John Chambers may be one of the most respected managers in Silicon Valley. He has been CEO of Cisco for 20 years, a staying power that’s increasingly rare. His accessible, upbeat leadership style, which recently has included delegating more and more power to his deputies, has been the spotlight of high-profile cover stories. And his experience leading the company through near-death experiences during past downturns has made him a darling of investors—at least until recently.
But there’s one decision Chambers just made that leaves many scratching their heads. Why on earth would the CEO of Cisco, which bought the makers of the wildly popular Flip camcorder for $590 million in 2009, decide to shutter the device, rather than sell it? Is there ever room for leaders to keep a successful product even if it doesn’t fit with the strategy?
Many admit they understand why Chambers decided the Flip no longer fit with Cisco’s strategy. Analysts questioned the move at the time of the acquisition, wondering how well such a small consumer-centric business could fit into such a giant business-oriented tech company. In addition, the move to exit the Flip came as little surprise to company observers, after Chambers presaged the move with a candid letter about his company’s need to make “tough decisions” and use “surgical precision” to reposition the company toward its core business of networking technology. The growth of digital video on smartphones—namely, the iPhone—didn’t help things, either.
But the Flip’s defenders—and there are many—point out the little camcorder’s market-leading position, strong sales (even if they had been flat recently) and apparently high margins would have been attractive to other buyers. The Wall Street Journal’s Kara Swisher said she heard from three “big consumer Internet and electronics companies that would have been logical buyers” the morning the news broke, all of whom said they would have been serious buyers. Her colleague Arik Hesseldahl thinks the great retail distribution and the money Cisco poured into brand-building might have brought them a good price—or at least enough to cover the restructuring charge the company will take for shutting down the business and laying off 550 people. NPD Group analyst Stephen Baker puts it most bluntly: Tuesday’s news that Cisco will shutter the Flip “is a bad decision on so many levels that it is difficult to fit them all into one discussion. … abandoning it now seems a cowardly act, and one that flies in the face of common sense.”
So why did Chambers make the tough call to shut rather than sell? Some analysts have guessed he might have wanted to retain the intellectual property behind the technology to use in future products. Hesseldahl wonders if there might have been a tax advantage in closing it down. (Cisco, for its part, has said that it learned a lot from the acquisition and that it did a detailed analysis to decide that shutting it down was the best option.)
But the best guess, I think, is that shuttering the Flip was the best way Chambers could send a message to Wall Street that he is serious about resetting the company’s strategy. Closing a highly visible and well-known brand tells big investors and analysts who watch the stock that Chambers is willing to make the tough call and put his money where his mouth is. This “transparent effort to assure Wall Street that it was no longer serious about its wacky foray into the consumer market,” as Swisher calls it, may have killed off a much-beloved product, but it may have revived Chambers’ reputation as a decisive leader. In Wall Street’s eyes, at least.
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