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OB PRESENTATION
Cisco’s Acquisition Strategy
- GROUP 6
ANKIT UTTAM
MADHURIMA GANDRETTI
NAYANA UNNI
PRIYA NS
SURAJ GARG
Cisco in a nutshell
• Started in 1984 by two Stanford graduates: Sandra Lerner(Stanford
Business School)and Leonard Bosack (CS Department).
• Designed an operating system software called IOS which was loaded into
a box containing microprocessors.This was known as router.
• March 1986-First router was delivered.
• November 1986-Cisco was earning revenues of US $250000 per month.
Started first round of venture capital funding.
• 1987- Appointed Bill Graves as CEO and Lloyd Embry as CFO.
• 1987- Received funding of US $2.5 million from Sequoia Capital,a venture
capital firm.
• 1988- Appointed John Morgridge as CEO.
2
Cisco in a nutshell
▪ 1988- Revenues reached 5.45 million US dollars. Had 35 employees,12 of
them being engineers.
▪ 1989- Cisco’s 174 workforce comprised 35 software engineers.
▪ Early 1990s- Cisco experienced spectacular growth. Shift in focus from
technologically driven to customer driven.
▪ June 1994- Chambers was appointed as executiveVice President.
▪ January 1995-Chambers was appointed as Cisco’s president and CEO.
▪ Large customers : Enterprise & Service providers
3
Products
▪ Routing
▪ Switching
▪ Home networking
▪ IPTelephony
▪ Optical Networking
▪ Security
▪ Storage area networking
▪ Wireless technology
▪ Access
▪ Network management
▪ Service
4
Elements of Cisco’s Culture
Culture is the process by which a person becomes all
that they were created capable of being.
Thomas Carlyle
5
Empowerment
 Sharing varying degrees of power with lower-level employees to tap their full
potential.
 The organizational structure of Cisco fostered a spirit of employee involvement.
 Cisco’s management believed in offering maximum autonomy to executives.
 Several decisions, including the ones relating to investments in new products
and technologies, were decentralized.
 Decentralization gives more autonomy to the employees leading to higher job
satisfaction which in turn results in greater job performance.
 For e.g. if a Cisco employee wanted the top management support for an
innovative idea, he had to discuss the idea with an employee decision-making
team and get its assent. If the decision-making team accepted the idea, the top
management gave the green signal.
 Thus the decision-making teams were empowered to make the decision
because the management put the authority, the responsibility, and the
accountability at the same layer.
6
Drive Change
 All employees were encouraged to be vigilant towards changes in
market environment, such as customer attitudes, competitors
move, etc.
 State-of-the-art IT systems to observe even minor changes in the
external environment.
 Encouraged R&D department to come out with new products.
 More proactive sales personnel
7
Teamwork
 Employees were encouraged to be team players.
 Efforts made to promote better relationships between executives
and thus improve the company’s prospects.
 Attractive rewards.
 Conducted team building events to facilitate high level of
interaction.
 Chambers has replaced Cisco’s top-down decision making with
committees of executives from across the company. Some teams
provide strategic advice and evaluate the progress of these
projects. In total, Cisco now has 59 internal standing committees.
8
Customer Success
▪ Customers First- ‘worship of customers’
▪ Pay attention to customers and anticipate what they wanted.
▪ Grievances to be addressed properly.
▪ Getting regular customer feedback, which helped Cisco employees to
be proactive in identifying problem areas, rather than waiting for the
annual customer satisfaction survey.
▪ Employee compensation decided on the basis of the extent to which
their customers were satisfied.
9
Quality Team
▪ To maintain its top position in the market and to achieve customer
success, top priority was given to recruiting and retaining talented
people.
▪ For recruiting candidates who fit into the culture of Cisco, a selection
criterion was developed which targeted candidates who were frugal,
enthusiastic about the future of the Internet, and were not obsessed
with status - all hallmarks of the Cisco culture.
▪ Took steps to ensure employee satisfaction like awarding stock
options for employees in the managerial cadre, as well as for non-
management employees.
10
Cisco’s Business Strategy
Latest Business Strategy-- “The light at the end of
the tunnel has been turned off due to budget cuts”
11
Business Strategy
▪ Assemble a broad 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.
Strategy Innovation & Outsourcing
Keeping the core and outsourcing almost everything else to
alliance partners
▪ Networking standards
▪ Designs and Algorithms
▪ Manufacturing
▪ Selling
▪ Logistics
▪ Training
Merger and Acquisition
A Perspective
The Approach
Cisco’s three step process for acquisitions
i. Evaluating target company
ii. Determining Compatibility
iii. Integration
15
Evaluating Target Company
▪ Similar business vision
– Company should be developing new product that can be exploited commercially.
▪ Size
– Smaller companies are preferred.
– Easy to integrate
▪ Benefits of Stakeholders in long term
– Cisco believes that all stakeholders should be benefitted in the long term due to acquisition
▪ Proximity to Cisco headquarters
– Close monitoring
– Minimal travelling expense
▪ Mutual agreement acquisition
▪ Value and Culture fit with Cisco
– Adventurous and Risk takers are preferred
– Judged by Past decisions. Should have one or two mistakes in the past due to risk taking appetite.
16
Determining Compatibility
▪ An acquisition team assess the extent to which the employees at the
top and lower level can be integrated into Cisco
▪ The team also do the assessment of following aspects:
– Technological aspects
– Financial aspects.
– Employee’s calibre
– Management functioning
– Company’s culture
▪ The team spend a fortnight in the company to achieve the above
metrics
17
Integration- The big problem
▪ Since 1993, Cisco has acquired more than 120 companies, from small start-
ups to large, well-established firms such as Linksys, Scientific Atlanta, and
WebEx.
▪ With multiple acquisitions occurring each year, it became clear that Cisco
could not approach the integration effort in an improvised manner, with
different personnel and activities engaged each time.
▪ Acquisition integration needs to become a standard way of doing business
for Cisco employees.
▪ The Problem: Cisco needed an integration approach that would be
consistent across the company, repeatable for each new acquisition, and
adaptable as Cisco began to acquire large companies with different
operational parameters.
18
The Solution
Cisco has developed-and continues to evolve-a well-defined approach to
integrating acquired companies. This approach encompasses the following
elements
▪ Formalized and centralized integration management through a designated
team in the Cisco Business Development group.
▪ Cross-functional teams for each acquisition that plan, manage, and monitor
integration activities across Cisco.
▪ Standard principles, metrics, tools, methods, and processes that can be
repeatedly applied to new integration efforts, yet are adaptable to the unique
issues and parameters of each deal.
▪ Extensibility of the acquisition integration model to other major change
events, such as divisional consolidations, divestitures, or acquisitions by Cisco
divisions.
19
A Companywide Approach to Integration
20
Integration Principles
The following principles guide Cisco acquisition integration activities:
▪ Alignment. Set common standards so that all internal organizations and
integration activities are aligned to achieve the business goals of the acquisition.
▪ Communication. Enhance cross-functional communication to highlight
interdependencies, overlaps, and gaps in activities and schedules, and to
encourage cooperation on integration tasks.
▪ Operational effectiveness. Continually improve integration capabilities across
Cisco by:
– Promoting consistent, repeatable processes that can reduce integration project setup
time and assist with resource and capacity planning
– Adapting integration standards to accommodate different business models as Cisco
acquires large companies and those offering different types of products and services
– Incorporating the lessons learned from each acquisition
21
Integration Metrics
Cisco uses a variety of qualitative and quantitative metrics to measure the
success of each acquisition integration effort. Typical metrics include the
following:
▪ Retain 100 percent of the employees who transition from the acquired
company
▪ Sustain the acquired company's current product and service revenues (as
well as current levels of service and support) during and after the transition
to Cisco
▪ Launch new Cisco products based on the acquired products and
technologies
22
HR Centric Approach
▪ Retaining 100 percent of employees: The Cisco HR team works with
executives from the acquired company to help map employees to
Cisco's employment structure for salary, stock options, and benefits.
▪ Cisco HR works with internal resources to handle routine transition
tasks such as employee setup in HR and payroll systems.
▪ To reduce the disruption and anxiety of the transition process for new
employees, HR staff are among the first Cisco representatives onsite at
the acquired company when a deal is announced.
▪ The Cisco HR acquisition team provides employee transition letters
and hiring documents online to improve the efficiency of employee
processing and create electronic personnel files that are easier to
update and manage.
▪ The Cisco HR team hosts a new-hire orientation for all new employees
at the time the acquisition deal closes.
Benefits for Cisco As a Company
▪ Ability to realize the value expected from each acquisition:
– The integration tasks can be completed quickly, the transition of a
company to ownership by Cisco creates less disruption in sales and
productivity levels.
– Metrics that track the value gained by Cisco from its acquisitions are
monitored over time.
▪ Faster, smoother integration of acquired companies: With decision-
making and execution capabilities centralized in one team for each
acquisition, the integration activity can proceed with greater speed and
ease than would be the case for decentralized efforts.
▪ Easier cultural integration: The internally developed processes reflect
Cisco corporate culture, which facilitates clearer communications and
easier collaboration among the integration teams.
▪ High levels of employee retention: In the first two years after an
acquisition closes, Cisco retains nearly 100 percent of the new employees.
▪ Optimized operational infrastructure: Acquired companies migrate to the
Cisco corporate network, standard IT infrastructure, and application
architecture, which reduces operating costs as well as management and
support requirements.
▪ Maximized sales structures and channels: By consolidating sales forces and
channels, Cisco can expand its customer base and sales opportunities while
avoiding overlap in sales activities.
▪ Solid foundation for acquisitions:
– The foundation of standards and a well-defined integration process support
a strong, active Cisco acquisitions team that can pursue more deals, more
quickly and at lower risk.
– This foundation also gives Cisco the confidence to enter new markets and
acquire companies with diverse operating models.
Benefits for Cisco As a Company
Benefits for Cisco As a Company
▪ Continuous development of integration expertise: The same Cisco
employees typically serve on multiple acquisition integration teams,
hence this expertise can be developed, sustained, and deepened
throughout the company.
▪ Efficient integration throughout the company: Defined processes
and standards allow all teams to work efficiently and effectively and
sustain focus on high-priority activities.
26
Loopholes
I'm not saying my mother didn't like me, but she
kept looking for loopholes in my birth certificate.
Les Dawson
27
Loopholes In Strategy
 Risky strategy –
▪ Cisco mostly acquired startups with unproven product.
▪This means revenue generation was uncertain.
▪Though there were no competitors in emerging markets, when cisco entered
market segments with established competitors this advantage disappeared.
 Overloaded Acquisition drive-
▪ Cisco had undergone aggressive Acquisition expansion.
▪ Acquisitions are difficult to implement on any scale and cisco was implementing
it non-stop.
▪This accelerated pace of acquisition overloaded cisco’s ability to undertake
adequate due diligence.
Loopholes In Strategy
 Organizational structure-
▪ Product centric organization:
▪ Facilitates coordination among specialties
▪ Major disadvantage is duplication of activities and costs.
▪There was duplication of development efforts across different segments in Cisco.
▪ Chambers described this period as “ 100 year flood scenario” .
 Financial irregularities–
▪ No authenticity of financial reporting.
▪ Paying premiums for acquisition targets results in destruction of value for the acquirer's
shareholders.
29
 Internal competition & failure in cultural integration-
▪ Competition on same customer accounts between different cisco teams.
▪ Cisco’s inability to integrate cultures of acquired companies compounded the
problem.
▪ Formation of small internal groups were reported & employees were referred by
the name of the acquired company they came from
▪ Conflicts between groups were reported.
 Decentralization-
▪The duplications stemmed from customer segments and not by technology.
▪This was a direct result of decentralization.
▪ Managers were empowered to take decisions on acquiring companies.
Loopholes In Strategy
 Problems in IT integration-
▪ Interface compatibility problems
▪ Software mismatches
▪ Problems in integrating various IT businesses
 Expensive- Growth by acquisition strategy is quite expensive.
 Burst of internet bubble in 2000-
▪This resulted in the slowdown of telecommunications industry
▪ Led to mass layoffs , pay cuts and revenue dropped by 30% for the third
quarter.
Loopholes In Strategy
 Shift from their culture-
▪Cisco had a highly innovation driven culture.
▪As a result of Aggressive acquisition the task of R&D employees became
integrating acquired technology and not developing new products.
▪This eventually led to employee dissatisfaction.
Loopholes In Strategy
Revised Strategy
“In strategizing, you must kill all your darlings.”
33
Revising Strategy
▪ Managers not allowed to decide upon acquisitions.
▪ Investment Review Board whose task was to thoroughly scrutinize all the
acquisitions.
▪ Meetings between heads of various departments to assess the potential
impact of a particular acquisition on Cisco and drawing up a well-defined
operational plan.
▪ Revised strategy increased the accountability of the managers.
▪ Number of acquisitions reduced from 23 in 2000 to 2 in 2001 and 3 in 2002.
▪ Top management’s decision to place emphasis on Team Building; setting up
committees all across the company to ensure close coordination of various
departments.
34
Revising Strategy
▪ To enhance team spirit, Cisco laid down a rule that 30% of the
bonuses of Cisco’s executives would be based on how they promoted
teamwork and cooperation.
▪ Cisco’s efforts payed off with improved financial results and a change
in the attitude of employees.
▪ In 2001 cisco moved from its product team structure to matrix
structure
▪ Matrix structure integrates the strengths of both functional structure
and product team structure while eliminating the disadvantages of
both.
35
Copyright 2007 Prentice Hall 36
Characteristics of Structure Associated with
Business-Level Differentiation and Low-Cost Strategy
Thank you..... 

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Cisco’s acquisition strategy

  • 1. OB PRESENTATION Cisco’s Acquisition Strategy - GROUP 6 ANKIT UTTAM MADHURIMA GANDRETTI NAYANA UNNI PRIYA NS SURAJ GARG
  • 2. Cisco in a nutshell • Started in 1984 by two Stanford graduates: Sandra Lerner(Stanford Business School)and Leonard Bosack (CS Department). • Designed an operating system software called IOS which was loaded into a box containing microprocessors.This was known as router. • March 1986-First router was delivered. • November 1986-Cisco was earning revenues of US $250000 per month. Started first round of venture capital funding. • 1987- Appointed Bill Graves as CEO and Lloyd Embry as CFO. • 1987- Received funding of US $2.5 million from Sequoia Capital,a venture capital firm. • 1988- Appointed John Morgridge as CEO. 2
  • 3. Cisco in a nutshell ▪ 1988- Revenues reached 5.45 million US dollars. Had 35 employees,12 of them being engineers. ▪ 1989- Cisco’s 174 workforce comprised 35 software engineers. ▪ Early 1990s- Cisco experienced spectacular growth. Shift in focus from technologically driven to customer driven. ▪ June 1994- Chambers was appointed as executiveVice President. ▪ January 1995-Chambers was appointed as Cisco’s president and CEO. ▪ Large customers : Enterprise & Service providers 3
  • 4. Products ▪ Routing ▪ Switching ▪ Home networking ▪ IPTelephony ▪ Optical Networking ▪ Security ▪ Storage area networking ▪ Wireless technology ▪ Access ▪ Network management ▪ Service 4
  • 5. Elements of Cisco’s Culture Culture is the process by which a person becomes all that they were created capable of being. Thomas Carlyle 5
  • 6. Empowerment  Sharing varying degrees of power with lower-level employees to tap their full potential.  The organizational structure of Cisco fostered a spirit of employee involvement.  Cisco’s management believed in offering maximum autonomy to executives.  Several decisions, including the ones relating to investments in new products and technologies, were decentralized.  Decentralization gives more autonomy to the employees leading to higher job satisfaction which in turn results in greater job performance.  For e.g. if a Cisco employee wanted the top management support for an innovative idea, he had to discuss the idea with an employee decision-making team and get its assent. If the decision-making team accepted the idea, the top management gave the green signal.  Thus the decision-making teams were empowered to make the decision because the management put the authority, the responsibility, and the accountability at the same layer. 6
  • 7. Drive Change  All employees were encouraged to be vigilant towards changes in market environment, such as customer attitudes, competitors move, etc.  State-of-the-art IT systems to observe even minor changes in the external environment.  Encouraged R&D department to come out with new products.  More proactive sales personnel 7
  • 8. Teamwork  Employees were encouraged to be team players.  Efforts made to promote better relationships between executives and thus improve the company’s prospects.  Attractive rewards.  Conducted team building events to facilitate high level of interaction.  Chambers has replaced Cisco’s top-down decision making with committees of executives from across the company. Some teams provide strategic advice and evaluate the progress of these projects. In total, Cisco now has 59 internal standing committees. 8
  • 9. Customer Success ▪ Customers First- ‘worship of customers’ ▪ Pay attention to customers and anticipate what they wanted. ▪ Grievances to be addressed properly. ▪ Getting regular customer feedback, which helped Cisco employees to be proactive in identifying problem areas, rather than waiting for the annual customer satisfaction survey. ▪ Employee compensation decided on the basis of the extent to which their customers were satisfied. 9
  • 10. Quality Team ▪ To maintain its top position in the market and to achieve customer success, top priority was given to recruiting and retaining talented people. ▪ For recruiting candidates who fit into the culture of Cisco, a selection criterion was developed which targeted candidates who were frugal, enthusiastic about the future of the Internet, and were not obsessed with status - all hallmarks of the Cisco culture. ▪ Took steps to ensure employee satisfaction like awarding stock options for employees in the managerial cadre, as well as for non- management employees. 10
  • 11. Cisco’s Business Strategy Latest Business Strategy-- “The light at the end of the tunnel has been turned off due to budget cuts” 11
  • 12. Business Strategy ▪ Assemble a broad 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.
  • 13. Strategy Innovation & Outsourcing Keeping the core and outsourcing almost everything else to alliance partners ▪ Networking standards ▪ Designs and Algorithms ▪ Manufacturing ▪ Selling ▪ Logistics ▪ Training
  • 15. The Approach Cisco’s three step process for acquisitions i. Evaluating target company ii. Determining Compatibility iii. Integration 15
  • 16. Evaluating Target Company ▪ Similar business vision – Company should be developing new product that can be exploited commercially. ▪ Size – Smaller companies are preferred. – Easy to integrate ▪ Benefits of Stakeholders in long term – Cisco believes that all stakeholders should be benefitted in the long term due to acquisition ▪ Proximity to Cisco headquarters – Close monitoring – Minimal travelling expense ▪ Mutual agreement acquisition ▪ Value and Culture fit with Cisco – Adventurous and Risk takers are preferred – Judged by Past decisions. Should have one or two mistakes in the past due to risk taking appetite. 16
  • 17. Determining Compatibility ▪ An acquisition team assess the extent to which the employees at the top and lower level can be integrated into Cisco ▪ The team also do the assessment of following aspects: – Technological aspects – Financial aspects. – Employee’s calibre – Management functioning – Company’s culture ▪ The team spend a fortnight in the company to achieve the above metrics 17
  • 18. Integration- The big problem ▪ Since 1993, Cisco has acquired more than 120 companies, from small start- ups to large, well-established firms such as Linksys, Scientific Atlanta, and WebEx. ▪ With multiple acquisitions occurring each year, it became clear that Cisco could not approach the integration effort in an improvised manner, with different personnel and activities engaged each time. ▪ Acquisition integration needs to become a standard way of doing business for Cisco employees. ▪ The Problem: Cisco needed an integration approach that would be consistent across the company, repeatable for each new acquisition, and adaptable as Cisco began to acquire large companies with different operational parameters. 18
  • 19. The Solution Cisco has developed-and continues to evolve-a well-defined approach to integrating acquired companies. This approach encompasses the following elements ▪ Formalized and centralized integration management through a designated team in the Cisco Business Development group. ▪ Cross-functional teams for each acquisition that plan, manage, and monitor integration activities across Cisco. ▪ Standard principles, metrics, tools, methods, and processes that can be repeatedly applied to new integration efforts, yet are adaptable to the unique issues and parameters of each deal. ▪ Extensibility of the acquisition integration model to other major change events, such as divisional consolidations, divestitures, or acquisitions by Cisco divisions. 19
  • 20. A Companywide Approach to Integration 20
  • 21. Integration Principles The following principles guide Cisco acquisition integration activities: ▪ Alignment. Set common standards so that all internal organizations and integration activities are aligned to achieve the business goals of the acquisition. ▪ Communication. Enhance cross-functional communication to highlight interdependencies, overlaps, and gaps in activities and schedules, and to encourage cooperation on integration tasks. ▪ Operational effectiveness. Continually improve integration capabilities across Cisco by: – Promoting consistent, repeatable processes that can reduce integration project setup time and assist with resource and capacity planning – Adapting integration standards to accommodate different business models as Cisco acquires large companies and those offering different types of products and services – Incorporating the lessons learned from each acquisition 21
  • 22. Integration Metrics Cisco uses a variety of qualitative and quantitative metrics to measure the success of each acquisition integration effort. Typical metrics include the following: ▪ Retain 100 percent of the employees who transition from the acquired company ▪ Sustain the acquired company's current product and service revenues (as well as current levels of service and support) during and after the transition to Cisco ▪ Launch new Cisco products based on the acquired products and technologies 22
  • 23. HR Centric Approach ▪ Retaining 100 percent of employees: The Cisco HR team works with executives from the acquired company to help map employees to Cisco's employment structure for salary, stock options, and benefits. ▪ Cisco HR works with internal resources to handle routine transition tasks such as employee setup in HR and payroll systems. ▪ To reduce the disruption and anxiety of the transition process for new employees, HR staff are among the first Cisco representatives onsite at the acquired company when a deal is announced. ▪ The Cisco HR acquisition team provides employee transition letters and hiring documents online to improve the efficiency of employee processing and create electronic personnel files that are easier to update and manage. ▪ The Cisco HR team hosts a new-hire orientation for all new employees at the time the acquisition deal closes.
  • 24. Benefits for Cisco As a Company ▪ Ability to realize the value expected from each acquisition: – The integration tasks can be completed quickly, the transition of a company to ownership by Cisco creates less disruption in sales and productivity levels. – Metrics that track the value gained by Cisco from its acquisitions are monitored over time. ▪ Faster, smoother integration of acquired companies: With decision- making and execution capabilities centralized in one team for each acquisition, the integration activity can proceed with greater speed and ease than would be the case for decentralized efforts. ▪ Easier cultural integration: The internally developed processes reflect Cisco corporate culture, which facilitates clearer communications and easier collaboration among the integration teams. ▪ High levels of employee retention: In the first two years after an acquisition closes, Cisco retains nearly 100 percent of the new employees.
  • 25. ▪ Optimized operational infrastructure: Acquired companies migrate to the Cisco corporate network, standard IT infrastructure, and application architecture, which reduces operating costs as well as management and support requirements. ▪ Maximized sales structures and channels: By consolidating sales forces and channels, Cisco can expand its customer base and sales opportunities while avoiding overlap in sales activities. ▪ Solid foundation for acquisitions: – The foundation of standards and a well-defined integration process support a strong, active Cisco acquisitions team that can pursue more deals, more quickly and at lower risk. – This foundation also gives Cisco the confidence to enter new markets and acquire companies with diverse operating models. Benefits for Cisco As a Company
  • 26. Benefits for Cisco As a Company ▪ Continuous development of integration expertise: The same Cisco employees typically serve on multiple acquisition integration teams, hence this expertise can be developed, sustained, and deepened throughout the company. ▪ Efficient integration throughout the company: Defined processes and standards allow all teams to work efficiently and effectively and sustain focus on high-priority activities. 26
  • 27. Loopholes I'm not saying my mother didn't like me, but she kept looking for loopholes in my birth certificate. Les Dawson 27
  • 28. Loopholes In Strategy  Risky strategy – ▪ Cisco mostly acquired startups with unproven product. ▪This means revenue generation was uncertain. ▪Though there were no competitors in emerging markets, when cisco entered market segments with established competitors this advantage disappeared.  Overloaded Acquisition drive- ▪ Cisco had undergone aggressive Acquisition expansion. ▪ Acquisitions are difficult to implement on any scale and cisco was implementing it non-stop. ▪This accelerated pace of acquisition overloaded cisco’s ability to undertake adequate due diligence.
  • 29. Loopholes In Strategy  Organizational structure- ▪ Product centric organization: ▪ Facilitates coordination among specialties ▪ Major disadvantage is duplication of activities and costs. ▪There was duplication of development efforts across different segments in Cisco. ▪ Chambers described this period as “ 100 year flood scenario” .  Financial irregularities– ▪ No authenticity of financial reporting. ▪ Paying premiums for acquisition targets results in destruction of value for the acquirer's shareholders. 29
  • 30.  Internal competition & failure in cultural integration- ▪ Competition on same customer accounts between different cisco teams. ▪ Cisco’s inability to integrate cultures of acquired companies compounded the problem. ▪ Formation of small internal groups were reported & employees were referred by the name of the acquired company they came from ▪ Conflicts between groups were reported.  Decentralization- ▪The duplications stemmed from customer segments and not by technology. ▪This was a direct result of decentralization. ▪ Managers were empowered to take decisions on acquiring companies. Loopholes In Strategy
  • 31.  Problems in IT integration- ▪ Interface compatibility problems ▪ Software mismatches ▪ Problems in integrating various IT businesses  Expensive- Growth by acquisition strategy is quite expensive.  Burst of internet bubble in 2000- ▪This resulted in the slowdown of telecommunications industry ▪ Led to mass layoffs , pay cuts and revenue dropped by 30% for the third quarter. Loopholes In Strategy
  • 32.  Shift from their culture- ▪Cisco had a highly innovation driven culture. ▪As a result of Aggressive acquisition the task of R&D employees became integrating acquired technology and not developing new products. ▪This eventually led to employee dissatisfaction. Loopholes In Strategy
  • 33. Revised Strategy “In strategizing, you must kill all your darlings.” 33
  • 34. Revising Strategy ▪ Managers not allowed to decide upon acquisitions. ▪ Investment Review Board whose task was to thoroughly scrutinize all the acquisitions. ▪ Meetings between heads of various departments to assess the potential impact of a particular acquisition on Cisco and drawing up a well-defined operational plan. ▪ Revised strategy increased the accountability of the managers. ▪ Number of acquisitions reduced from 23 in 2000 to 2 in 2001 and 3 in 2002. ▪ Top management’s decision to place emphasis on Team Building; setting up committees all across the company to ensure close coordination of various departments. 34
  • 35. Revising Strategy ▪ To enhance team spirit, Cisco laid down a rule that 30% of the bonuses of Cisco’s executives would be based on how they promoted teamwork and cooperation. ▪ Cisco’s efforts payed off with improved financial results and a change in the attitude of employees. ▪ In 2001 cisco moved from its product team structure to matrix structure ▪ Matrix structure integrates the strengths of both functional structure and product team structure while eliminating the disadvantages of both. 35
  • 36. Copyright 2007 Prentice Hall 36 Characteristics of Structure Associated with Business-Level Differentiation and Low-Cost Strategy