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The company that believed buying talent was the key to success now relies on developing the employees it already has.
Cisco's Homegrown Gamble
The company that believed buying talent was the key to success now relies on developing the employees it already has. Not everyone is convinced the strategy will keep Cisco Systems on top.
By Patrick J Kiger
With bold unwavering confidence, John Chambers, president and CEO of Cisco Systems, set out to amass the top 10 to 15 percent of technical talent in the field. It was the late 1990s, and his groundbreaking Silicon Valley tech empire was riding the New Economy boom, developing a reputation for its extremely aggressive--and often highly creative--recruiting efforts. Sometimes the firm bought small companies simply to acquire their best engineers.
In an effort to lure star players from competitors, Cisco resorted to the sort of brash marketing tricks used to hawk soft drinks and sneakers. To gain insight into the likes and dislikes of potential hires, it held focus groups to learn what sorts of movies and Web sites were favored by the best and brightest. Hoping for chance encounters with possible hires, recruiters fanned out to places like garden shows and microbrewery festivals. The firm even rigged its corporate Web site to spot visitors from rival 3Com and greet them with a special page that said, "Welcome to Cisco--would you like a job?" Former vice president for human resources Barbara Beck once told the Washington Post: "If someone was aggressive enough to try to check up on their competitor, we figured we could use that person."
Back when it was flying high, Cisco’s hiring and retention practices were viewed as keys to its success. To keep ahead of the competition, the company drew in top talent at an enviable rate. Now, with revenue stagnant and company stock way down, it has had to adopt new practices, approaches some experts think may hurt the company in the long run by hindering the flow of talent and ideas that makes the company great.
Just a couple of years ago, Cisco, the dominant producer of hardware and software for routing traffic on the Internet and on corporate networks, was one of the fastest-growing companies anywhere. For a brief moment in early 2000, Cisco’s market capitalization of $500 billion made it the most valuable company in the world. But these days, with its stock hovering at about a third of its peak value and its sales flat over the past two years, the San Jose, California, company is operating in a radically different mode. In the spring of 2001, for the first time since the company’s founding in 1984, Cisco cut its staff, laying off 8,500 employees, nearly a fifth of its workforce, and subsequently began consolidating and streamlining its far-flung operations. These days, the company’s human resources team is facing the difficult task of helping employees and management cope with both a tough economy and the necessary evolution of Cisco’s corporate culture.
The party isn’t over--far from it. But Cisco, like so many other big companies, is changing, experimenting, and rethinking the way it recruits, hires, and trains its employees, and how it will maintain its winning culture. Today when the company must fill a key position in one of its business units, for example, the talent often comes not from the outside, but from another Cisco unit--with the help of a network application, Pathfinder. The software allows Cisco employees to search for jobs that interest them and contact the supervisors directly to set up interviews.
"It was amazing how little time and effort the whole thing took," says Ashish Gupta, a Cisco engineer who used Pathfinder to move from a struggling unit to one with brighter prospects. "Within a month, I was in my new cubicle, working." Though the move was lateral, he was pleased with the chance to keep his Cisco salary and benefits, at a time when many other Silicon Valley engineers are out of work.
Human resources executives have devised innovative ways to help laid-off employees, including a program that paid them a portion of their salary and benefits if they went to work for a local charity or community organization. But Cisco also must help its remaining 35,000 employees maintain the focus and entrepreneurial spirit that originally made the company so successful, at a time when there are few opportunities for advancement or raises and the pressure to produce is increasing. At the same time, Cisco is trying to achieve an ambitious long-term strategic goal. It’s seeking to transform itself from a "buy" culture, in which growth was sustained and expertise obtained via corporate acquisitions, to a "build" model, a leaner, more agile company focused on developing talent internally.
Academics and consultants say the jury is still out as to whether Cisco can remake its culture so radically--and whether it’s a wise strategy.
Academics and consultants say the jury is still out as to whether Cisco can remake its culture so radically--and whether it’s a wise strategy. "In my opinion, they’re making a mistake," says John Sullivan, a professor of management at San Francisco State University and a founder of California Strategic Human Resource Partnership, a consortium of 33 leading senior vice presidents of human resources from Fortune 500 firms. "Cisco was the top brand in the world, but it got tarnished. They’ve got to rebuild the brand, to get out and remind everybody that they’re the best. Instead, what they’re doing is moving away from a lot of what made them great."
Maintaining a humane culture
Cisco is reluctant to discuss its strategy and tactics for coping with the challenges of a downturn. The company’s senior vice president for human resources, Kate DCamp, declined to talk to Workforce, and a subordinate, Hollie Castro, senior director of human resources for worldwide business functions, provided few specifics in a half-hour interview. A public-relations official answered some additional background questions. That reticence is a marked contrast to the boom years of the 1990s, when a Wired story described Cisco as a place where cubicles were filled with "shiny, happy people," so blissfully content with their jobs that they regarded 60-hour weeks as "electronic heroin." Mindful of the $250,000 cost of replacing every engineer who left to join an Internet start-up, Chambers and then vice president for human resources Beck set out to keep employees so exultant that they wouldn’t even take recruiters’ calls.
The company achieved an attrition rate of less than 9 percent--remarkable by Silicon Valley standards--by focusing on workplace satisfaction down to the smallest details, such as putting executives’ offices in the middle of floors so that rank-and-file workers could have the windows. It offered a dazzling array of benefits, such as a state-of-the-art day-care center equipped with "nanny cams" so that employees could check in on their kids without leaving their desks. And Chambers was quick to offer support whenever an employee needed help. Once, when a Cisco worker’s home burned down, the human resources department asked Chambers for permission to advance funds to the person until an insurance claim came through. The CEO’s response: "Double it."
Even when Cisco was compelled to furlough 8,500 workers in the spring of 2001, the company put a lot of effort into easing their pain. Chambers, who cut his own salary to $1 in order to save jobs, visited the company’s outplacement center in an effort to boost morale. The company gave six months’ severance pay to those who had to leave, contacted recruiters from other companies on their behalf, and even assisted workers who were foreign nationals in straightening out possible problems with immigration status.
As DCamp, who became head of human resources in mid-2001, explained in a public radio interview in January, the company wanted departing employees to have the attitude that "I’m going to go out and find a job, and come back to Cisco when conditions permit." To make that a reality, Cisco developed an inventive program in which it agreed to pay employees one-third of their salary and continue their health benefits and stock-option grants if they agreed to work for a local charity or community organization. About 80 employees took the offer, and the company recently renewed 40 of them for another year.
As a result, Cisco seems to have lessened the deterioration in employee satisfaction that other companies have suffered. In 2001, it won third place on Fortune’s list of the 100 best companies to work for in America, an honor based on confidential interviews with employees. In 2003, Cisco is still ranked in the top quarter of the list, at number 24--a remarkably slight decline for a company that has had major layoffs and restructuring.
Retaining values that spurred growth
Still, the mandate for Cisco to streamline its operations has produced stress. During the 1990s, when the firm was continually acquiring companies and adding up to 1,000 workers a month, it didn’t waste time worrying about efficiency. It was known to launch separate, competing development teams in an effort to get the best possible product. "This was a company that planned for growth," Sullivan says. "They didn’t plan for shrinkage."
Cisco now has had to shift its talent to the most promising places. Rather than resort to wholesale reassignments, however, Cisco adopted a somewhat unorthodox approach that gives employees a choice of where they go in the company. It created and launched the Pathfinder software application on its corporate network. Pathfinder enables employees to load their résumés and qualifications into the system, sift through a database of openings throughout the company by location, career level, and other criteria, and then contact the hiring managers in other business units directly. While Cisco is far from being the first company to use such software, it has relied heavily on Pathfinder. About 20 percent of the company’s engineers have used the system to change jobs, according to a Cisco official.
Cisco engineer Gupta, one of those who have used Pathfinder, believes that the system reinforces the workplace values that helped make Cisco successful, such as personal initiative and an emphasis on skills rather than schmoozing as the route to success. "The program makes it possible for an engineer like me, who might not know a lot of people outside his unit, to find opportunities," he says.
Sullivan, however, thinks such a free-form flow of talent around the company might actually hinder Cisco’s ability to cope with an increasingly mercurial marketplace. Compared with some of Cisco’s other management tools--executives continuously track and analyze sales performance over the Internet, for example Pathfinder seems surprisingly unsophisticated. It doesn’t contain any intelligent capabilities, for example, that would guide workers to jobs where they are most needed. "What you really want is your A players, your top performers, going to growth areas," Sullivan says. "This system doesn’t help put them there. It’s not easy for people to figure that out by themselves. What you have instead is the chance that top performers may end up in places where they’re not going to make much money for you."
Additionally, Pathfinder has met resistance from Cisco managers, who face the prospect of losing staffs that they’ve worked hard to develop. "I know the managers dislike it," says Kevin Wheeler, president of Global Learning Resources, who has worked for Cisco as a contractor. "But the reality is that if you’re a good manager, your employees are less likely to be out there looking."
Going from buy to build
Joe Strongone, worldwide talent resourcing manager, says that one purpose of the Pathfinder system is to allow employees to move within the company and develop skills that facilitate Cisco’s goal of relying on internally nurtured talent. The company continues to strive to employ the best technical talent in its industry, he says. "We’re trying to develop all our people to be that top 10 to 15 percent."
"In the past, people at Cisco would have viewed their careers as moving up through the company. We’re trying to grow in a different way.
During its high-growth years, Cisco was the business equivalent of a baseball team that wins pennants by continually luring superstar free agents away from other franchises. By contrast, the new Cisco is determined to stick with the players already on the roster, with the aim of further developing their talent. For those employees, however, the development process may often mean moving horizontally, since Cisco’s streamlining and consolidation mean fewer opportunities for promotion. "In the past, people at Cisco would have viewed their careers as moving up through the company," Castro says. "We’re trying to grow in a different way."
Cisco also is trying to give employees more exposure to others outside their own business units. The company hopes to do this through initiatives such as its Business Cooperation Council, which brings together individuals from far-flung business units to work on common projects.
Like Pathfinder, the "build" approach isn’t totally novel, but it’s a surprising turn for Cisco. "Lots of companies have begun to think again about developing talent internally, though few actually have made a big move in that direction," says Peter Capelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School. "What’s interesting is that Cisco really was unique in its buying of talent."
The "buy" mentality has long been woven integrally into Cisco’s strategy. Most of its product line was created by engineers who came to Cisco when it acquired smaller companies, according to a 2000 study by Stanford University professors Charles A. O’Reilly III and Jeffrey Pfeffer. Much of Cisco’s competitive advantage, in fact, came from the company’s skill at making talent from acquisitions feel comfortable enough to stay with Cisco rather than fleeing, as "new" employees often do. Those periodic additions of top performers enabled Cisco to aim at quickly becoming first or second in every segment in which it chose to compete.
San Francisco State’s Sullivan is skeptical about whether Cisco can achieve the same high performance level while relying mostly on internally developed talent. "In the past, great people got even better when they came to Cisco, but it wasn’t because of Cisco’s training," he says. "It was because they continually put some new guy next to you who was smarter than you were, and you had to find a way to keep up with him. I remember somebody admitting to me once, ‘I feel stupid when I go into work at Cisco.’ When you just build internally, you don’t have that sort of fear factor, the pressure that makes you keep getting better and better."
Even if a "build" culture can produce the same results, another question is whether it can deliver quickly enough to keep Cisco on top. In February, Cisco posted a record quarterly profit of $991 million for its most recent quarter, up nearly 50 percent from the comparable period in 2001. But analysts say those numbers are chiefly the result of cost cutting measures. Sales actually slipped slightly, and the company doesn’t expect any growth this year.
Over the horizon, Cisco faces increasingly tough competition from new players such as China’s Huawei Technologies and domestic computer giant Dell, which will try to undercut Cisco with cheaper networking hardware and software. John Chambers has indicated that Cisco will try to compete both on price and by innovating on high-end features such as network security. Those challenges will provide an early indication of how well Cisco’s new culture can supplant the old.