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 / Spring 2011 / Issue 62(originally published by Booz & Company)


Cisco’s Virtual Management Lab

The management and engineers at Cisco recognized that disruptive breakthroughs required different people, processes, and incentives for motivating employees. For example, we created a new team called the Emerging Technologies Business Group (ETBG). Its primary mission is to pursue new ideas that could grow into $1 billion market opportunities within seven years of being launched.

Because of the amount of effort required to take an idea from zero to $1 billion, the ETBG was given a unique charter within the company’s primary product-development division. We set it up as an incubation center for translating innovative ideas into business opportunities, not as a smaller R&D unit judged by its patents or scientific breakthroughs. Despite its small size in comparison to the rest of the Cisco Development Organization, the ETBG is responsible for some of the company’s highest-profile engineering projects. This includes Cisco TelePresence, a video collaboration system that provides an experience so real that participants have been known to offer a handshake at the end of a meeting, momentarily forgetting the virtual environment.

The creation of the ETBG required a major cultural shift at Cisco. The composition of the team, the way its performance was evaluated, and even the processes the team used to develop products were distinct from the rest of the company. For example, the development of Cisco TelePresence began with cardboard boxes and foam blocks, not digital cameras, computers, and high-definition screens. The ETBG considered aspects never before incorporated into Cisco technology, including furniture and paint color for the walls in TelePresence rooms. If the creators had not thought through these design-oriented “softer” aspects, the TelePresence value proposition — the ability to conduct a virtual meeting with multiple people located in different places around the globe as though they were all assembled in the same room — would have been lost.

Cisco does not sell nascent ETBG products to every customer. Customers must be prequalified on the basis of their understanding of the limitations of early-stage products. That’s because we recognize that these products won’t have all the features needed to satisfy all customers. Rather than selling to tire kickers, Cisco looks for what it calls lighthouse accounts — customers whose experience will provide guidance to others.

ETBG-related sales increased nearly ninefold between 2007 and 2009, despite the recession. Three of the team’s products are already in the market today and achieving significant success, at least judging from early sales. In keeping with the goal, each represents a $1 billion-plus opportunity within seven years. Four more are staffed and in the early stages of incubation (we are gathering customer feedback, refining the market focus, and developing the appropriate solutions). Only one has been terminated. Not a bad track record.

New Math for Sales Partners

At Cisco, one of our most difficult challenges was to transform the way we engaged with our third-party sales channel — the thousands of partner organizations that sell our products and services. In the late 1990s, Cisco bought a company called Selsius Systems Inc., which produced phone systems that worked over the Internet for a fraction of the cost of traditional landline technology. Eager to extend our reach in the telecommunications market, we paid $145 million for the Dallas-based maker of voice over Internet protocol (VoIP) phones.

But there was a problem. Cisco lacked a channel for going to market with voice communications equipment. For a company that generates more than 80 percent of its revenue through partner organizations, this was a major concern. Market share growth seemed like a tenuous proposition at best.

Undaunted, we did our best to use marketing and advertising to convince customers to try our products. Within a year of having launched our own reliable product with business-critical features, we found our VoIP sales beginning to grow. Revenues totaled approximately $100 million per quarter by late 2002. But then they plateaued. After engaging early adopters and tech-savvy enthusiasts, we found no mass market of follow-up buyers waiting in the wings. The company had single-digit market share and was stuck in the number six position among vendors.

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