Cisco Case Analysis

Case Summary

Cisco in 1984-1993

1984 founded by Bosak and Lerner

→ Strong need of new investments to grow → venture capitalist support

Sequoia Capital invests $ 2.5 million, by 1990 the founders were out.

1991 – 1993 John Morgridge ran the company:

• cutting costs
• strong customer focus
• focus on high-end corporate network market
• starting to face competition from companies targeting small/medium size business sector

Corporate Strategy 1993-1999

Cisco’s client base was growing and the company couldn’t keep up with demand for new products so it resorted to external sourcing

→ acquisitions with the aim of being n°1 or n°2 in the markets it entered

1) identify new market by talking to customers, entrepreneurs etc

2) determine which products are needed to satisfy demand

3) chose appropriate mode to get product developed

4) internal or acquisition (if they didn’t have the resources to be market leaders in 6 moths they go for acquisitions which happened in 30% of the cases)

target companies: market-ready technologies

1995 : Chambers becomes CEO → decentralization starts

engineering and marketing reorganized into 3 business lines (enterprise, small medium business, service provider) to optimally serve each of its major customer segments

centralized functions: manufacturing, customer support, finance, IT, HR, sales.

Automatization of many organizational functions: employee services, e-commerce, support, finance etc.

Growth through Acquisitions 1993-1999

SHIFT IN STRATEGY: when Cisco realized that switching products would have a significant new market that could potentially challenge the established data communications equipment firms.

→ Cisco realized they had to listen to customers (who prefered low-cost less functional products) and decided that a strategy based on the purchase of smaller, more innovative software companies made more sense than buying established ones. 

→ 21 sept 1993 Cisco buys Crescendo Communications

Why did this acquisition succeed?

1) Crescendo was kept a separate business unit

2) used Cisco’s established distribution, financial and manufacturing stenghts

Key: product needed by market + cisco’s channels

KEY FOR SUCCESSFUL ACQUISITION: selection process and integration

Selection process

Cisco had a very careful selection process and a well-defined target: “the Cisco Kids” (small companies, fast-growing, focused, entrepreneurial, in geographic proximity to Cisco)

4 CRITERIA to evaluate small targets

1- the vision about the industry needs to be the same (cultural fit)

2- need to produce quick wins for shareholders

3- long term wins for everyone: shareholders, employees, customers and business partners

4- good chemistry

FIFTH ELEMENT for large companies: geographical proximity.

Integration process:

1. employee retention

2. follow-up on new product development

- Cisco had the NIP (new product introduction) process. This meant incorporating cross-functional inputs like marketing, manufacturing etc. “Ciscofying the new companies” as seen in Exhibit 1.