Skip to Content

Stanford GSB News

 

Firms Can Benefit From Tough Times Says Chambers

April 2004

STANFORD GRADUATE SCHOOL OF BUSINESS—Companies win or lose the battle for market share during the tough times, not the boom periods, Cisco Systems CEO John Chambers told the Business School's first Technology Industry Conference on April 7. Successful leaders must build change into their organizations, be extremely attentive to market transitions, and react quickly, he said.

Cisco, a world leader in networking for the Internet, has increased its productivity 18 percent in the past six months. But things have not always been this good. The 2001 crisis struck Cisco so hard that in 45 days it went from 70 percent growth to minus 30 percent.

As soon as Cisco executives realized that the crisis Chambers described as "a hundred-year flood" would last for a long period, they designed a strategy to lower expenses, focus on future opportunities, and increase productivity, and implemented it in 51 days. Then, Chambers and his team "got ready for the upturn" that brought them back to normal profitability in only nine months.

The Cisco experience shows that it is not during the good times that companies lose or gain market share but during the tougher times, Chambers said. That is why a leader has to be so attentive to market transitions. How does he do it? Mostly, by listening. "If you ask people what are they going to do, they will tell you." And what the executives of big and small companies around the world have been telling Chambers in the past year is that "confidence is starting to build."

Market transitions also may result from changes in consumer buying behavior—making keeping in touch with customers also very important. "I'm a huge believer that you can be 100 percent driven by your customers," he said. Cisco customer surveys provide guidelines for production and a measurement of quality, and the information pays off. Seventy-five percent of Cisco's customers say they will purchase from Cisco again.

"The number one ingredient of successful leadership is the quality of the team you build," Chambers advised the audience. When it comes to acquisitions, this issue becomes especially critical because of the danger of a cultural clash. "When you put together different cultures that don't match, you lose the people." And since people are precisely what acquisitions in high tech are after, leaders should be very attentive to the corporate culture of the company they want to acquire and make sure to retain its people. Cisco has been successful in that as well, with an attrition rate in its acquired companies of only 4 percent.

Overall, Chambers has reasons to be optimistic, but he combines this optimism with a "healthy paranoia." The situation is still fragile, he said. More important, one should always be skeptical with businesses that are doing too well. "If you aren't making mistakes, you're not taking enough risks; and, in my industry, if you don't take risks, you get left behind." In the case of Cisco, all six product lines are growing. For Chambers, "this is good news and bad news. If you are hitting six out of six, you're probably not taking enough risk." His conclusion? Cisco is "going to be much more aggressive and move into new areas," he announced.

—Isabel Awad