John Chambers: Getting Cisco Through Tough Times

The Cisco CEO is one of America's Best Leaders because he helped the company rebound.

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John Chambers, 60, had led Cisco Systems through the greatest spurt in corporate value ever. After he took charge of the firm in 1995, sales over the next five years grew at an annual clip of 57 percent. Little wonder: Founded in 1984, Cisco manufactured the backbone of the Web, and in the Internet mania of the late 1990s, customers and investors could not get enough of what it had to offer.

By 2000, the peak of the Internet bubble, Cisco's market worth exceeded $500 billion, a value not achieved by any company before or since. But then, the deluge. When the bubble burst in 2000, Cisco flipped from a revenue growth rate of 70 percent to a decline rate of 45 percent. Chambers laid off thousands, and Cisco's share price plummeted from $80 to $11.

When AIG, Citi, and General Motors went into tailspins after the financial bubble burst in 2008, they abruptly changed leadership. But Cisco did not, and now in his 14th year as CEO—twice the norm for large companies—Chambers has led one of the biggest comebacks of modern times.

A West Virginia native with an M.B.A. from Indiana University, Chambers received a postgraduate education in sales at IBM and then line management at Wang Laboratories. The latter proved formative: Working closely with legendary founder An Wang, Chambers witnessed close-in the company's abrupt collapse after the chief executive failed to adapt to new computer technologies that swept the market.

Swift and informed. Cisco was the only company that offered the unemployed Chambers a job, but the Silicon Valley company—named for the final syllables of San Francisco—proved a perfect match. And what followed provided Chamber's four-part primer for company leadership in turbulent times.

First, in Chambers's view, he would have to repeatedly get the jump on new know-how before others.

Chambers pushed Cisco into videoconferencing, for instance, ahead of the curve. The company created TelePresence, a life-size, high-definition video system in which minute features of body language can be read, down to a negotiator's dilating pupils. The system does not come cheap: $299,000 for one room with three large flat-screen displays, and $79,000 for each one-screen satellite location. Yet in an era of reduced travel budgets, demand has been brisk. At Cisco, with operations in dozens of countries, this new way of meeting has cut annual travel costs in half. Now, a single off-site receptionist appearing on giant screens in several of Cisco's building lobbies can personally welcome visitors to each.

Second, Chambers has built a management team that can help him render swift and informed decisions. He is known for acquiring firms (some 10 per year during his first decade at the helm, most of them successful). Asked what accounted for his capacity to pick winners, he pointed to his chief financial officer and board chair. They provided, says Chambers, a fast and frank evaluation of high-risk purchases.

Third, Chambers has moved Cisco from command and control to empowerment and collaboration. Creative ideas come from too many locations, he decided, for a conventional pyramid to work anymore. Information is now widely shared through Ciscopedia, the equivalent of Wikipedia for internal use, and product decisions are the province of lateral networks of some 500 senior managers. The "entire leadership team, including me, had to invent a different way to operate," he says.

Finally, in Chambers's view of the universe, it's all about education and the Internet. Education because trained intelligence is the platform for creative solutions; the Internet because it ensures that millions can share that intelligence. Think E-mail, Facebook, and Wikipedia, all brought to users via Cisco's switches and routers.

By the company's own estimate, as much as three quarters of the world's digital information flows through the global plumbing system that Chambers and his 65,500 team members built for the planet. In June, Cisco, now a $36 billion company, replaced General Motors as a component of the Dow Jones industrial average.