Cisco's Acquisition Strategy

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Case Details:

Case Code : BSTR083
Case Length : 12 Pages
Period : 2000 - 2004
Organization : Cisco
Pub Date : 2004
Teaching Note :Not Available
Countries : USA
Industry : Computers & Networking

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts

The Acquisition Strategy

Led by Chambers, Cisco focused on acquiring start-up companies that were working on emerging technologies with a promising future in the networking business. As Cisco was a highly de-centralized company, managers were empowered to take decisions on acquiring companies. However, it was made necessary to follow a standard procedure for acquisitions and ensure uniformity in execution all across the company. Cisco employed a three step process. This began with making an evaluation of the target company and convincing its management regarding the benefits of merging together...

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Loopholes in the Strategy

Several analysts and media reports expressed doubts over the manner in which the acquisitions were evaluated and the pace at which the deals were closed. Though the company officials boasted of a high success rate for all acquisitions, analysts expressed doubts. Cisco mostly acquired start-ups that were yet to come out with a product. The revenues obtained from those products could not be known until they were fully developed and marketed...

Revising the Strategy

According to the new plan, Cisco's managers were not allowed to decide upon acquisitions. This was a shift from its previous culture of empowerment. Cisco constituted an investment review board whose task was to thoroughly scrutinize all the acquisition proposals. Every month, the heads of various departments including marketing, finance and operations met to discuss the proposals. They assessed the potential impact of a particular acquisition on Cisco. A well-defined operational plan was drawn up at these meetings to ensure a smoother marriage of the target company with Cisco.

The managers who supported an acquisition were also made responsible for achieving the financial performance targets on that deal...

Exhibits

Exhibit I: CISCO's Acquisitions
Exhibit II: Elements of CISCO's Culture

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