Cisco’s reorg: Reduce, re-align and reap the benefits?

John Chambers, Cisco CEO
John Chambers, Cisco CEO

Cisco CEO John Chambers

Cisco surprised Wall Street analysts today with better-than-expected revenues and earnings, after announcing a massive restructuring plan that the company announced earlier this year. On the company’s fiscal fourth quarter earnings call, Cisco gave an update on that plan, which was put into place after the company saw a significant slowdown.

The good news is that, at least for now the plan seems to be working. Cisco’s fourth quarter earnings of 40 cents a share were better than the 38 cents a share that Wall Street was expecting, and revenue of $11.2 billion was above analyst estimates of $10.9 billion.

According to Cisco COO Gary Moore, the company has simplified the company’s organization in an effort to make swifter decisions. That plan includes a reduction of 6500 employees, the sale of its Juarez, Mexico set-top box factory and a broad realignment in its sales and engineering teams.

Moore said Cisco has re-aligned approximately 23,000 employees within the company, including about 4400 employees in the sales organization. Cisco is aligning that team along regional lines, ensuring that 90 percent of the sales force are managed by regional sales leads, compared to about 70 percent before the quarter. By doing so, Cisco will improve the time it takes to close sales and recognize bookings.

The simplification of the organizational structure should also help accelerate technology innovation. In addition to on the engineering side, the company reduced the number of product leads from seven down to two co-leads. It’s also simplifying its technology groups, for instance, combining its routing and switching infrastructure teams into one group, as well as putting together its businesses that work on unified communications and telepresence.

Cisco is also working to reduce bottlenecks in the organizational structure by reducing headcount in the management team. According to Moore, it lowered the number of “VP and above personnel” by about 17 percent. All in all, Cisco hopes the new organizational structure will help make it more nimble and better able to compete in a rapidly changing market.

While early results have been positive, Cisco warned that the hard work might still be ahead. Due to a good deal of market volatility, Cisco declined to provide forecasts beyond the next quarter. With first-quarter revenue guidance of 1-4 percent over the previous fiscal first quarter, Cisco CFO Frank Calderoni also urged analysts to model conservatively over the next several quarters.

Despite the structural pain that Cisco hs seen over the past few quarters, the company believes that with the reorg largely behind it, the company will be better positioned to face competitors, particularly as it believes that they too will soon have to deal with the same issues that it faced earlier this year.

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