(FORTUNE Magazine) – Scratch any company, and behind its products and services, guess what you'll find. People, of course--and with the job market now superheated, effective recruiting has become a powerful strategic weapon. This is particularly the case in Silicon Valley, where the only thing worth more than a bright new idea is a bright new hire.

Exhibit A is Cisco Systems, the high-flying San Jose networking company, with sales of $6.4 billion in fiscal 1997 and profits of $1.4 billion, up 53% for the year. To notch that kind of growth, the company has had to double its work force in the past 18 months while trying to hire only the highest-caliber people along the way. In each quarter of 1996, Cisco took on more than 1,000 new employees, making it responsible for roughly 10% of the total net job gains in Silicon Valley. Things have slowed a bit this year, but the company, now employing 10,000, remains a voracious hirer.

The secret to Cisco's success: Its recruiting team identified exactly the kind of people the company should hire, then figured out how they do their job hunting, and most important, innovated the heck out of the hiring process to attract them. A mighty proponent of growth through acquisitions, Cisco has also shown a knack for integrating employees of the companies it swallows up.

Based on performance reviews conducted three months after employees start work, and a continued low turnover rate, the networking giant believes its talent pool remains undiluted. "Cisco has an overall goal of getting the top 10% to 15% of people in our industry," says CEO John Chambers. "Our philosophy is very simple--if you get the best people in the industry to fit into your culture and you motivate them properly, then you're going to be an industry leader."

Cisco's recruiters target what they call passive job seekers, people who are happy and successful where they are. Says Barbara Beck, Cisco's vice president for human resources: "The top 10% are not typically found in the first round of layoffs from other companies, and they usually aren't cruising through the want ads."

Since the most sought after employees just aren't very accessible, Cisco had to learn how to lure 'em. It began by holding focus groups with ideal recruitment targets, such as senior engineers and marketing professionals from competitors, to find out how they spend their free time (lots of movies), what Websites they visit (Dilbert Zone is popular), and how they feel about job hunting (they hate it). Then the real work started.

The company has learned to reach potential applicants through a variety of routes not usually used in recruiting, such as infiltrating art fairs and microbrewery festivals. Silicon Valley's annual home and garden show has been a particularly fruitful venue. The first-time homebuyers the event attracts also tend to be young achievers at successful tech companies. Cisco recruiters work the crowd, collecting business cards from prospects and speaking with them informally about their careers.

The way Cisco uses newspaper help-wanted ads has also changed dramatically. Rather than listing specific job openings, the company runs ads featuring its internet address and an invitation to apply at Cisco. Directing all job seekers to its website is of major benefit to Cisco. On the Net it can inexpensively post hundreds of job openings and lots of information about each one. The company advertises its site in cyberspace as well. That way it can reach a self-selected set of candidates (those able to navigate the internet) from around the world. And the company can easily monitor and measure important aspects of its recruiting programs, such as the number of visits to its site.

Since most prospects visit Cisco's website from their jobs, the company can even tell where they work. This information lets Cisco do some sneaky stuff. People visiting Cisco's site from archrival 3Com, for example, were once automatically greeted with a screen that said, "Welcome to Cisco. Would you like a job?"

The company has tried hard to take some of the frustration out of applying for a job. Says Michael McNeal, director of corporate employment: "Here's how most people see recruiting. First, I have to agonize over the wording of my resume. Then I'm interviewed, which is all about whether people like me or not--and then I have to negotiate my compensation, which is all about how much I'm worth." Not much there that people look forward to.

Relying again on focus groups, Cisco sought to learn how happily employed people could be enticed to interview for a job. The response: "I'd do it if I had a friend who told me he had a better opportunity at Cisco than I have at my current employer." So the company launched an initiative--a so-called friends program--to help prospects make a pal at Cisco who could describe what it's like to work there.

A thousand Cisco employees have volunteered for the program, enticed by a generous referral fee (starting at $500) and a lottery ticket for a free trip to Hawaii for each prospect they befriend who is ultimately hired. What does being a friend entail? Cisco employees are matched up with people who have approached the company as prospects and who have similar backgrounds and skills. They then call the prospects to tell them in their own words about life at the company.

Though the program is advertised only in local movie theaters, Cisco receives 100 to 150 requests each week from applicants wishing to be introduced to a friend at Cisco. About a third of new hires now come through the friends program. Dawn Wilson, a 38-year-old CAD applications engineer, had been working at Tandem Computers for 11 years, sticking with the company mostly because she liked her boss. When she discovered that her boss was job hunting, she decided to look around too. One day, while visiting Cisco's website to check the company's stock price for her personal investments, Wilson noticed the friends program and filled out a resume form online. A week or two later she received a call from Cisco's Jaime Gonzalez, also a CAD applications engineer. They immediately hit it off and quickly discovered that Wilson's experience was directly relevant to the type of work being done in Gonzalez's group. Within a week, after a series of interviews at Cisco, Wilson had given notice at Tandem.

Says Wilson: "Jaime was easy to talk to. I was a lot more comfortable coming in for interviews and starting a new job." For his part, Gonzalez says, "By the end of my first conversation with her, I became an advocate. It was just a gut feeling." Of course, not all introductions made through the friends program are matches made in heaven. But even a pleasant conversation can help grease the recruiting wheels.

To accelerate and standardize online resume submission, Cisco will soon launch a tool called Profiler on its employment web page. Profiler will ask applicants to provide educational and employment information by choosing appropriate selections from a series of pull-down menus. Profiler will then ask a handful of questions specific to an applicant's background. For example, an applicant who currently works as an account manager will be asked, "What has been your average goal in the last three years and what has been your year-to-year growth?"

Because most people will log on to Profiler from work (peak usage of Cisco's employment page occurs between 10 a.m. and 3 p.m.), they risk being caught in the act by a just-dropping-by boss. With that danger in mind, each screen features an escape button that pulls up a page of gift suggestions for co-workers.

Like applicants, most line managers don't exactly relish the time-consuming recruiting process, so Cisco has tried to make their lives easier, too. The company has taken the unusual step of hiring in-house headhunters--professionals trained to identify qualified candidates for managers, not simply pass them stacks of resumes. The benefits of faster hiring, the company reasoned, would far outweigh the expense of headhunters. Hiring a new salesperson six months earlier can mean several million dollars in incremental revenue.

And then there's Cisco's acquisition strategy. If you can't hire talent, just buy it. Says Beck: "One of Cisco's core strategies for growth is acquisitions, and one of the primary purposes for acquisitions is for the engineering and R&D talent." In addition to hiring close to 5,000 new employees last year, Cisco absorbed the employees of 12 acquired companies, including 1,300 from StrataCom, a supplier of switches used to speed information delivery across the internet. Cisco seeks to keep virtually all the employees of the companies it buys, sometimes by letting them telecommute.

Consider the acquisition of Grand Junction in 1995, a move that brought Cisco 85 new employees with expertise in designing switches for a new market, small to medium-sized businesses. Grand Junction essentially became a new division within Cisco. "In general, business units are pretty autonomous here. It's not stifling at all," says Bill Rossi, an executive who joined Cisco courtesy of the Grand Junction acquisition. He says most of Grand Junction's employees have also stuck around. "People like to work for a leader," he explains.

They do indeed, and that's one recruiting advantage Cisco aims to hang on to. Nevertheless, nothing prevents Cisco's competitors--many of whom are also growing quickly--from copying its most effective recruiting programs.

So why should anyone believe Cisco's hiring efforts will continue to be successful? The recruiting team's answer, in a word: innovation. Just as the friends program was yesterday's big idea and Profiler is today's, Cisco's recruiters say they've got lots of new initiatives in the hopper. Says Janet Skadden, director of human resources: "The company is obsoleting its own products every six to 12 months. The same is true for HR."