John Chambers, After the Deluge

Based on your experience at Cisco, Wang, and IBM, what would you say are smart ways for leaders to manage in a slowdown? And what shouldn't you do?

First of all, you should prepare people well ahead of time for disruptions in business cycles. These can happen in all kinds of ways, including not just turbulence in the overall economy but also switches from one product generation to another, or radical changes in what the customer views as added value. We constantly look for an inflection point -- good or bad -- and ask ourselves, How do we adjust? We make that part of the culture. We learn to look at those situations not as problems but as opportunities to break away from everyone else. All of us prefer fast growth, but you actually gain more market share during the tough times.

What we're seeing now is challenging in the short term, but in the long term, it's likely to be just a speed bump. It's important not to lose track of that. You always have your sky-is-falling people who say, "See, I told you." Well, what they don't realize is that as Cisco continues to gain in productivity, all kinds of other companies -- the GEs, the Fords, and some others -- are learning how to do it as well. Companies that don't do this simply will not survive and grow. As I travel around the world, it's interesting to see that government leaders and business leaders have got it. Take the CEOs of the two largest banks in China. Believe me, they appreciate what technology can do every bit as well as their U.S. counterparts.

As you hit speed bumps, there will be a tendency by some to want to change everything, which is obviously a terribly naive approach and which can get a company into real trouble. But there will be others saying, "Let's pull back our aggressiveness." You can't do that either. By the time the majority of the market realizes that something is clearly a good opportunity, it's way too late. We're moving quickly and early in areas such as content management, e-learning, and voice over Internet. As you keep taking risks, you will still misfire periodically on certain opportunities. But as long as it's a good business prospect, you don't want to slow that down at all, regardless of the economic situation.

What do you say to people who have started wondering whether the Internet is still mission critical?

It's more critical now than ever. It's moving at an even faster pace, and it's not just the IT people or the few enlightened CEOs who get it. Having said that, it's a fact that when people come under pressure, they often go back to traditional ways of handling it. That can mean big cuts in capital spending, because it's much more painful to cut people than it is to cut the capital budget.

One of the key elements to watch right now is broadband buildout. It's slowing. And if you don't have wide bandwidth to the home and small business, then you're not going to see applications grow as rapidly. I hope that our current government will take a person-on-the-moon type of approach here and say, We want to have broadband to every American home that wants it by the end of this decade. The number-one issue that will drive technology growth over this next decade is how quickly broadband gets built. That's true whether you're a chip manufacturer or a personal-computer player or a mainframe player or an application player. It's across the whole spectrum.

All you can do in this scenario is to share with business leaders your view of why continuing to focus on the Internet is the right thing to do. We share best practices, including our own, and we try to walk our own talk. But in the end, of course, the customer gets 100% of the votes.

When you're in the midst of difficult times, how do you still identify growth opportunities -- and get hundreds or thousands of your people working on them?

You need a willingness to take risk. This is something we have to be very careful to preserve. We listen very closely to our customers, and if we detect signs that something they want isn't yet on the market, we respond. Ideally, we prefer to move into a new market with ecosystem partners. But we are often well ahead of the market -- or else we've made a mistake. In either event, partners may not want to take the same business risks. So we will often develop the first products for a given market, knowing full well that longer term, we'll want to delegate that to partners who do mass production much more effectively than we do, at lower margins.

Our voice-over-Internet phone is an excellent example. We're making the handset ourselves, which is unusual and temporary. From nothing a year ago, we're now selling nearly 2,000 a day. We did this initially to jump-start the market and to ensure reliability, which is very important to customers. But we also did it because our peers were not in a position to move as quickly as we wanted. So we'll do the first wireless connection to the home, to really get the market going.