2. Case Facts: Company Profile
History :
• Started in 1984 by 2 Stanford graduates: Sandra
Lerner (Stanford Business School), Leonard Bosack
(CS Department)
• 1987: First round of venture finance by Sequoia
Capital of USD 2.5 million, 10 employees (Sandra –
VP Customer Services, Len – CTO, CEO from outside
for 6% stock option)
• IPO in Feb 1990, value of $ 222 million Founders
sell their 67% stake back to the company
• Large customers: Enterprise & Service providers
• CEO (John Chamber) spends 50% of his time with
customers
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3. Case Facts: Company Profile
Products :
• Routing
• Switching
• Home Networking
• IP Telephony
• Optical Networking
• Security
• Storage Area Networking
• Wireless Technology
• Access
• Network Management
• Service
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4. Case Facts: Cisco's Business Strategy
• Assemble a broad product line in order to provide customers one-
stop shopping for networking solutions.
• Systematize the acquisition process.
• Define industry-wide software standards for networking equipment.
• Pick the right strategic partners.
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5. Case Facts:
Cisco's Merger & Acquisition Strategy
Have highly
centralized
7 marketing and
customer contact.
Plug the acquisition 1
into a powerful
market access
infrastructure, Decentralize
releasing untapped on research
potential. and upstream
parts of
product
development.
6 2
Emphasis on
speed.
5
3
Identify
leaders in
areas where
Cisco does not
Develop repeatable have a strong
process of acquisition 4 Assess
multiple deals enough
evaluation, due presence
diligence, and through the
integration Bus-Dev
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function. 5
6. Case Facts:
Strategy Innovation Outsourcing
• Keep the core to yourself, outsource almost
everything else to alliance partners
– Networking standards (MPLS, OSPF)
– Designs and algorithms
– Manufacturing
– Selling
– Logistics
– Training
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7. Case Facts:
Strategy Innovation M&A
• Inorganic growth through acquisition makes
sense as market evolves too rapidly
• New technology start-ups market share
enhancement
• Process :
Identify (Due Diligence)
Acquire (Deal making)
Merge, assimilate (Post Acquisition Integration, with
“grafting” of new people)
• 1993 onwards >70 companies acquired
• 1997 acquisition of Stratacom for $4.4 billion
• 1999 acquisition of Cerent Corp for $7 billion
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8. Case Facts:
Processes and Organizational Culture
• Fully networked organization
• Outsourcing, extended supply
chains
• Brand consciousness –
– certification (CCNA, CCIE, CCDP etc.)
– “Empowering the Internet Generation”
slogan
• 32000 people, USD 20 billion
revenue, still manages to keep
entrepreneurial culture
• Truly transnational
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10. Cisco's M&A strategy today
Silicon Valley Watcher Interview on March 07, 2005:
Dan Scheinman, Cisco's head of M&A and corporate PR
• The downturn reset everything, there was no longer any need
to rush, Cisco could go back to basics and take its time making
acquisitions.
• In the late stages of the bubble, there was a lot of pressure to
make acquisitions because of the risk that a company would
IPO and get a huge valuation and that would increase Cisco's
acquisition costs in the future. Cisco learned to slowdown, to
wait and have discipline. The trick is to find companies at the
right inflection point in their business when customers are
beginning to vote with their money.
• He admits that he hasn’t picked all winners so far, out of the 15
acquisitions he has made. But new businesses are ahead of
plan and produced $1.3bn in annual revenues versus a forecast
of $1.2bn. He thinks Cisco might need to move a bit faster in
making acquisitions this year.
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15. Mandatory Manufacturing Integration
Steps
1. ASSIGN EACH OF THE ACQUIRED
COMPANY’S PRODUCTS A NEW CISCO
PRODUCT NUMBER
2. RE-CREATE THE BILL, OF MATERIALS
IN CISCO’S MRP DATABASE.
3. CONVERT THE ACQUIRED COMPANY
TO CISCO’S MRP SYSTEM.
4. CONVERT THE ACQUIRED COMPANY
TO CISCO’S AUTOTEST SYSTEM.
5. EVALUATE SUPPLIERS.
6. CONVERT TO CISCO’S OUTSOURCING
MODEL
7. DETERMINE PRODUCT LIFECYCLES
8. EMPLOY AN ACCEPTABLE DEFECT
REDUCTION PROCESS
9. ADOPT CISCO’S FORECASTING
METHODOLOGY
10. ADOPT CISCO’S NEW PRODUCT
INTRODUCTION (NPI) METHODOLOGY
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17. THE SUMMA FOUR ACQUISITION
• Summa Four is a leading provider of programmable
switches which will enable Cisco to offer value-
added telephony applications to new and existing
service providers as well as extending these
services to a voice-over-IP (Internet Protocol)
infrastructure.
• Due to the deregulation of the telecommunications
industry, service providers were in a fierce,
competitive race to develop and deliver these types
of enhanced services to their customers.
• Cisco announced it would acquire the Manchester,
New Hampshire—based company in July 1998.
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18. Summa Four Acquisition SWOT
• Project Alpha was still in the development phase at
the time of the acquisition, and over a year away
from product launch Key reason behind Cisco’s
interest in Summa Four.
• In September of 1998, the idea of being acquired by
Cisco was still very new to Summa Four’s
employees, but their exciting.
• Summa Four’s plant compared favorably to many of
the other plants that Cisco had acquired. However,
the plant used a homegrown, PC- based test system
that was far less automated than Cisco’s Autotest
system.
• Summa four purchased approximately 5,000
individual parts from 250 suppliers, 85 of whom were
new to Cisco.
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19. Strategic Questions
1. Identify what are the most important elements (criteria,
processes, specific actions, etc.) of Cisco’s approach to
selecting and integrating acquisitions. For each of the
elements have identified, describe why it is important
(what is its purpose?), and specify whether characterize it
as typical (conventional practice by companies doing
technology acquisitions) or unusual?
2. How would improve Cisco’s acquisition selection and
integration process? What is missing? What would add or
modify? Why?
3. What are the specific challenges of the Summa Four
acquisition? Does the Cisco process adequately address
these challenges? Why or why not?
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20. Conclusion
• Acquisition of winning external variations is the strategy that
Cisco Systems has successfully pursued throughout the
1990s.
• Cisco was able to quickly observe which technology-based
variations in the external selection environment were
successful and to use its highly valued shares to acquire
these emergent winners.
• Cisco developed a distinctive competency related to
integrating acquisitions into its strategy-making process.
• The integration task was probably facilitated by the fact that
these were by and large young, relatively small companies –
sometimes encompassing mostly a product team of
scientists and engineers – with little institutional history and
still inchoate cultures.
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21. Conclusion (Cont.)
• Cisco jump to next paradigm through acquisitions.
• Cisco M&A Due Diligence includes non-financials
• Post M&A integration is classic example of
Knowledge Management, the forging of networks
across business units
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24. Recent News : August 8, 2005
Reuters: Cisco Mulls Buying Finnish Phone Maker Nokia
LONDON (Reuters)—Cisco Systems Inc. is considering buying the
world's top mobile handset maker Nokia in a bid to gain its wireless
infrastructure technology, the Business newspaper reported on
Sunday.
The paper, which did not reveal the source of its information, said
U.S.-based Cisco had traditionally concentrated on acquisitions of
niche technology players, but its Chief Executive John Chambers
is believed to be interested in merging with a wireless
infrastructure company.
"Nokia has been identified as the most likely target," the paper
said.
Cisco, the largest maker of Internet equipment, is worth around
$123 billion, while Nokia's market value is around $71 billion.
The paper said Cisco's mainstay networking market was fast
changing with the convergence of fixed-line and wireless networks,
and Cisco needed a merger to acquire the technology to create
intelligent wireless applications, which Finnish-based Nokia could
provide.
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25. Strategic Thrust
Strategy
Strategic Thrust
Hardware Software
Framework of Strategic Thrust (Product-Market Focus), with hardware levers such as structure,
(
control and incentive systems, and software such as people mix and culture Johannes M. Pennings )
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26. Organizational and Political Processes
Strategy Strategy
M&A Framework
Strategic thrust Strategic thrust
of The firm of the acquired
company, e.g. ???
Resources Processes& Resources Processes
values & values
Normative Normative
claims claims
Conflictory, creative process
Strategy
New Strategic Thrust
Resources Processes
& values
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27. Value Creation
Integration Lost Sub- Cost
costs customers total synergies
Cross-
sell
Systems
Marketing
Consultants Head office
Operations
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28. Value Creation
Organizational
Self-sufficiency Strategic Complementarities (Synergy)
LOW HIGH
HIGH Conservation Symbiosis
LOW Acculturation
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29. Post-Acquisition Combination Process
DISPOSE
FIRM A
POOL OF KEEP
RESOURCES
AND
CAPABILIES KEEP
FIRM B
DISPOSE
SCREENING 0 INTEGRATION RESOURCE
EVALUATION AGREEMENT PLANNING/DECISION REDEPLOYMENT/
NEGOTIATION TO PURCHASE MAKING CAPABILITY ASSEMBLY
Combination
Combination
SELECTION
DUE DILIGENCE
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30. Post-Acquisition Replication Process
DISPOSE
FIRM A
POOL OF KEEP
RESOURCES
AND
CAPABILIES KEEP
FIRM B
DISPOSE
SCREENING 0
INTEGRATION RESOURCE
EVALUATION AGREEMENT PLANNING/DECISION REDEPLOYMENT/
NEGOTIATION TO PURCHASE MAKING CAPABILITY TRANSFER
Replication
Replication
SELECTION
DUE DILIGENCE
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31. Linking Stage of Emerging Technology,
Uncertainty and Alliance Strategy
HI
Technological
and Market
Uncertainty
LO
Time
Window Options Positioning
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32. STRATEGIC PERSPECTIVES
• WINDOW STRATEGY
– Objectives: Track technologies, learn
what they mean, stay in the flow of ideas
– Key success factors: ability to learn,
absorb new information
– Key hazards: misapplication of
performance measures, protecting own
proprietary knowledge
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33. STRATEGIC PERSPECTIVES (Cont.)
• OPTIONS STRATEGY
– Objectives: Create new options for the
firm, build a capability platform
– Key success factors: Build a combination
of people, routines, and assets that can
be scaled up or down
– Key Hazards: Reluctance to shift quickly
after investing
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34. STRATEGIC PERSPECTIVES (Cont.)
• POSITIONING STRATEGY
– Objectives: Scale based advantages, market
segmentation, creating a customer base
– Key Success factors: Positioning versus
industry structure and customer preferences,
scalability
– Key Hazards: Retain key talent that grew up in
the window or options stage, managing cultural
differences and tension between those who
seek efficiency and those who are following
innovation
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