John Chambers, After the Deluge

John Chambers chooses his imagery with great care. So in a conference call with Wall Street analysts this spring, the CEO of Cisco Systems picked a phrase meant to convey both terror and hope. The Internet economy's all-out slump has been like "a 100-year flood," he declared. "It's something you don't expect to see in your lifetime. We never built models to anticipate something of this magnitude."

Think of such a flood, and immediately, snapshots of staggering destruction come to mind. But stay with those images a moment longer, and in your mind's eye, the waters start to recede. Rescue workers pump out the water and rebuild what was swept away. Homeowners and businesses return. Full recovery may take months or even years. Eventually, though, nature's sudden ravages are repaired, a little bit at a time. With plenty of hard work and patience, people reclaim what had briefly seemed lost forever.

That sort of gritty, stubborn recovery is what Chambers wants to set in motion for Cisco -- and perhaps for the entire technology sector -- over the next few quarters.

Just one year ago, everything seemed to be going Cisco's way. Chambers, 51, was both the market leader in the huge network-equipment business and the thought leader for the Internet economy. His vision of an Internet-centric world had captivated businesses, consumers, and governments, all of which figured that the new technology would help them work faster, more efficiently, and more enjoyably. In a supreme compliment from Wall Street, Cisco's stock-market value in March 2000 reached $555 billion, briefly making it the most valuable company on the face of the earth.

Then tough times arrived. Cisco's legendary sales growth began to stall last December in the face of a severe slump being suffered by many of its customers. That forced Chambers to announce layoffs of 8,500 workers, more than 17% of his workforce. And an enormous inventory pileup contributed to $3.4 billion in special charges this spring, making the company's worst-ever quarterly loss inevitable. Investors responded by slashing Cisco's stock price by more than 50% in the first three and a half months of this year, knocking it off of the list of the 10 U.S. companies with the highest market value.

For many fast-track executives, these sorts of setbacks could be paralyzing. But if Chambers was the visionary of the 1990s, he hopes to emerge as this decade's leading pragmatist. From earlier jobs at IBM and Wang Laboratories, he has learned how to manage smart in a slump -- and he knows what smart leaders should not do in response to a difficult business environment. In the long run, he says, the case for the Internet is stronger than ever. And in the short run, he wants to pull Cisco away from things that don't work so that he can redouble his bets on the most-promising new opportunities.

In a recent conversation with Fast Company, Chambers spelled out his thoughts on how to redirect a company in tough times and on how to keep a growth culture alive. He also talked candidly about what happens when customers aren't as eager to buy as they once were -- and what to do about it.

The headlines are filled with nothing but bad news. In this kind of economy, what's still exciting? What makes you think, I can still get a lot of good things accomplished in the next six months?

Excellent question. All of us like periods of growth, but I learned a long time ago that you deal with the world the way it is, not the way you wish it was. This is where you develop character. It's exactly what my parents meant when they said that something was going to be a learning experience. That usually meant that something was not going to be fun, and that it was going to last longer than I wanted. Well, this is going to be a learning experience. It's not going to be fun. It's going to last longer than I want. But it is tremendously important in building great companies.

This is where you've got to help your whole team learn, especially the new managers who haven't been here before. Even some of the experienced ones forget what it's like. You have to listen very carefully, be as sure as possible that you've got the issues right, set the direction -- and get your whole team pulling toward that direction. Then it's all about leadership. You keep people very calm, very focused, and yet with a sense of urgency, because this is the chance really to gain market share.

You move from focusing on absolute revenue growth -- which has gotten a number of companies in trouble -- to focusing on profitability and earnings contribution, both short- and long-term. You say, I'm going to measure my team on how well they gain profitable market share, not on how big the numbers are. And you deal with reality the way it is in terms of what [customers'] capital spending will be and how to get a bigger piece of that. That makes a lot more sense than saying, Well, we aren't growing as fast as we were last year; isn't that terrible?