In one of his last appearances as Cisco (CSCO) CEO, John Chambers offered a stark view of the future for many businesses. He estimated that 40 percent of them wouldn't exist in 10 years because of the rapidly changing technological landscape. He also predicted that about 70 percent of all businesses that tried to keep up would fail to do so.
According to Chambers, who'll step down this summer after serving 20 years as CEO, companies face a stark choice of either changing with the times or have change foisted on them that they may not like. Firms need to focus on operational rigor, simplicity and developing the right culture, he said.
"Companies fail because they keep doing the right thing too long," he said Monday. "If you don't change, you're going to get taken out by companies that look Silicon Valleyish."
The remarks by the 65-year-old Chambers at a conference for Cisco customers carry extra weight given that his two-decade run at the maker of network routers is nearly five times the average 4.6-year tenure of a typical Fortune 500 CEO. While some business school professors may quibble about the specifics of Chambers' prediction, they agree with the overall thrust of his message.
"He is right in ... characterizing the nature of transformative change that's talking place in the economy," said Rahul Kapoor, assistant professor of management at the Wharton School of Business at the University of Pennsylvania. He added that Chambers' 40 percent failure-rate claim "to me is more of a rhetorical device to make people aware of the gravity of the change as opposed to some sort of informed statistic. I am very sympathetic to the tone in that statement."
Marshall W. Van Altsyne, a visiting scholar at MIT's Sloan School of Management, likens the changes brought about by the current wave of technological innovation to what occurred during the industrial boom of the 19th century, when tycoons such as Andrew Carnegie and John D. Rockefeller rose to power. Back then, growth came from the companies that had large physical asset bases, such as steel mills and pipelines.
In today's Internet age, many of the largest companies such as Facebook (FB) and Uber are asset-light, creating what Van Alstyne refers to as "demand-side economies of scale" as opposed to "supply-side."
"It's data-driven by your users or innovation created by your ecosystem," he said. "Once that happens, managerial attention has to shift from inside the firm to outside the firm."
Among the companies Van Alstyne thinks are managing the rapid changes that Chambers alluded to is spice maker McCormack (MCK), which has created an application that consumers can use to match food preference information with a database of recipes. "It will give you an excellent mix of recommendations," he said.
Chambers' statement may be a wake-up call for both the private and public sector because the technological changes he's speaking of have ramifications for both areas. Businesses, though, need to address the changes sooner rather than later, experts say.
"It's very scary," Sydney Finkelstein, faculty director at the Center for Leadership at Dartmouth's Tuck School of Business, told CBS MoneyWatch. "The failure rate has always been high. It has accelerated. ... The other big factor is globalization. Global competitors exist and are becoming more powerful. It's not slowing down. China isn't getting smaller."
If so many companies are going to fail, the implications are huge for a number of issues such as executive compensation because, as Finkelstein noted, to attract top talent companies may need to pay "what seems like crazy numbers."
"You can't hope that what you did last week or last year is going to work." Finkelstein said. "You have to be willing to throw out everything and start over. It turns out to be an unbelievably difficult thing to do."
Chances are good Chambers would agree with that.