At Cisco, 'Downturn' Screams Long-Term Opportunity

CEO John Chambers explains how he's building network share while moving into such new markets as health care and security and surveillance

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If your company had $30 billion in cash and a 50%-plus share of the computer network market, you might share John Chambers' view of the current economic challenges. The chairman of Cisco Systems (CSCO) describes these dour days as "the greatest opportunity of our careers." Chambers, who has been through four other downturns, shares with Peter Burrows, BusinessWeek senior writer, his "playbook" for dealing with this recession.

What is different about this downturn from others, and what's different about how you're trying to manage through it?
In some ways, the basic playbook for how you handle downturns has not changed at all. I've been through it here at Cisco in 1993, 1997, 2001, 2003, and now in 2009. In the four preceding ones, every time we came out of it stronger, in terms of percentage of the industry's market cap and in terms of market share, but we also used it every single time to move into new [markets related to Cisco's core Internet communications business, such as videoconferencing].

How would you describe your playbook for dealing with downturns?
There are four rules of thumb. The first is to take a candid look at how much of [the downturn] is due to macroeconomic issues, and how much was self-inflicted. If your strategy was working well going into it, it will work well going out. The second thing you do is determine the depth and length of the downturn—and it's usually deeper and longer than you think it will be. The third thing is to really get ready for the upturn—in terms of strategy, but also in terms of how you communicate with your employees, with your shareholders, and with your customers. And the fourth element, which we added in 1997, is to get closer to your customers.

Cisco is moving aggressively into new markets, from consumer electronics to computer servers. Why are you expanding your business when the economy is contracting?
This [downturn] is different from almost every other one we've been in. In 2001, for example, we were at the end of a product life cycle, and at the end of the first phase of the Internet. So we had to be very aggressive in our response. I'd hoped I'd never have to do it again in my life, but we took our total cost down 25%—and we did it in just 51 days. It was very, very painful. And on day 52 we started gaining market share again.

This time, it's the exact opposite. Our strategy was working well going into this downturn. We were gaining market share in routers and switches, gaining thought leadership in collaboration and networked Web 2.0 technologies, and we were doing very well with our five advanced technologies (such as Telepresence videoconferencing systems)—which, by the way, are now 25% of our business, and got hatched during the 2001 and 2003 downturns. Over the past seven years, we have nurtured a [management approach based on] collaboration and teamwork using networked Web 2.0 technologies, which we feel will be the business model for 21st-century leaders. It has allowed us to enter two dozen [new] markets, that is now at 28—I just added two more yesterday.

What are the two new ones?
Security and surveillance, and health care—especially remote health-care delivery capabilities.

Why did you adopt this collaborative approach?
We moved from command and control, which is an environment I'm very comfortable with. When I turn right, 67,700 people turn right. That's huge power. But it's not the future. The future is about collaboration and teamwork, and making decisions with a replicable process that offers scale and speed, but also flexibility.