Chambers, John T. 1949–
John T. Chambers
Chief executive officer and president, Cisco Systems
Education: West Virginia University, BS; JD; Indiana University, MBA.
Family: Son of an obstetrician/gynecologist and a psychologist (names unknown); married Elaine (maiden name unknown); children: two.
Career: IBM, 1976–1983, salesman; Wang Laboratories, 1983–1990, various positions, became executive vice president; Cisco Systems, 1990–1994, senior vice president of Worldwide Operations; 1994–1995, executive vice president; 1995–, CEO and president.
Awards: Lifetime Achievement Award, Smithsonian Institute, 2000; Distinguished Industry Leader Award, IEEE, 2002; Ron Brown Award for Corporate Leadership, The Business Council, 2002–2003; Most Powerful Person in Networking, Network World, 2003.
■ John T. Chambers rose from the ranks of computer salesmen at IBM to lead Cisco Systems, one of the most innovative and aggressive companies of the technological age. Serving as CEO since 1995, Chambers's tenaciousness and ambition were a major reason why Cisco owned the infrastructure through which over 75 percent of the world's data traveled in 2004. When others shrank in fear during the dot-com collapse of 2000, Chambers's nerves of steel and unflagging optimism allowed Cisco to emerge from the crisis stronger than ever. While many faulted Chambers for his ruthlessness and penny-pinching, none could deny that Cisco Systems would have been a less dominant company at the turn of the century without him at the helm.
A BORN LEADER
John Chambers was raised in Charleston, West Virginia, in the 1950s, with a background that could hardly be described as provincial. His father was a wealthy obstetrician/ gynecologist who delivered all of the children of Governor Jay Rockefeller; his mother was a psychologist. Chambers's family also owned a restaurant in Charleston, and it was there that the boy first thought of someday running his own business. Though Chambers's father recalled him showing leadership skills at a very early age, his study was often made torturous by dyslexia. Although in the 1950s a child could be stigmatized by a learning disorder, Chambers's parents were enlightened, sophisticated people who had faith in their son and obtained the help he needed. The reading specialist they hired, Lorene Anderson-Walters, recalled, "He had this very optimistic attitude about everything. He was just not going to fail. One thing I notice as I hear him now on TV is that he still has that attitude" (Waters, 2002).
With the single-mindedness for which he would later be famous, Chambers applied himself all the more diligently in school in response to his disability, eventually earning both an undergraduate and a law degree from West Virginia University. His determined, competitive nature showed itself through his participation in intramural sports, his favorite being basketball. Ever the team player, Chamber later remarked that even when he played tennis, he almost always played doubles. He married his high-school sweetheart and frequent doubles partner, Elaine, and for a time thought his life would be centered in his home state. But things had changed in West Virginia since Chambers was a boy. With the government regulating coal mining and chemical plants and the state gaining a reputation as an area of poverty and dissipation, the economy suffered and the population fell. Chambers decided to leave the insular cocoon of his youth and head for Indiana University in Bloomington, where he earned a business degree and lost interest in practicing law.
Knowing that his future would be in business, Chambers accepted a job offer from IBM in 1976. At the time IBM was the giant of the computer industry, massive, powerful, and known as Big Blue. Though the Justice Department was investigating suspected antitrust violations, IBM had just released what would become their most successful computer ever: the System 360. Chambers, who was about to become a father for the first time, claimed he had no desire to become a salesman. But once he started, he found he was quite good at the task; his unrelenting drive was tempered by his smooth Southern gentility, and customers responded. Chambers was aware of IBM's shortcomings, such as its focus on business computers and typewriters while more adventurous start-ups such as Apple led the way into the personal-computer era. In John Waters's book, John Chambers and the Cisco Way: Navigating through Volatility, Chambers was quoted as saying, "I learned an awful lot about what not to do. You could see management getting further and further from the customer, telling the customer that they knew what he needed better than the customer did" (2002).
Chambers did well in the sales department but feared his lack of an engineering degree and research experience would prevent him from moving higher up the ladder at IBM. After seven years with Big Blue he decided to move on to Wang Laboratories. Chambers had seen the company's Chinese American founder, An Wang, give a business lecture and came away impressed with his vision for the future of technology. Wang's company was experiencing explosive growth, with so much demand that supply often fell short. Ever ambitious, Chambers soon convinced Wang that he was the right man to lead Wang Labs' Asian sales team. Though at first the assignment might have seemed like a poor fit, Chambers's easygoing Southern manners worked well in the Asian marketplace, where customers could at times be offended by loud, hard-driving American salesmen.
Chambers had a great deal of respect for his boss. In Jeffrey Young's book, Cisco Unauthorized: Inside the High-Stakes Race to Own the Future, Chambers remarked, "The most impressive man I've ever known, other than my father, was An Wang. It was the trust he put in me, that he gave me, the belief he had in me, that I'll never forget" (2001). When Wang died of cancer in 1990, the company's prospects took a turn for the worse. In the Chinese tradition Wang had appointed his son, Fred, as his successor, and stock in Wang Labs plummeted as nervous investors jumped ship. In reality the rocky transition was only the straw that broke the camel's back; Wang Labs had continued stubbornly producing expensive office workstations while the rest of the market was moving toward PCs. As executive vice president at the time of Wang's death Chambers was forced to lay off five thousand employees just before the Christmas holidays. He then resigned and began looking for another job.
A NEW BEGINNING AT CISCO
No one in business had been unaware of the fact that Wang had gone from a $2 billion dollar profit in 1989 to a $700 million loss in 1990. Out of dozens of letters Chambers sent out in search of an executive position, only one company even bothered to respond: Cisco Systems. Cisco had been founded in 1983 by the married couple of Len Bosack, the head of Stanford's computer-science department, and Sandy Lerner, who held a master's in business administration from the same school. Bosack and Lerner had begun looking for a way to allow all of the Stanford computer systems to communicate with one another. Bill Yeager, who worked at the Stanford Department of Medicine, had created something he called a "router," a device built around a microcomputer which made it possible for the medical-department system to "talk" to the business-school system and the computer-science system in one language: Internet Protocol (IP).
Bosack and Lerner built their new company around the router, and by 1986 the company was pulling in $10 million a year. When the venture capitalist Don Valentine came aboard with $2.5 million, he was given one-third of the company, and the threesome took Cisco public on February 16, 1990. Just six months later, amid much squabbling with Valentine and the president John Morgridge, Bosack and Lerner quit Cisco and sold their shares back to the company for $170 million. The founders were gone, but their devotion to customer service would live on.
Morgridge, the energetic, no-nonsense veteran of both Honeywell and Stratus, chose John Chambers to be Cisco's senior vice president of Worldwide Operations in the fall of 1990. Chambers was no easy fit in Silicon Valley. In a place where "geeks" in jeans and T-shirts laid sleeping bags next to their desks so that they could work around the clock, the buttoned-up Chambers seemed like a relic of another age in his conservative suits and with his talk about customer service. Yet Morgridge, who had also started out in sales, knew that Chambers's more traditional traits could effectively temper a business sector that at times seemed to be moving so fast that it was out of control. Morgridge and Chambers also shared a thriftiness that most CEOs would balk at: Morgridge was one of the lowest-paid executives in the business, worked in a 12-by-12 office like everyone else at Cisco, and never flew first class.
Chambers proved himself to Morgridge almost immediately by accepting and refining Cisco's policy of "technological agnosticism." Cisco had had incredible success in the router business, but both Morgridge and Chambers believed that any "religious mind-sets" needed to be put aside when making decisions about the future of the company and technology in general. Neither believed that routers were the only game in town; in 1993 Cisco made its first acquisition, that of the switching company Cresendo Communications for $95 million. Switches gave power users and power devices better access to servers and made for easier networking. Analysts were skeptical, since Cresendo at that time had only $10 million in revenue, but Cisco knew that such customers as Boeing and Ford had expressed intense interest in switching products.
The Cresendo takeover proved to be a huge success, initiating an acquisitions strategy that Chambers would continue to use in the future. The former Mergers and Acquisitions leader at Cisco, Barry Eggers, commented in Ed Paulson's book, Inside Cisco: The Real Story of Sustained M&A Growth, "Without that first one having a lot of success, it might have slowed down the pace at which they did everything else. When you have one like that to start out with, it makes it a lot easier to do all the others" (2001). Cisco went on to aquire other small switching companies such as Kalpana, Lightstream, and Grand Junction, chipping away at the switching competition piece by piece.
Don Valentine was not happy when in 1993 Morgridge announced his intention to retire in two years. Both Valentine and Cisco's board did all they could to entice Morgridge to stay on with the company, but he had made up his mind. It was no secret that Morgridge wanted his number-two man, John Chambers, to succeed him as CEO; that was what happened in January 1995. Under Morgridge's watch, Cisco had experienced explosive growth, going public and eventually raking in over $1 billion a year. When Morgridge had taken over, the company had 34 employees; 2,260 people were on the payroll in 1995. But Morgridge knew that Chambers was not a man to rest on the laurels of others, and Chambers was determined to leave his own mark and take the company further than many industry analysts thought possible.
TAKING THE REINS
If Chambers had learned one thing at IBM, it was that customers liked the one-step concept of technology. Most executives were grateful for anything that would make their busy lives easier and disliked having to hunt around for various components. Chambers was determined to provide Cisco's customers with a full array of data solutions in order to prevent them from searching out competitors. This meant expanding from routers, packets, and switches and moving into the world of ATM (asynchronous transfer mode). With the telecom market exploding, Chambers felt that ATM, which divided data into fixed-size cells and allowed for faster transmission, would be the key to Cisco's continued growth. Chambers wasted no time in acquiring StrataCom, a company that catered to the wide-area telecommunications transportation market, for $4.5 billion. As he had done in the Cresendo deal, Chambers offered StrataCom's president far more than the company's market value, ensuring as smooth a takeover as possible. As Chambers noted in Waters's book, "Cisco will become the first vendor to provide advanced network infrastructure for the intranet and Internet environments and the only vendor to offer end-to-end connectivity across public, private, or hybrid networks" (2002).
Under Chambers, Cisco began seeking out the best talent in the technology business with a very aggressive recruitment program. Though by the mid-1990s Cisco had a reputation as a vibrant, nurturing workplace, Cisco did not just wait for top people to come to them. Cisco recruiters targeted young, upscale go-getters by hanging out at art fairs, wine-and-cheese festivals, and home-and-garden shows. Also, of course, Cisco used the Internet in new and innovative ways. For example, they set up a Web page that matched each job seeker with their very own "friend" at Cisco—someone who would give the job seeker a personal call and chat about his or her experiences at the company. This not only gave the job hunters an intimate, "insider's" glimpse of Cisco, it provided a way for Cisco employees to earn referral fees and perks. Over one thousand employees took advantage of the program.
The cause that aroused the most passion in John Chambers was education. "There are two equalizers in life," he said many times, "the Internet and education." Chambers saw e-learning as something that could level the playing field for the rich and the poor, for the haves and the have-nots. For the man who told the San Francisco Chronicle, "The market always gets it right" (February 2, 2004), the Internet was the ultimate form of what George W. Bush once called "compassionate conservatism." In 1997 Cisco set up the Cisco Networking Academy to train and certify young people in computer design and maintenance. John Morgridge, who had remained on Cisco's board after stepping down as CEO, commented in Waters's book, "It's the first true partnership between schools, government, and business since the days of high-school 'auto shops.' The difference is, instead of auto mechanics, students learn the conceptual and practical skills necessary to design and manage networks" (Waters, 2002).
Chambers worried about education not only for his own company but for the country as a whole. He felt that the lack of proper computer education in America's elementary schools could spell doom with respect to global competition. With the help of the U.S. Senator Jay Rockefeller and others in the government Cisco contributed $18 million in services and equipment to 57 educational institutions across the country. With the Cisco Networking Academy and its support of such youth programs as Internet Schools CyberFair and the Virtual Schoolhouse grant program, Cisco not only pulled off a major publicity coup but also ensured that it would attract a steady stream of well-trained prospective employees.
LISTENING TO THE CUSTOMER
Chambers believed that the most important thing that the CEO of a technological business could do was to stay ahead of the marketplace; the only way for Chambers to do that was to listen carefully to Cisco's customers. He needed to know not only what they were presently buying but what they would be looking for five, 10, or 20 years down the road. By acquiring as much of his competition as possible, he felt that he could ensure the best response to customers' needs. Since Chambers had always been more of a salesman than a technocrat, it was important that he had the very best talent in research and development. Still, he did not simply expect R&D to create breakthrough products. Rather, he wanted them to integrate the products from acquired companies into Cisco's existing infrastructure. Though he was always looking toward the future, Chambers knew that gobbling up the ideas of other companies would leave his team more time to sell its products.
Though his strategies certainly paid off in the short run, some critics doubted their long-term effectiveness. In Cisco Unauthorized, Young argued, "The problem is all about a hollowed-out core of a company and an Elmer Gantry at its head who can talk about a city on the hill, but who can't tell you exactly where it will be pitched without consulting his customer. This kind of reactive leadership works fine when none of the competitors have any idea where the market is going either. But what happens when Cisco hits entirely new technology?" (2001).
Not everything Chambers touched at Cisco turned to gold. The StrataCom deal especially turned off some of the T-shirtand-jeans "geeks" who had come to Cisco because they wanted to work at an innovative, nonconformist company. With that deal, systems and procedures had to be put into place in order for the companies to mesh; some of Cisco's more free-spirited, brilliant people did not want to even try to fit in with the more buttoned-up, white-collar atmosphere. They knew that with all of Cisco's acquisitions money, their chances of making their mark in advanced engineering—of contributing something truly unique to the market—were slim. In addition, there was no good reason for them to stay, with start-ups and dot-coms exploding throughout Silicon Valley. If one was looking for excitement and risk, one had to look beyond Cisco. Still, most of Cisco's employees were looking for security and stability, and they had found it. In the fast-changing Valley, where the average employee turnover rate was more than 40 percent per year, Cisco's turnover rate held steady at between 4 and 6 percent.
Chambers' biggest challenge at Cisco came on July 20, 2000. For quite some time telecom and network companies had been overvalued; when the market finally turned against them, many analysts predicted a hard road for Cisco. Cisco at first seemed to ride above the fray, announcing its 14th consecutive very strong quarter in August 2000. But in early 2001 the fallout hit; Chambers responded by firing 15 percent of his workforce and cutting his own salary to $1 a year. Chambers stayed the course, continuing with what had worked for him in the past: acquisitions. Cisco acquired Linskys in 2003 for $500 million worth of stock; in 2004 it acquired Latitude Communications, a company that specialized in conferencing systems, for $80 million in cash. Chambers surprised many by leading Cisco to a stronger position than ever, though he cautioned that another tech boom in Silicon Valley might never materialize.
With a rebounded Cisco looking healthy in 2004, Chambers was able to look back at a life filled mostly with success. Asked by the San Francisco Chronicle if his wealth and fame would make him a different person, Chambers replied, "I hope that it does not. Most of my friends would say it does not. My friends that I had when I moved here to Silicon Valley are still my best friends. It didn't change dramatically. The most important thing to me in my life is my family. Money's never been a primary motivator in my life" (February 2, 2004).
See also entry on Cisco Systems, Inc. in International Directory of Company Histories.
sources for further information
Burrows, Peter, "Cisco's Comeback," BusinessWeek, November 24, 2003, pp. 116–118.
Howe, Ken, "Cisco Systems/On the Record: John Chambers," San Francisco Chronicle, February 2, 2004.
Maney, Kevin, "Cisco Born Again," USA Today, January 21, 2004.
Paulson, Ed, Inside Cisco: The Real Story of Sustained M&A Growth, New York, N.Y.: John Wiley & Sons, 2001.
Waters, John K., John Chambers and the Cisco Way: Navigating through Volatility, New York, N.Y.: John Wiley & Sons, 2002.
Young, Jeffrey S., Cisco Unauthorized: Inside the High-Stakes Race to Own the Future, Roseville, Calif.: Prima Publishing, 2001.