When John Chambers came on board Cisco in 1991, the company was a small network operator, with a focus on routers. But of course, the company would rapidly turn into an industry giant. During the 1990s, Cisco’s revenues grew by an average 65% per year and as of the year 2000, the market cap was a staggering $550 billion – which was larger than Microsoft’s. During this period, more than 10,000 employees would become millionaires.
But when the dot-com boom burst, Cisco came close to imploding. In a matter of 45 days, the sales went from 70% growth to a 30% drop. Inventories piled up and about a quarter of the customer base was wiped out.
Despite all this, Cisco was able to adapt and eventually get back on track. Although, many of its rivals failed, like Nortel.
As of now, Cisco generates revenues of over $49 billion and has dominant positions in 18 different product lines.
OK then, so how did Chambers do all this? Well, he recently published a book on this topic, called Connecting the Dots. In it, he covers his core philosophy on leadership – with many great stories.
Chambers boils down his approach to four key areas: anticipate and get ahead of market transitions, find ways to innovate at scale, build a culture that is focused on the needs of the customer and develop a flexible network infrastructure.
The Chambers’ Way
Chambers had the advantage of working at IBM and Wang before coming on board Cisco. This meant he learned some tough lessons before he became a CEO.
For example, while at Wang, he saw the importance of anticipating market transitions. The company, which was a leader in minicomputers for word processing, failed to evolve its product to the PC market. As for IBM, Chambers learned that a company should never think it has all the answers.
Now when Chambers joined Cisco, he wasted little time testing his approach. He pushed to make a transformative acquisition of Crescendo and was willing to leave the company if it did not happen. At the time, Cisco had only $70 million in revenues and 400 employees. So the deal was a considerable risk.
But Ford Motor, which was a customer of Crescendo, talked to Chambers about the merits of the company’s switches. The more he thought about it – analyzing the market and the trends — the more he realized that this technology would be critical for networking. And it was. It was the kind of deal that would allow Cisco to differentiate itself from its rivals, many of which no longer exist today.
Acquisitions would be a major driver of growth for Cisco. During a period of over two decades, the company would strike 180 deals, of which 12 were over $1 billion. The goal was clear: to acquire next-generation products that would make Cisco the leader in a category.
Yet about a third of the transactions turned out to be losers. Although, this would still be a much better track record than a typical tech company.
According to Chambers: “We couldn’t just build our way into being a market leader in every business that we wanted to be in. Nobody can. There’s simply not enough time. If you’re not one of the first three to five companies to enter a new market, you rarely get a shot at becoming a top player by doing it yourself. It’s far more efficient to buy a leading player and adapt that technology than to try to create it yourself after a market is already populated with strong players.”
Keep in mind that this strategy is likely to be even more critical in the future. Chambers notes that 40%+ of businesses today will not exist ten years from now because of the wrenching technology changes. This means companies need to seriously rethink their strategies — and Chambers’ book is a good place to start with this process.