Cisco's Extreme Ambitions

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Chambers crossed the Rubicon in March, when Cisco announced a new server. It's part of a broader strategy to reinvent the data centers that companies increasingly use to handle their computing needs. Cisco hopes to charge premium prices for gear that will let companies more efficiently handle their Internet traffic.

Still, HP has years of experience competing with Dell at razor-thin margins, and it has more than 150,000 consultants who help sell its gear to corporate customers. "Cisco has to figure out not only how to beat us but also how to beat IBM and Dell, and compete at margins very different than what they're used to," says Dave Donatelli, executive vice-president at HP.

IBM and Dell have long sold Cisco's networking gear, butthere are increasing signs of strain in those relationships. Big Blue just inked a deal with rival Voltaire and is shipping gear from Juniper Networks (JNPR), including to the New York Stock Exchange (NYX), a former Cisco customer. Dell recently inked a deal with Juniper to resell its gear. "If the enemy of your enemy is your friend, we have a lot of friends right now," says Kevin Johnson, chief executive at Juniper.

Chambers certainly knew the risks of taking on the computer giants. Earlier this decade, former Cisco executives Jayshree Ullal and Andreas Bechtolsheim came up with a prototype for a server, but Chambers wasn't ready to take the leap. The debate erupted again in 2007 after Cisco took a stake in a startup called Nuova, created by longtime Cisco engineering chief Mario Mazolla, which was developing a server. Several top executives, including Charlie Giancarlo, voiced opposition at the expansion, but Chambers decided to proceed. Even the chief information officer at one of Cisco's largest customers is skeptical about the move: "They should have [gone after the data center] without getting into the server business."

FOR THE HISTORY BOOKS?

Some people wonder if Chambers' strategy is being driven by ego as well as by Cisco's needs. Two former executives say Cisco's council-based approach, whatever its intended purpose, is an effective way for Chambers to consolidate power. Diluting authority by spreading it across committees may prevent any one person from gaining too much control. Sources also say that Cisco executives considered heirs apparent have rarely lasted at the company for long. "Being No. 2 at Cisco has not been a long-term assignment," says one former mid-level executive.

A Cisco spokesman dismisses any suggestion that ego plays a role in Cisco's strategy as "nonsense. John Chambers and Cisco's entire leadership are focused on driving Cisco's growth and business results." Chambers admits the council structure is unusual but argues it's the only way a company Cisco's size can move as fast as it needs to. He says the councils work and help identify talent throughout the company.

In a sense, Chambers is bidding for a place in the history books. He's trying to use the ambitious expansion and unconventional management strategy to demonstrate how a company the size of Cisco can remain fast-growing and nimble. If he succeeds, he may end up regarded as a business icon, along the lines of General Electric's Jack Welch. "Cisco is trying to rewrite the management books," says analyst Tal Liani of Merrill Lynch. "We don't know yet whether it will be successful or not."

Chambers certainly senses the urgency. "I realize that many of you think we've stretched too far, and you may very well be right," he told shareholders at the close of the company's annual meeting. "In many people's opinion, [30 markets] is too many. In my opinion, it's probably too few."

Burrows is a senior writer for BusinessWeek, based in Silicon Valley.

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