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Bill George

Harvard Business School Professor, former Medtronic CEO

Bezos, Chambers Provide Model for Leaders After Crisis

Originally posted on the Wall Street Journal on January 7, 2010

America faces a deepening leadership crisis. A recent survey by Harvard’s Center for Public Leadership found that 69% of Americans lack confidence in our leaders. Worse yet, 67% believe that “without new leaders, America will decline as a nation.” Wall Street leaders are at the bottom of the list, closely followed by media, political and other business leaders.

I believe the root cause of America’s economic crisis is leaders who practice “short-termism.” What we need to get on the road to economic recovery are innovative, visionary leaders who can resist short-term pressures and build sustainable growth companies.

Two such leaders are Amazon‘s Jeff Bezos and Cisco Systems‘ John Chambers.

In the past decade both have overcome severe crises to emerge as role models of the kind of leaders America needs to build an innovation economy.

At a 1999 CEO conference at the height of the dotcom bubble, I witnessed a telling exchange between Mr. Bezos and Warren Buffett. On stage, Mr. Bezos was proudly proclaiming Amazon’s success (measured in eyeballs) when Mr. Buffett challenged him from the audience.

Having worked the numbers, Mr. Buffett said there was simply no way to justify Amazon’s stock price, even assuming remarkable growth and profitability. At the time Amazon was near $105 per share, with no earnings but a growing revenue base. Mr. Bezos protested Mr. Buffett’s critique, but suspicious murmurs rumbled through the audience.

Cisco’s Mr. Chambers was also on stage that day. Cisco was riding high with a rising stock price. Throughout the next year Cisco stock increased to $77 a share, making the company the world’s most valuable in March 2000.

The higher they go, the farther they fall. In 2001 the dotcom bubble burst. Thousands of startups went belly up as the venture capital market virtually shut down. Amazon and Cisco both suffered from aftershocks of the implosion.

Amazon’s stock collapsed to $6 per share. Cisco’s crash was just as dramatic: from its high water mark, Cisco stock dropped nearly 90%. If Warren Buffett was in the business of shorting stocks, he could have made a killing on his prescient analysis.

Wall Street called for the blood of e-commerce and technology companies. Skeptics projected the end was near. Unlike many of their fallen contemporaries, however, both Amazon and Cisco rebounded.

Amazon’s Mr. Bezos simply ignored the stock collapse as he moved forward with his strategic vision. In 2003 Amazon posted its first full-year profit. Throughout the decade Mr. Bezos continued to expand the company’s product offerings. Even amidst the current economic crisis, Amazon’s third-quarter profits surged 69% as the company established its supremacy in e-retailing.

John Chambers oversaw a similar recovery. Cisco has continued to dominate the market for computer servers and expanded into related products, such as its dramatic new TelePresence offering.

What allowed Amazon and Cisco to persevere as other Web 1.0 contemporaries tanked? How have they successfully navigated another vicious downturn?

The answers can be found in the belief that Mr. Bezos and Mr. Chambers have in their strategies and an unwavering passion for serving their customers. They power their visions with big investments in innovation and manage for long-term growth, even at the expense of short-term profitability.

Mr. Bezos founded Amazon.com in 1994 with secondhand computer stations in his Seattle garage. “There’s no bad time to innovate,” Mr. Bezos told BusinessWeek in 2008. “You should be doing it when times are good and when times are tough.” Currently, Mr. Bezos is transforming the book-reading business with the Kindle e-reader, Amazon’s first in-house hardware product.

Mr. Chambers has continued to build Cisco through innovation and long-term acquisition strategies. The company introduced its TelePresence product and focused its acquisitions on video and mobile technologies.

Through their long-term commitments, Mr. Bezos and Mr. Chambers have created tremendous value for their shareholders: Cisco’s market capitalization is now about $140 billion, while Amazon’s is about $58 billion.

To put the American economy back on the road to recovery, we need more long-term, visionary leaders like Mr. Chambers and Mr. Bezos who can transform entire industries and build sustainable innovation machines.

 

About the Author

Bill George is author of “7 Lessons for Leading in Crisis” and professor of management practice at Harvard Business School. The former chairman and CEO of Medtronic, he currently serves on the boards of ExxonMobil and Goldman Sachs. He previously was a director of Novartis.