Ciscos Chambers: Networking Is Back

By Paula Musich  |  Posted 2004-05-13

Ciscos Chambers: Networking Is Back

LAS VEGAS—Coming on the heels of a strong fiscal third-quarter report, Cisco Systems Inc. President and CEO John Chambers gave an upbeat keynote presentation at NetWorld+Interop here Wednesday, claiming confidence is up.

"Its a pleasure for networking to be back. My main message here is confidence," said an energetic Chambers. "Consumer confidence was strong during the downturn, but business executives didnt hold up well, and they stopped thinking three to five years out. But the clear trend is up and to the right. As business leaders get [more] confident, they tend to spend."

Cisco has seen a dramatic improvement in customer sentiment in the last four months. "Instead of wishing our business was as good as the GDP numbers, we are optimistic about our own business," Chambers said. Business executives, although still slightly hesitant, "will take their foot off the brake and find the gas pedal," he said.

The United States saw sequential growth in capital spending in the "midteens," while Ciscos own business grew 4.1 percent sequentially from the second to third fiscal quarter. Cisco revenue was up 21.7 percent year over year at $5.6 billion. Chambers attributed the growth to increasing productivity both for Cisco and businesses as a whole, and he said that businesses that understand their investments in IT get some credit for those improvements.

But to achieve solid productivity improvements from technology initiatives, whats key is taking a strategic, architectural approach to new technology investments and changing business processes in the implementation.

"Were talking about an industry with productivity implications that work on a macro level all the way down to the individual desktop. Networks enable that, but you have to see what the enabling applications are that allow this direction," he said.

In a survey Cisco sponsored of business leaders in the United States and in other parts of the globe, Cisco found that "those that changed business process at the same time they put in new systems, who also set aggressive goals and measured those and built the systems on an intelligent network architecture, had four to five times the productivity than those that just put in the technology," Chambers said.

"The surprise to us, customer support, as an example, is that we had a 25 to 30 percent increase in productivity, but if we didnt change the process, we had negative productivity," he added. "If you throw a lot of money at IT but dont change the process, you will spend a lot without any gain."

Next page: Key to creating networks.

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Key to creating networks that can enable such productivity improvements is taking an architectural approach to building them, rather than focusing on point products that require significant integration effort. "Point products over time give you less and less value," he said.

In thinking about security, wireless, voice over IP, infrastructure, storage and the data center, whats key to guiding the architectural direction of a network are systems, changing processes, applications and value-added services.

In looking at the future evolution of networks, there are three guiding principles, including Moores Law—doubling price/performance every 18 months—building smarter networks that combine services such as security and quality of service in a way that is transparent, and making it lasting. "You need a common network management system where most issues are handled by the network without human intervention."

The network too will have to handle the vast majority of security issues, and then report on the events after the fact. "It has to be an integrated, combination architecture based on standards," Chambers said.

IP telephony too will play a part in future network architectures. Adoption of it is now a question of when, not if. Its important to think about it in terms of open standards and productivity. Cisco, he said, recently shipped its 3 millionth IP phone, and it has 14,000 IP telephony customers worldwide.

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Chambers also envisions wireless as a seamless extension of wired networks based on a common architectural approach as well as the virtualization of storage as it moves from storage area networks to more of a front-end switch to storage resources in the data center.

But moving to architectures that can accommodate that will require partnering with technology providers, and ITs ability to understand "how to strategically partner will determine who wins and loses," he said.

Cisco in its own implementations of new technologies and process changes learned that productivity payback comes not just within the first year or two, but even more so within the first six years. "But if you dont change process at the same time you put in applications, you dont get the payback as fast," Chambers said. Cisco for its part saw a $2.1 billion gain from the implementation of seven major applications, he said.

"The takeaway message is that if you dont change the underlying business process, you wont get the leverage out of new technology implementations," he concluded.

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