. To a large degree they set some of the early culture. At Cisco the culture was very meritorious, in terms of how people were judged--sometimes, I would say, almost to a fault. There was a lot of introspection on our faults. It was a fairly contentious era, early on. [But] the thing that we did was stay very focused on the space ...

About the time we reached a half billion in sales we looked at the kind of company we wanted to be, the kind of culture we wanted to have. We found that at least for some period of time crazy cultures can work ... we decided what kind of culture we wanted to work in, rather than what kind of culture worked. The engineering staff, for example, were very strong believers in Internet protocols, and they were right. But the world wasn't willing to accept that. So we did all kinds of crazy protocols and used that as a selling piece against our competitors.

CDN: Do you feel Cisco would be as successful as it is now had it not been for Nortel's recent problems?

J.M.: In the history of Cisco we've probably had four or five waves of competitors, and I don't know that any particular event in and of itself enabled our success. It's just a continual focus on improvement, not just in engineering but every segment of our business. You can't ignore manufacturing, you can't ignore finance, you can't ignore HR, you can't ignore sales. Companies that fail usually have some strengths but they've failed to demand and cause the same level of capability across the whole business.

CDN: Cisco makes a lot of acquisitions. It seems like a hive of activity. Looking back, is there anything you would have done differently?

J.M.: We had a discussion [after failing to make a deal] and our sales manager at the time said, 'Look, John, you don't have to buy that company. We can hire their best people, we'll take every one of their customers and we'll hire their best engineers.' And you know what? He was right. The only difference was it took about two years. If we had bought that company, we would instantaneously have had all of that.

We're no better at acquisitions than a good venture capital company. We have a lot of failures. You don't hear about them.

CDN: What was the thinking behind the acquisition last year of [home routing company] Linksys?

J.M.: We wanted to be in that space. It was big market, a market we were only touching. It was a totally foreign model to our basic model, and a model that may be attractive in the future as our competitors change ... They spend less than one per cent on R & D, we spend 15 per cent. It's been a real learning experience for us ...

It may change our business model going forward. I could see some additional models like that where it's a more distant relationship [from the parent].

CDN: You teach business management.

J.M.: Actually, I teach entrepreneur-ship. It's a capstone course that talks about all the functional areas within an activity. The beauty of the functional business model is that it is by far the best model for small to medium sized companies--six of us sit around a table every Monday morning and we decide the functions. That works until you get to x number of dollars or employees, and then the question is what model? And there is no standard model.

If you look at our company we've gone through several models.

CDN: What role do you think companies like Cisco have in public education?

J.M.: I think we are going to have a revolution in education. I doubt it'll take place in the United States, I kind of doubt it'll take place in Canada, although it might. Because one of the things about technology is the real leverage in it is the mass. You don't do it school by school. You do it by school district or by county. As long as we have local choice and local control, it's going to be difficult to get the funding mass to put a [new] program in place. So I think it'll happen overseas first.