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CISCO ACQUISITION STRATEGY

Questions for discussion


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Value created through structured acquisition process.


Could Cisco have achieved the same results without the values .
Type of challenges that business units face with the M & A process.
Why was it important to involve human resources in the acquisition process?
Metrics to be used to determine the success of an acquisition? Retention or Market Share
Ciscos Acquition strategy? Does it work for others also.
Was it possible for Cisco to pursue the acquition strategy and simultaneously devote resources to internal R & D?
Does Cisco have an appropriate goal for balancing internal and external innovation?
Can Cisco keep this approach in to 21st century?

The key principle behind buying a company is to create shareholder value over and above that of the sum of the
two companies. Two companies together are more valuable than two separate companies - at least, that's the
reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong
companies will act to buy other companies to create a more competitive, cost-efficient company. The companies
will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these
potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
Synergy is the magic force that allows for enhanced cost efficiencies of the new
business. Synergy takes the form of revenue enhancement and cost savings. By
merging, the companies hope to benefit from the following:

Staff reductions

Economies of scale

Acquiring new technology - To stay competitive, companies need to stay on top


of technological developments and their business applications. By buying a
smaller company with unique technologies, a large company can maintain or
develop a competitive edge.

Improved market reach and industry visibility - Companies buy companies to


reach new markets and grow revenues and earnings. A merge may expand two
companies' marketing and distribution, giving them new sales opportunities. A
merger can also improve a company's standing in the investment community:
bigger firms often have an easier time raising capital than smaller

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Value created through structured acquisition process.

Value: which means be worth. Value creation means performing activities that Increases
the value to customers and also to the Shareholders.

2. Examine Ciscos growth throuth acquition strategy


Ciscos growth strategy has been linked with the acquition of business units that are in line
with ciscos future vision or atleast capable to remain at par with its future prospects.
Ciscos growth strategy has eventually evolveded with the passge of time and with each
acquitions it made over the past decades.
The Industry has been named ciscos growth strategy through acquition as Acquition and
development which denotes that cisco mainly focused on to buy technology rather then

spent time and efforts to build it internally, as it has let the silicon vally companies to do
all the R&D on emergin technologies.
Its acquition strategy was alwys achived in a friendly manner as hostile takeovers always
create problem in the longrun. Its goal was to own atleast 50% market share through
acquisitions or atleast 20 % market share post acquisition thus cisco always drive to
create immediate value for shareholdrs rather then wait for a substantial period of time to
generate the same .
The acquition strategy of cisco was based on 5 criterions to evaluate any potential deal of
M&A.
1. The Target company shold share same visions as with cisco or atlest has potential to
pursue its visions and missions in the longri=un.
2. Quick value creation with in a shortest possible time period
3. Thre must be a matching chemistry between the target company and Cisco.
4. There must be future value addition for its shareholders and other stake holders
such as employees, customers, and business partners
5. The target company should be in the proximity to theparent companies location i.e
related to same geographical location.
Potential targets those meet all of the 5 criterias are actively persued and allowed to
be integrated with cisco.
Thus through its unique acquisition strategy cisco ensures that its target company
should posses minimum risk on product side as uit has already passed its r&D phrase
yet ready to be introduced in to the market by using ciscos marketing platform.Each
acquisition by it has been ensured to payoff at a very early period of investment so
that the parent company can afford to keep thenewly acquired resources and man
power with it.
Strict due diligence from different perspectives such as HR, Manufacturing, Marketing
and Engineering has to be done by ciscos cross-functional team to avoid future
discrepancies.
Cisco only pursue friendly takeovers ,and avoids hostile takeovers thus ciscos
acquition team conduct the acquition processes by friendly talks , negotiations and not
by competitive bids or auction bids.
A two year non compete agreements with the target companies , key executives and
technical personeal and a provision of Ciscos stock option that will be vested over the
time priod.
Ciscos acquisition team belives in quick acquitions thus its involvements in the target
company begins from the vary day of announcement of acquisition process mainly by
physical presence of its IT personeal , HR or engineering personeal.
Cisco offers attractive remunation packages to the newly acquired manpower which is
often higher then their existing company could afford to pay them thus was able to put
tap on employee turnover.
In a nutshell Cisco has developed a twofold integration approach such a (a) Personel
Intgration and (b) Product integration and ensures that both gets implemented
beforehand the completion of the integration process.

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Could Cisco have achieved the same results without the values?

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Type of challenges that business units face with the M & A process.

The Global recession led to a significant decrese in M& A activity , other factors such as limited access to cash and rising
uncertainty across markets made it difficult for companies to strike a successful M&A deal .following are some challenges
normally faced by firms involved in the acquisition activity.
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Companies need to approach M&A more strategically as well as Due- deligence required inaddition to
greater visibility at the executive management level in also needed.
Identification of appropriate targets/ Buyers at the pre-phase of the deal . top challenge for buy side is the
identification of appropriate acquisition tagets along wiyth other requirments such as appropriate financial
valuation , setting and executing the m&A strategy etc. on the sale side the main struggle is identifying
appropriate buyers , to differenciate between hostile buyers and friendly buyers,as well as other matters that
are challenging like information gathering and evaluation of indications and bids , understanding the history
of potential buyers and gathering market information in order to strike a better deal.\
Challenges for M&A management is the effective measurement of performance as most of the companies
donot have a systematic approach for cost and synergy management and are not familier with evaluation of
longterm effects of the proposed M&A activity.
Difficult to manage an effective and efficeant collaboration and communication between internal and
external stakeholders

Why was it important to involve human resources in the acquisition process?

Success of merger and acquisitions depends on the people who drive the business, their ability to drive,
lead, and formulate strategy, execution and implementation. It is very important to involve human
resources in merger & acquisition as it involves people and has an impact on key people issues. Human
resources play an active role in the change process by offering their interventions to help ensure a
successful merger and acquisition.
Roles of Human Resources in M&A process
Maintaining the productivity by placing of right people at right place
Alignment of compensation, benefits and welfare schemes
Job security, Relocation, Compliance of local labor laws Employee communication, Taking care of
personal records
Transition and communication of the same to employees.
Train managers on the nature of change Orientation programs on policies and procedures, on
performance management, compensation, benefits and welfare schemes , Identify the skills of people
and mapping them appropriately
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Metrics to be used to determine the success of an acquisition

key to success is knowing what to buy and for what reason. As a result, defining M&A success
revolves largely around understanding the main strategic rationale for the transaction, and then
identifying metrics to measure progress. Depending on the timing, industry, and context of the
transaction, strategic rationales will differ. There are many ways of categorizing the M&A deals as each
transaction type is different in context of the type of firms involved in the process. Following are some
Metrics that need to be considered for a successful M&A
The

a. A geographic merger is essentially a land grab, enlarging the purchasing firms customer base with a
new set of customers. As the aim is to increase sales, in these deals one of the main metrics is increased
sales revenue. Depending on the purchasing firms organisational set-up, increased sales can result in
increased profits. In order to set up the right metrics to measure the success of this deal type, a question to
look at is: is the customer-facing organisation run on a revenue or profit basis?
b. In purchasing a new technology or a new product, one aim is to increase sales of the new technology by
ensuring its access to the purchasing firms sales channels. In this deal type, sales may ramp up much
more slowly than in a geographic merger. Still, this is a growth-oriented deal, aimed at rapid revenue
increase. An additional aim in a technology transaction is combining both firms technological know-how,
eg in joint research and development projects. A viable success metric reflects the speed at which jointly
developed products come to market.
c. In purchasing customers, the logic is in many ways similar to the geographic merger with the difference
that, in this case, the firms customer bases reside in the same geographical area. There are two options
for this deal type:
d. The purchasing and target firms customer bases are overlapping. The aim is to increase sales. The
challenge is to avoid losing customers that are sourcing from both firms, and to ensure that the overall
customer base is properly served. What service levels and product quality will be sought? The success
metric fitting this deal type is monitoring revenue and profit as well as product quality, service levels,
product returns, and customer complaints. The latter metrics provide early warning signs as regards
meeting sales targets.
e. The merger enables the purchasing firm to enter a new sector. Success metrics to use are sales, revenue,
and/or profit. Numbers of customer contacts can be used to predict future sales levels. As the aim in the
deal is not only to learn about the new markets, but also to start cross-selling products between the firms
current and new markets, also new product development (NPD), or ideas for NPD can be tracked.
f. To deliver on cost cutting, both firms need to be analysed from an efficiency perspective. The aim is
thereafter to monitor the cost cutting exercise as minutely as possible. Also, the amount of money
invested in the change or efficiency projects themselves is tracked. Third, the increase in profit and
progress on hitting set P&L targets need to be monitored. Possible double counting of synergy savings
should be avoided.
g. To deliver on the growth side of this merger, as in the above deal types, sales, revenue, profit, and
increases in margin will be monitored. Also innovation levels, ie NPD, potentially leading to a larger
product range and thus increased sales, need to be tracked.
Integration Metrics
Cisco used a variety of metrics to measure the success of each acquisition 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.

As part of the integration approach and plan, Cisco applies the following tactics to enhance the customer experience:

Repackage and rebrand an acquired product or technology as a Cisco product when appropriate.

Identify potential new product and service revenue opportunities within the acquired company's existing customer
base and sales prospects.

Provide the new customers with a single interface for product support and service and maintain customer
satisfaction.

Integrate the sales channels and services functions of Cisco and the acquired company as appropriate.

Cisco method of integration


Cisco has evolved a unique 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. These standards are defined both at the
corporate level and within the many Cisco departments involved in acquisition integration.

Extensibility of the acquisition integration model to other major change events, such as divisional consolidations, divestitures,
or acquisitions by Cisco divisions.

Integration Principles
The following principles guide Cisco acquisition integration activities:

Orientation. Set common standards so that all internal organizations and integration activities are bring into line 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:


o Promoting consistent, repeatable processes that can reduce integration project setup time and assist with
resource and capacity planning
o 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

Integration Tools, Methods, and Processes


Cisco integration teams have developed many standardized processes to support rapid and consistent integration activity.
These repeatable processes also define roles, responsibilities, dependencies, deliverables, and timelines for the numerous
integration tasks that must be performed in each Cisco department

In addition, each department has its own well-defined approach and processes for acquisition integration, which can evolve
easily to reflect changes within the department.

To conduct their work, the integration teams use standard information-sharing and collaboration tools such as Cisco
MeetingPlace conference calls, WebEx online meetings, e-mail, online document sharing, and project management
software. Collaboration will be enhanced as Cisco implements a new online project management tool that will be used by all
employees involved in integration activities.
Cisco TelePresence virtual meetings facilitate discussions with remote integration team members and employees of the
acquired company who are in a distant location. "Because the participants can see each other, Cisco TelePresence will help
us catch the nuances of understanding and communication that are difficult to detect when you are conducting a sensitive
discussion in an audio conference call," says Wood.

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.

As part of the integration approach and plan, Cisco applies the following tactics to enhance the customer experience:

Repackage and rebrand an acquired product or technology as a Cisco product when appropriate.

Identify potential new product and service revenue opportunities within the acquired company's existing customer
base and sales prospects.

Provide the new customers with a single interface for product support and service and maintain customer
satisfaction.

Integrate the sales channels and services functions of Cisco and the acquired company as appropriate.

Department-Level Integration Practices


Each major Cisco department assigns an employee team assigned to acquisition integration activities. This section presents
as examples the integration practices of five Cisco departments: human resources, sales, manufacturing, customer service
and support, and finance. For information on Cisco IT integration practices, refer to the case study "IT Acquisition Integration"

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