CENTRE of GRAVITY

CENTRE of GRAVITY
A dusty suburb of Bangalore could have a bigger impact on Cisco’s future than its headquarters in San Jose, says Mitu Jayashankar
The Economic Times

Wim Elfrink’s calendar is choc-a-bloc with customer visits. Last week Efrink, Chief Globalisation Officer, played host to the technology team of Goldman Sachs, an important Cisco customer. Some weeks before that folks from IBM and ANZ stopped by to check out the latest wares that Cisco has to offer. The Globalisation Center East, inaugurated by CEO John Chambers in November 2007, attracts customers, partners and Cisco employees from around the world. Elfrink’s office says that at least a 100 customers and 20 VPs from Cisco have visited the new Cisco Campus in the last two months alone. “If you are in the Cisco top management and you haven’t been here that is not a good sign,” says Elfrink, emphasising just how important Bangalore is for Cisco.
Ever since the 55-year old Elfrink, along with his wife Kate and two children, moved from San Jose to Bangalore eighteen months ago, there has been intense speculation and interest in Cisco’s Bangalore operations. One of Cisco’s five executive VPs, the 55-year old Elfrink, runs a successful $7.5 billion services business and is a key member of CEO John Chambers’ leadership team. There has been speculation in the international press that he could one day go on to succeed Chambers at Cisco.
Elfrink isn’t here alone, accompanying him are 16 senior executives from the US and Europe who run global functions like HR, finance, manufacturing and alliances. Carefully handpicked this team is a mix of Indian-Americans, Italians, Dutch and other nationalities. Some like Leopoldo Carrillo Scrivner, VP, HR rejected plum posting in a place like London to be here. Others like Pascal Turchi, senior director; strategic alliances have moved three small children from an expensive school in Paris to an international school in Bangalore. Quite a few have even left college-going kids in the US to be here.
What are these senior executives doing in a country that contributes less than 3% to Cisco’s revenues? Why is Cisco so bullish about Bangalore?
That India and other emerging markets are the next frontier of growth for global technology companies such as IBM, Microsoft and Cisco is a well-known fact. So when in October 2005 John Chambers announced an investment of $1.1 billion in India it was treated as business as usual. Cisco’s India subsidiary, now worth $1 billion in revenue, has been growing at 30% annually. But for Cisco this globalisation center is much more than growing the India business. It’s an experiment, which could change not just the way Cisco works and looks but also pave the way for other multinational companies eager to make a mark in the East (see box).
If Cisco gets it right it will create a new corporate entity, the likes of which have never been seen before. It will create an organisation with not just one but multiple nodes of innovation, leadership and influence. “In networking lingo it means a shift from a client server model to a peerto-peer structure. That has an exponential impact on productivity,” says Jonathan Ballon, VP strategy and planning, adding that in time Cisco will open such centres in other parts of the world including China.
Elfrink calls Bangalore Cisco’s second headquarters, which will give Cisco a foothold in the emerging markets from where the company hopes to get 30-45% of its future growth. Emerging markets, a cluster of 129 countries ranging from Dubai to Kenya, contributes 10% of Cisco’s $34.9 billion turnover. “This year you will see products and services coming out of this center, which will have material impact on Cisco’s revenues,” says Elfrink. But to do that Chambers has to first re-organise the company and change its corporate culture. In November 2007 he told ET that Cisco was shifting from a San Jose driven command and control structure to a collaborative body. To do something as drastic as that, Chambers needs someone like Elfrink who understands how Cisco’s insides work and has the authority to change that.
Collaboration is a business imperative. As Cisco moves from selling boxes and routers to more application and solution led selling, it finds itself in a completely new territory. While selling boxes is transactional, solution selling is relationship oriented. Key customers like telecom companies are demanding that their equipment suppliers now also learn to run and operate their networks. The Middle East countries, flush with funds thanks to rising oil prices are building hi-tech mega cities with billions of dollars in investment. Cisco sees an opportunity to sell the network as the fourth utility in these cities.
On January 20, 2008 Cisco CEO John Chambers signed a deal with the Saudi Arabia government to build a high-tech smart city which will need an investment of $8 billion. Cisco will provide the network architecture for the city which will have interconnected buildings managed over a secure network with centrally controlled data, voice, video and mobile communications. Cisco says that there are at least 9-12 such smart city deals in the pipeline. “Bangalore to Dubai is a three hour flight, it makes it a whole lot easier to support engagements from here,” says Scrivner.
To fulfil this demand Cisco is leveraging its partner’s skills and manpower ability. In October last year Cisco signed key strategic partnerships with Wipro and Satyam, two of India’s largest software services companies. Wipro, Cisco’s only strategic partner in the East, will service key wins like the mega city project in Saudi Arabia. Through this partnership Wipro hopes to increase its engagement with Cisco from $150 million currently to $1 billion by 2010. “The advantage of the globalisation center is that instead of waiting for a project manager in San Jose, we can just talk to someone here and settle things faster,” says Achuthan Nair, VP, Wipro Technologies.
In the next three-five years Cisco will double its headcount to 10,000 people in India. This month the company will move a key global leadership programme, which grooms future leaders from around the world, from San Jose to Bangalore. “It’s a signal that we are an East and West operation,” says Scrivner.
Globalisation: The next big idea?
Cisco was born in the Internet era. Throughout the nineties Cisco grew by helping large corporations and universities connect to the Internet. Between 1991-2001 Cisco grew revenues from $183 million to $22.3 billion. Today the Internet is a given and Cisco’s customers have moved on to other advanced technologies leaving Cisco in search of a new thought leadership position. With growth in mature markets slowing down Cisco needs a new growth story to drive its stock price, which has fallen from $60 in 2000 to $27 in 2007.
In the last few years Cisco’s moved to selling advanced collaborative technologies like telepresence (videoconferencing on steroids) and unified communications that combine voice, data and video over a common network. “These can make geography irrelevant and the globalisation center allows us to demonstrate that to our customers,” says Ballon.
What started in India as cost and labour arbitrage has given way to Cisco’s search for innovation, growth and talent from this part of the world. The best way to understand that is to see how the telecom market, which contributes one-third of Cisco’s revenues, is changing. Unlike in the past where phone companies like AT&T ran their own networks the new phone companies in emerging markets like India, China and Middle East now want equipment vendors like Cisco to build, operate and even run their networks. “We are seeing this trend in two out of five requests for proposals. This business model does not exist in US and Europe where networks are older. The team that I need to service this industry, not just in India but around the world, is here,” says Sameer Padhye, VP, advanced services. Padhye is on the lookout for network engineers, project managers, business developers who know to write business contracts and structure complex financial deals for contracts running for five-ten years. “In a year I need 1,000 people here,” he says.
Talent is one big reason Cisco is investing millions of dollars in India. “Complex network architects are not hanging out in every street corner. For advanced technologies like IP TV, some of Cisco’s first real engagements will be in the East. If you go look for people that have installed IP TV that talent pool doesn’t exist,” says Scrivner. According to him the networking industry will face a shortage of 3 million people in the next five years. In India alone IDC predicts a shortage of 1,37,200 networking professionals by 2009. Cisco’s aggressively ramping up its training infrastructure and has signed up with several institutes such as NIIT to plug that gap.
Thinking out of the box
Emerging markets represent an important shift in Cisco’s selling strategy. Cisco is creating a new product for the emerging markets, which will be completely developed from Bangalore. Built around the smart city concept Cisco watchers say that the product will be able to control air conditioning, lighting and TV through a common IP device. Cisco has not done a product like this before. Once the product is successfully launched here it will then be taken to developed markets.
It isn’t just product ideas that Cisco is interested in exporting from the East. High on the priority list is also business model innovation. In October 2007 Cisco formed a JV with Satyam to roll out emergency services in India similar to the 911 concept in the US. Emergency and Management Research Institute (EMRI), a not-for-profit organisation started by Satyam founder B Ramalinga Raju, originally developed the programme. Currently available in Andhra Pradesh and Gujarat, Cisco and Satyam are working together to scale the service to reach 1 billion Indians by 2010.
While the India buildup is part of Cisco’s corporate social responsibility, Cisco and Satyam will jointly package and sell this idea to governments in emerging markets for delivering emergency services for healthcare, police and fire at an affordable rate. “We have been selling boxes and services but now we can go to the ministry of health and say that we can provide emergency services for $20 per citizen. That’s a different ballgame for us completely; one that combines technology and business models,” says Turchi. “We haven’t done a joint venture like this in years,” says Ballon. Naresh Nagarajan, senior VP, Satyam and the man in charge of the operation is currently assembling the team and searching for the CEO for the new company. An announcement is expected this month end.
Selling in a globalised world needs a 24x7 customer support center. Today Cisco’s quality engineering is based in San Jose, which means parts have to travel halfway across the world to get serviced and replaced. Cisco wants to cut down the time it takes to attend to customer complaints to half. So a team led by senior director of manufacturing T S Khurana is in Bangalore to check the feasibility of setting a test and repair center in the Eastern part of the world, including India. Khurana is also looking at a center of excellence to make all products lead free to comply with the EU standards.
Khurana says there is no way the company could have achieved all this if it hadn’t opened the globalisation center here. “People in San Jose are highly insulated, you can’t think out of the box until you are out of the box,” he says adding, “I could bring hundreds of slide decks to my co-workers in San Jose but they are meaningless unless they walk and touch this environment.”
Can Cisco make it work?
The answer to that question depends on a lot of things. First the kind of talent Cisco wants to hire is not readily available in India. Elfrink admits that finding managers who have experience of running businesses has been a bigger challenge than he anticipated. While IP talent itself is extremely sparse there are very few people in India who have the experience of building complex networks.
Elfrink has also had to fight skepticism inside Cisco itself; people have reservations about letting power seep out of San Jose. Then there is also the fear of rubbing folks in India the wrong way. Some employees in Bangalore told ET that they resent the higher salaries and the highhanded attitude that the headquarter folks are bringing with them to the Center. There are also reports that past country managers were unhappy with the constant scrutiny from Elfrink’s office.
Clearly a lot is riding on Elfrink to make this work. He admits that he will get one shot at doing this right. Is this a test for the top job then? Elfrink, not willing to be drawn in these discussions, chooses to answer that question philosophically. “I believe in self-actualisation, I am too old and too mature for that. It’s a bonus to work on the development of this side of the world, it feels good.”
We will settle with that for now.
mitu.jayashankar@timesgroup.com