Reference no: EM133189281

Cisco Systems is in the business of building the infrastructure that allows the Internet to work. As the Internet evolved, however, Cisco's business was required to change with this evolution. As part of its advancement, Cisco Systems has used an acquisition strategy to build network products and extend its reach into new areas, both related and unrelated. In the beginning, digital connectivity was important through e-mail and Web browsing and searches. This evolved into a network economy facilitating e-commerce, digital supply chains, and digital collaboration. Subsequently, the digital interaction phase moved Cisco into developing infrastructure for social media, mobile and cloud computing, and digital video. The next stage seems to be "the Internet of everything" connecting people, processes, and data. This will require the basic core in routing, switching, and services, as well as large data centers to facilitate visualization through cloud computing. Video and collaboration as well as basic architecture of the business will be transforming to become the base strategic business blocks. Furthermore, the need to have strong digital security will be paramount.

Cisco has entered many aspects of the business in which it competes through acquisitions. For instance, in 2012, Cisco acquired TV software developer NDS for $5 billion. NDS Group develops software for television networks. In particular, its solutions allow pay-TV providers to deliver digital content to TVs, DVRs, PCs, and other multimedia devices. It provides solutions that protect digital content so that only paid subscribers can access it. Because of Cisco's customer-driven focus, it has sought to help its customers capture these market transitions and meet their particular needs. Of course, Cisco also builds the routers that allow video data and e-mail communications to come together through their blade servers (individual and modular servers that cut down on cabling). These routers and servers support cloud computing for the mobile devices that deliver the video that NDS software enables on desktop and mobile devices.

Also in 2012, Cisco purchased Meraki for $1.2 billion. Meraki provides solutions that optimize services in the cloud. For instance, it offers mid-sized customers Wi-Fi, switching, security, and mobile device management centrally from a set of cloud servers. For instance, if you are a guest at a university or other company campus it supports, you can bring your own personal device into the network, which allows guest networking and facilitates application controls. It manages the firewall and other advanced networking services to protect security as well.

John Chambers, Cisco CEO, has helped the firm move through the many transitions noted earlier. In the IT sector, 90 percent of acquisitions fail. However, as Chambers notes, "although Cisco does better than anyone else, we know that a third of our acquisitions won't work." Chambers worked for companies that did not successfully make transitions. Wang Laboratories missed a transition, and after experiencing this as an executive, Chambers learned to have a "healthy paranoia." He adds, "more than anything, I've tried to make Cisco a company that can see big transitions and move." One way they do this is to "listen to the customers very closely" to understand the necessary changes.

As Cisco makes the transition into the all-everything network, not only must it manage the cloud, but it also must provide service to the mobile devices that work in cellular networks. Accordingly, Cisco also acquired Intucell, a self-optimizing network software developer, for $475 million. It likewise acquired Truviso, Inc., a provider of network data analysis and reporting software, for an undisclosed price (Truviso was partly owned by venture capital firms and was headquartered in Israel). Most recently, Cisco acquired Ubiquisys, which cuts cellular carriers' costs "by shifting traffic from congested towers to more targeted locations inside an office, home or public space, which also boosts the service's reliability." This shifting-traffic approach is especially efficient when seeking to improve "coverage in crowded areas such as stadiums, convention centers and subway stations." These acquisitions help cellular network customers manage their products in the network more efficiently in the delivery of data, e-mail, and video services. As you can see, for this series of acquisitions, Cisco has used acquisitions strategically to move into new areas as its environment changes, to learn about new technologies, and to gain knowledge on new technologies as it experiences these transitions.

In the process of this rapid change, Cisco has developed a distinct ability to integrate acquisitions. When Cisco contemplates an acquisition, along with financial due diligence to make sure that it is paying the right price, it develops a detailed plan for possible post-merger integration. It begins communicating early with stakeholders about integration plans and conducts rigorous post-mortems to identify ways "to make subsequent integrations more efficient and effective." Once a deal is completed, this allows the company to hit the ground running when the deal becomes public. Cisco is ready "from Day 1 to explain how the two companies are going to come together and provide unique value and how the integration effort itself will be structured to realize value." The firm does not "want the [acquired] organization to go in limbo," which can happen if the integration process is not well thought out. Also, during the integration process, it is important to know how far the integration should go. Sometimes integration is too deep, and value that was being sought in the acquisition is destroyed. Sometimes it may even pay to keep the business separate from Cisco's other operations to allow the business to function without integration until the necessary learning is complete. "Cisco learned the hard way that complex deals require you to know at a high level of detail how you're going to drive value."

Question: Explain John Chambers' views about acquisitions. How have his views affected the nature of Cisco's acquisition strategy?