Cisco - New Millennium - New Acquisition Strategy?

1. Cisco recognized very early that it was operating in a highly competitive business environment where it had to adapt to new technologies quickly and that this could not be reached by internal growth alone. Cisco therefore developed an aggressive acquisition strategy, which was an essential part of its corporate strategy.

Cisco's acquisition strategy was unique in several aspects. First, it hat a very clear and structured process how to manage its M&A activities and thereby made it an competitive advantage. Cisco focused on small, fast-growing, focused, entrepreneurial companies with geographic proximity, which have an innovative technology marketable within the short term (within 6 to 9 months).

The first step in the structured acquisition process was a clear decision rule whether to perform the development of a new product internally or externally. If Cisco could not develop the product internally and bring it to the market within 6 months it looked for possible acquisition targets.

Second came the partner selection stage, in which Cisco placed huge effort as it was considered a major success factor. By thoroughly analyzing the potential targets and by applying four (five for big companies) clear rules, Cisco tried to ensure strategic and cultural fit. The acquisition target had to be not too different from Cisco in terms of technology and industry visions. Quick wins had to be realizable as well as long-term wins for shareholders, employees, customers and business partners. Furthermore, the chemistry had to be right. For larger acquisitions Cisco required geographic proximity on top. Their strict adherence to this selection process and the ability to drop an interesting target, which was not fulfilling all the criteria, was a critical capability for Cisco.

In the integration process Cisco pursued three main goals: employee retention, follow-up on new product development and return on investment. Especially the focus on employee retention was unique in the industry and a key factor to success as buying a technology company essentially means buying the human potential to develop new products in the future. Cisco applied its new product introduction process and leveraged on its own distribution channels and manufacturing capabilities.

Last but not least, Cisco's entrepreneurial culture and network could not be matched by any of its competitors. Many of Cisco's executives served as board members on start-ups or on venture capital firms and thereby had an informational advantage. Through this "ecosystem involvement" Cisco gained competitive edge over its rivals.

2. Cisco was seen as a benchmark as an acquirer due to its outstanding success in managing its acquisitions and gaining a competitive advantage through building its acquisition capability. Cisco's key success factors were its structural approach with clear decision rules and its entrepreneurial network to start-ups