Cisco: A Tale of aggressive Acquisition approach

Cisco is renowned as giant tech company dealing in internet and telecommunication devices and
networks based in USA, California. It’s successfully maintain its global presence worldwide by
operating in multiple regions. It’s also operating it’s offices in Spain and have a global presence
in more than 165 countries. Employee figures are more than 63,000 working in 465 different
offices and locations around the world. Cisco was founded in 1984 by Leonard Bosack and
Sandra Lerner. Cisco mainly focusing on manufacturing, selling, maintenance and consultation
services for internet and telecommunication devices and networks. The prominent feature of it’s
business strategy is innovation and creativity that is also part of it’s business strategy (Lewis,
2022). Cisco got fame after it invented the first router and it’s successful creation at commercial
level. Currently enjoying prestige position as a tech giant with a revenue of almost 11.7 billion
dollars in terms of worth. It’s a significant tech player in tech industry that capture a handsome
market share and a tough competitor for it’s rival like Microsoft and Samsung within technology
market.

Product portfolio

Cisco is dealing in a range of products and services like accessories for computer e.g. routers,
switches and hubs. Security and protection mechanism like firewalls VPN services. IP based
products, software and equipment’s for storage area networks. Cisco target customers and market
include government, public institutions, telecommunication and commercial customers like B2B
transactions and individual customers. Telecommunication or tech sector is dynamic and very
sensitive in nature where speed and innovation is critical for success and growth in long term.
Companies in technology sector had to face a fierce competition due to its dynamic nature and
speed of innovation. So companies like Cisco need to invest heavily in it’s R&D to be compete
successfully or adopt other appropriate strategies like mergers and acquisitions to beat it’s rivals
and hold a strong position.

Business Strategy

Cisco business strategy based on product differentiation through making continuous innovation
and maintaining quality. It position itself on basis of quality standards and features that it offered
to its customers through it’s products and services that will benefit in long run. Cisco strategy
also based on customer centric approach as it's prime focus is to meet customers need and set it’s
priorities on basis of what it’s customers demand from it (Lewis, 2022).

Background and Problem statement

Problem Statement

After its inception Cisco adopt an extensive aggressive acquisition strategy to remain
competitive in tech sector. The strategy drive goes aggressive specifically during 1993 to 2000
when Cisco acquire almost 70 companies. In short the outcome of these acquisition came in
failure of almost one third cases that cause a huge cost to Cisco in term of cost, time and
infrastructure. The new acquisition not only hit financial aspect but it also threaten business
performance and employees retention as well credibility and trust of the business that customers
have on it. Cisco need a comprehensive acquisition strategy integrated with a robust change
management process to overcome failure rate and that would be repeatable for every new
acquisition. Case study will examine Cisco acquisition strategy in detail to highlight drawbacks
and gaps in its acquisition strategy that cause high rate of failure in terms of cost and resources.
Lack of an integrated change management approach increase its failure rate in terms of new
acquisitions deals it made during the period (Marks & Mirvis, 2000).

Cisco Acquisitions strategy in action

Acquisitions are the common practice or phase that companies will encounter during their life
span. Companies will use this strategy to expand their businesses and explore new markets.
Companies acquire existing players in market to also beat the competition by acquiring their
rivals products and services. Significance and popularity of acquisitions are evident by the
figures as just in year 2002 almost 4,363 mergers and acquisitions whose cost is estimated as
$292 billion were made. It’s huge a huge worth in acquisition category which shows how
important and popular it is for businesses to adopt this strategy as an expansion mode to beat
market competition and expand also product portfolio ( Ahuja & Katila, 2001).

Cisco after its inception in 1984 adopt the innovation and customer centric approach to establish
a strong position in tech industry. After 1990s company madly focused towards acquisition
strategy and adopt a hostile approach to expand in tech industry. It made extensive acquisitions
in the fields where it want to expand specially during 1992 to 2000 when acquisition figures rise
to seventy companies. This is the time when Cisco divert from innovation and customer centric
approach and completely depend on acquisition strategy for its growth and to tackle competition
that it face in market at that time. The real problem with strategy is it’s failure rate that is almost
one third of the total acquisitions it made. This failure rate incur a huge cost in terms of money
and other resources that Cisco utilized for making acquisitions. The cost figures revealed shows
that Cisco has wasted a lot of money on many unrealistic and failed acquisitions as it bought 18
companies during 2009 to 2011, 5 in 2008, 12 in 2007, 9 in 2006, 12 in 2005, 11 in 2004 and 70
during 1992 to 2000. A quite aggressive strategy adopted by Cisco as shown by figures
throughout the whole duration.

Acquisition tragedies

Due to aggressive acquisition strategy Cisco make many quick and wrong decisions without
proper and detailed assessment of the company to be acquired. Its difficult for Cisco acquisition
strategy to cater all the issues it face during and after acquisition process. In many cases Cisco
avoid criteria of small size business and product category without assessing change management
factors due to which it encounter a high failure rate. Lets discuss some of the Cisco unrealistic
acquisition adventures which cause huge loses to Cisco (Dubey, 2012).

.Cisco acquired Monterey Networks in 1999 that is newly established business dealing in optical
routing that faces revenue losses since it's inception. Cisco acquire a business with negative
revenues by paying half billion dollars in 1999. After acquisition immediately three Monterey’s
founders left the company and Cisco shut this business within 18 months as it’s unable to handle
it that cost Cisco almost $108 million dollars.

In 2000, Cisco acquired Cerent Corp company that was making and selling optical networking
devices. The deal was finalized in $6.9 billion for the company with a losses of almost $60
million. Again a newly established business with negative revenues raise questions on Cisco
acquisition strategy.

In 2005 Cisco acquire Atlanta that is making gears for Cable TV companies. The deal cost
almost $6.9 billion dollars and sales volume at that time was $1.9 billion. Revenue generated
from this company mostly came from the segment service provider video. This product generate
revenue of $3.48 billion in 2011. Afterwards this business show declining trends and orders
decreased by 15%.

NDS Group acquired in 2012 by paying almost $5 billion in price from Permira. NDS deals in
software solutions for TV industry. In 2019, Cisco sell it back to Permira on a price $1 billion as
it shift its focus from satellite boxes.

Pure Digital that was a maker of Flip Video. It was acquired in 2009 worth almost $590 million
and within two years it was shutdown by Cisco. Although this business can support
teleconferencing segment but Cisco ignored it.

Another acquisition deal that turns into a tragedy was Pentacom,which was worth almost $118
million and 2000 shares for Cisco in terms of cost. Pentacom is a manufacturer of fiber-optic
data communications just after a short period of two years Cisco decided to discontinue the
Pentacom products sales. Turn Pentacom into a miserable story of failed acquisition done by
Cisco.

Failure story repeat in case of HyNEX Which was acquired in 2000 and in terms of cost Cisco
paid $127 million and shares. The company is mainly dealing in internet systems. Just within a
year Cisco realized that HyNEX product line is unsuitable to continue and sold it in merely $1
million with almost half of HyNEX’s employees leave the company.

Cisco’s least successful acquisition was InfoGear acquisition deal, the deal was finalized in 2000
made another failure story for Cisco that cost almost $308 million in terms of share that Cisco
paid. InfoGera deals with Internet access equipment and Cisco acquire it with the point of that at
that time it’s technology was very valuable but it’s not worth enough in future. Although Cisco
still using InfoGear technology but it’s terminal was discontinued very soon.

In short by considering above mentioned cases we can say that Cisco may be successful in some
cases but stories of failure are very huge in number and in terms of cost. Like it lost in many
deals as in case of Pirelli Optical Systems lost $2.15 billion, Clarity Wireless lost almost $157
million, HyNEX losses $127 million, Maxcomm Technologies lost $143 million and Ameba
cost $170 million these were all complete acquisition failure examples. An estimated figure
shows that Cisco spend almost 63.4 billion dollars which was a huge amount as well as stake it’s
resources for this acquisition strategy (Levi, 2005).
Cisco acquisition approach

Acquisition is a process when one company purchase another company in terms of cash or shares
and declare it’s ownership publically such type of purchase of business is known as acquisition
(Rostand, 1994). Cisco as tech giant operate it’s acquisition strategy very aggressively and at a
very fast pace. Cisco acquisition approach based on three main features:

 Analysis of company to be acquired – main focus is on identifying similarity in business

vision and consideration of size of the company as small company can be easily
integrated. Cisco also consider geographical proximity of the acquired entity and focus
on mutual acquisition agreements that would be good for all stakeholders in long term.
Cisco also critically analyze cultural aspect while making acquisition.
 Evaluation of compatibility – Cisco conduct extensively assess top management and the
employee,, financial, cultural , structure and technology aspects before making an
acquisition.
 Integration – the integration model of the Cisco based on three integration principles that
are defined as alignment with the business goals and objectives enhance cross functional
communication and interaction among employees and operational effectiveness of the
business.

Gaps and flaws in Cisco Acquisition strategy

Since 1990 to up till now Cisco conduct almost more than 120 acquisition efforts which is huge
figure this aggressive or overloaded acquisition strategy bring a lot of challenges in context of
integration as well as cost that it bear in failure cases. Cisco adopt a risky strategy as it acquire
newly established businesses who’s revenue generation is uncertain and growth is not much. We
can say it acquire usually businesses with financial position and growth in market (Hapeslagh &
Jemison, 1991).

Financial control and cultural integration is critical in case when rate of acquisitions were high.
Acquisitions are costly and it’s a big problem to integrate different IT businesses. Cisco
aggressive acquisition approach distract it from innovation and customer centric approach which
was the base of it’s business strategy which also impact it’s image among customers.
Although Cisco carried out some extraordinary successful acquisition deals but due to high rate
of acquisitions irrespective of company background, assessing compatibility and poor integration
framework that lead to huge loses for Cisco in number of cases. Cisco violate it’s own criteria of
acquisition framework that it set in number of cases. In many cases it didn’t meet the condition
of scale and size of the acquired business. Such other similar mistakes made by Cisco also
contribute in its failure rates (Haleblian & Finkelstein, 1999).

Change management mechanism to make acquisitions successful

Acquisition process is ultimately effect the inner working of an organization and it’s structure.
According to Kavanagh and Ashkanasy (2006), acquisitions significantly influence functional
structure of an organization which disintegrate decision making process and if not handled with
care it cause a huge cost to business in terms of money and resources.

Change management is a mechanism that address the issue of change or transformation in

context of organizational goals , processes and resources. The framework is required to
streamline change process by designing strategies to effect, control and assist people to adopt
change. By appropriately deploying change management framework organizations can manage
change, employee motivation, employee turnover, loyalty, performance and profitability in long
run specifically in cases of mergers and acquisitions.

Change management helpful in aspect of integration and cultural fit in acquisitions. It enable
organizations to take employee onboard and assist them to adopt change that results from a new
acquisition. Main reason of acquisition failure is the change resistance face by both
organizations.

The third most important factor that contributes in all acquisitions failures are defined as the
resistance to change by the employees from both sides. Uttam, A. (2014), repeat the same
sentiments by highlighting the same issue by elaborating that the underlying causes for and of
employee resistance against upcoming change must be studied carefully, as high percentage of
end success of upcoming new change depend on the change management process adopted by
businesses over mergers and acquisitions deals (Schweiger & Weber, 1992). Acquisition issues
and problems revolve around employee resistance, aggression and change denial that businesses
face during whole process.
Companies need to integrate change management mechanism during their acquisition process to
overcome failure rate. Let’s comprehensively examine change management aspects that can help
organizations in their acquisition process.

1) Devise a comprehensive Integration Plan

First task should be to devise and execute an extensive integration plan by making project
teams contain top management form both sides. Make them responsible by focusing on
post acquisition activities to make it smooth. Communication is critical in acquisition
process it’s recommended that employees should be immediately communicate the
acquisition process to avoid misinformation and make employees prepared for new
changes. Top management presence is a positive sign while acquisition process made.

2) Clear Vision
It should be cleared that a shared vision would prevailed and key to be successful. During
and after acquisition process key to success is clear vision and the communication of this
vision to the employees. This clear communication will lead to a successful acquisition
deal. If a clear vision is not communicated that will result in confusion and dissatisfaction
among employees that would result in demotivation.

3) Cultural integration and value differences

Culture plays a significant role in success and failure of a potential acquisition. Cultural
differences and disrespect for cultural values prevail in both organizations may lead to a
failure for both ends. So to avoid this situation need to focus on promoting change
acceptance and respect for different views and cultures in which top management play a
significant role. Leadership can bring change and convince them to own new one. Top
management should be in close interaction with employees to achieve this goal easily. As
they can teach and promote the concept of respect different cultural values and difference
of opinion among employees.

4) Employees Involvement
Change need interaction and involvement and in other words it’s the game of
communication. The lower communication gap between employees of both organization
 the more easy to integrate change result from acquisition process. Employee interaction
bring knowledge sharing about different aspects of organization and build trust. Effective
communication make change process smooth. Leadership’s plays a critical role in whole
process as they instigate level of communication on both sides.
5) Customer Focus
Customer is the key factor of success for any business operations and source of revenue
generation. So organizations need to be customer centric during acquisition process. As
it’s critical to ensure customers that change through acquisition will not effect product
and services offered in past that is very important for revenue generation. In case of Cisco
it face critiques that it distracted from it's customer centric approach as it’s more
aggressive in it’s acquisition strategy and lose its focus that what it’s customers need that
create a negative impact for Cisco. So rate of acquisition should be reasonable with
careful analysis of the acquired entity in context of change that it brings to parent
organization specifically from customer perspective.

6) HR Restructuring
Employees or human capital is a critical factor in an organization. As during the process
of acquisition they are uncertain about there new roles, assignments and career path. So
it’s important to mange this change effectively by properly communicating with the
employees and resolve their doubts. This process may involve trainings and counselling
that may help them to adopt change. It need to be clearly communicate reasons of change
and it’s importance. This will overcome the risk of employee turnover that is most
common issue of post acquisition process. Turnover definitely come with a cost that
company need to bear in form of new hiring. If the employees are dissatisfied with the
acquisition process company has a risk to lose talented workers from both sides that
ultimately damage company performance and it’s growth as well ( Gertsen & Soderberg,
1998).

7) Downsizing
It would be the last resort in case of severe change resistance faced during and after post
acquisition process. During that process stress can be manage through a proper plan
 involve different techniques like compensation package like golden hand shake for the
employees with low motivation and want to discontinue their jobs or transfer employees
to other business units can help out employees as well as companies. Downsizing is bitter
option so it’s need to be avoid.

8) Maintain pace of change

Change management is a continuous process so it’s important to maintain pace of change.
It’s important to engage and promote innovation. Set short term goals, appreciate and
reward positive behavior and show empathy that will lead to positive results in case of
change come through acquisitions. Listening is very important so be careful is listening
all issues arise during change to settle them at right time with right solution.

Recommendations

Technology sector is highly sensitive from innovation and competition perspective. In that
perspective business adopt different expansion strategies to remain competitive and hold strong
position in market. Although Cisco acquisition strategy make many success stories but still its
failure cases make it costly for it. As percentage of failure cases make it’s Acquisition strategy
very expensive for it to be adopted as expansion method by Cisco. Cisco or other tech companies
need to focus on a detailed change management framework while conducting a new acquisition
deal. Change management process enable organization to deeply analyze the activities involved
in an acquisition process in all pre, during and post acquisition stage (Cartwright & Schoenberg ,
2006). Change management believe that change acceptance is not a short term deal and one time
event rather it’s a continuous process which company need to integrate while conducting an
acquisition deal. Its critical to deploy a change management process fully integrated with
company acquisition process at each stage to make it a success story. Extensive communication
is a tool that companies will use to counter barriers that it faces during post acquisition process in
that context top management role is very important as they promote it through close interaction
with employees. Employees feedback is very significant in change management process from
both sides so that they feel valuable and can easily adopt the change. Another factor that need to
be consider Cisco is not completely depend on acquisition strategy to expand. It need to be focus
on its innovation strategy also to create new things rather than just acquiring the new technology
of others ( Salter & Weinhold, 1980). All these factors with the help of change management will
bring competitive advantage for the organization. It’s quite helpful to address HR issues through
knowledge sharing, communication, interaction, involvement, clear vision and training that
would help them to adopt change easily. Companies specially tech oriented company like Cisco
need to indulge in a careful acquisition strategy with an equal focus on expansion through
innovation approach. A balanced approach for acquisition and shifting back it’s focus towards
innovation will revive and boost it’s growth.

Conclusion

Change resentment is a common human attribute whether it’s in personal or professional life.
Change management is critical for organizations success either it adopted in form of strategy ,
place or system. These changes are very important when organizations decide to buy other
business in form of acquisition and if not carefully conducted it may lead to a disaster.
Organizations need to be very careful during whole acquisition process and post acquisition
duration. It’s quite obvious that acquiring a new business is not just the end of battle but more
important is to retain it and generate revenues. In case of Cisco it’s the biggest problem as in
most cases that company is unable to sustain business growth after acquisition so if change not
managed properly during whole process then the situation could be reversed as in case of Cisco.
It’s important to deploy an integrated change management process during acquisitions to
accommodate cultural as well as other important factors to mange change (Robin, 1973). Top
management play a vital role to enhance communication and encourage involvement of
employees from both sides during integrated change management process. Risk of resistance
threaten business acquisition activity that may increase chances of failure. Most important factor
is communication so be clear and honest in communication to become successful. As clear and
accurate dissemination of information will clear doubts at each level of business.
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