Cisco's homegrown gamble: the company that believed buying talent was key to success now relies on growing its own stars. Not everyone is convinced the strategy will keep Cisco on top

Workforce, March, 2003 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. "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."