3Com's Claflin eschews 'happy talk'

Bruce Claflin thinks that unwarranted "happy talk" serves no good purpose, so instead of spinning a positive picture, the 3Com Corp. chief executive officer (CEO) laid it on the line Saturday at the annual Harvard Business School Cyberposium where he detailed the tough financial decisions he had to make in his first year at the helm.

Although 3Com surpassed its financial goals for a turnaround and posted 8 percent sequential revenue growth in the hard-hit telecommunication sector and growth of 4 percent across all business sectors for its second fiscal quarter which ended Nov. 31, "in the spirit of not having happy talk, one quarter does not a trend make," he said.

The company was riding high until just before Claflin took over as CEO in January 2001 when the bottom fell out of the telecommunication market in the downturn that eventually struck the whole of IT and the global economy.

"I wouldn't wish this start on anyone, but frankly, it wasn't a bad way to get started," Claflin said during a keynote Saturday at the Cyberposium, which is organized and run by Harvard business students and designed to give those working on master's in business administration (MBA) degrees practical advice and a chance to network with executives and academics.

Speakers offered tips on what it takes to be an effective leader and how to find good jobs during tough times. They also offered their thoughts on hot technology and business trends now and in the future. Keynotes by IT executives are often short on substance and long on marketing spiels, bashing the competition or both, but the Cyberposium was blessedly free of spiels and what little bashing there was came across as matter of fact rather than mean-spirited.

Claflin did note that on the same day that 3Com held a press conference to talk about the telecommunication downturn and his company's financial turmoil, Cisco Systems Inc.'s President and CEO John Chambers held a press conference and said there was no slowdown. Some news outlets had fun with that contradiction and Claflin's wife, with whom he usually does not discuss business, upbraided him at home that evening for saying there was a slowdown when that couldn't possibly be happening because Cisco's chief was saying all was fine.

Claflin knew otherwise and set out a plan to turn 3Com around, while telling employees that all slowdowns eventually end. Until that happens, these are his bits of advice for dealing with difficult times:

-- Tell the truth. The telecommunication downturn was just the beginning and Claflin knew that the financial problems would eventually be broader, so he told employees that 3Com would not generate profit or cash for at least two quarters.

-- Build a plan. "And you better make it simple so that everyone understands it," he said. At 3Com, the plan meant cutting working capital by half and capital expenditures by 80 percent. It meant getting rid of a consumer division that had existed for just a year and slashing products that showed no clear path to profit.

The company shifted its focus to research and development with more effort put on third-generation (3G) products, wireless LANs and Bluetooth technology.

Cutbacks further have left the company with 5,800 employees, down from 12,400, and forced the closure of two of three factories. But the plan has generated cash so that 3Com ended its last financial period with US$1.4 billion on its balance sheet, ahead of a $1 billion goal.

-- "Communicate, communicate, communicate" with employees, customers, investors, business partners and the media. 3Com called employee meetings and set up a system to encourage suggestions from workers and get them routed to the right senior executives. Executives were sent out to talk to customers and report back to Claflin.

The company also set up a series of investor meetings. Instead of sending the standard, expensive, glossy report to investors, Claflin sent a simple one-page letter on bound paper laying out the company's problems and plans for a turnaround. "We didn't have happy talk," he said.

-- Be confident. Remember that "they can smell fear," Claflin said of employees.

While it might seem counter to the advice to maintain confidence, Claflin said he doesn't like the notion of creating a "vision" for the company. "I think in most cases it's just an exercise for the PR team," he said. So during an employee meeting at the height of the company's problems, when asked by a worker to articulate his vision, he replied, "The last thing we need is a vision."

Instead, what the employees needed was a dose of reality, so he called on a trite, but apt, metaphor: "We just hit an iceberg and we're taking on water." Survival and getting to a safe port was the key.

Claflin also reminded employees that 3Com, like other companies, had been in trouble before and managed to bail out the water and make it to shore, so he offered confidence that would be the case again.

"Each step is victory, so recognize the progress," he said.

Claflin's talk resonated with first-year Harvard business student Hisham el-Khazindar [cq] of Cairo.

"I think the great lessons to be learned just from this speech are to have passion and energy and confidence in the face of uncertain situations," he said.

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