Strategic acquisitions and the accelerated integration of those acquisitions are a vital capability of Cisco Systems Cisco Systems is in the business of building the infrastructure that makes the Internet work. However, as the Internet evolved, Cisco's business had to change with this evolution. As part of its advance, Cisco Systems has used an acquisition strategy to create networking products and extend its reach into new areas, both related and unrelated. In the beginning, digital connectivity was important through email and web browsing and searching. This evolved into a network economy that facilitates e-commerce, digital supply chains and digital collaboration. Subsequently, the digital engagement phase led Cisco to develop infrastructure for social networking, mobile and cloud computing, and digital video. The next stage appears to be "the Internet of Everything" connecting people, processes and data (those of you who attended the AT&T CEO's talk on campus will remember his mention of this!) 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 the basic business architecture, will transform to become the basic strategic business blocks. Additionally, the need for strong digital security will be paramount. Cisco has entered many aspects of the business it competes in through acquisitions. For example, in 2012, Cisco acquired TV software developer NDS for $5 billion. NDS Group develops software for television networks. In particular, its solutions enable pay TV providers to deliver digital content to TVs, DVRs, PCs and other multimedia devices. Provides solutions that protect digital content so that only paid subscribers can access it. Because of Cisco's customer-centric approach, 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 email communications to come together through its blade servers (individual, modular servers that reduce cabling). These routers and servers support cloud computing for mobile devices delivering the video that NDS software enables on desktop and mobile devices. Also in 2012, Cisco bought Meraki for $1.2 billion. Meraki provides solutions that optimize cloud services. For example, it offers midsize customers Wi-Fi, switching,security and administration of mobile devices centrally from a set of servers in the cloud. For example, if you are a server at a university or other supporting enterprise campus, you can bring your own personal device to the network, allowing for guest networking and easier application controls. Manage firewall and other advanced network services to protect security as well. Cisco CEO John Chambers has helped the company navigate the many transitions mentioned above. In the IT sector, 90 percent of acquisitions fail. However, as Chambers points out. “Even though Cisco does it better than anyone else, we know that a third of our acquisitions won't work.” Chambers worked for companies that did not achieve successful 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 to do this is to "listen to customers very closely" to understand the changes needed. As Cisco transitions to end-to-end networking, it must not only manage the cloud, but also serve mobile devices running on cellular networks. Consequently, Cisco also acquired Intucell, a developer of self-optimizing network software, for $475 million. Additionally, it 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 based in Israel). More recently, Cisco acquired Ubiquisys, which reduces cellular carriers' costs "by shifting traffic from towers to more specific locations within an office, home, or public space, also increasing service reliability." This shifting traffic approach is especially efficient when looking to improve "coverage in busy areas such as stadiums, convention centers, and subway stations." These acquisitions help cellular network customers manage their network products more efficiently in delivering data, email and video services. As you can see, for this series of acquisitions, Cisco has used acquisitions strategically to move into new areas of change in its environment, learn about new technologies, and gain knowledge about new technologies as it experiences these transitions. In the process of this rapid change, Cisco has developed a distinctive capability to integrate acquisitions. When Cisco contemplates an acquisition, along with financial due diligence to ensure you are paying the right price,develops a detailed plan for possible post-merger integration. He starts by 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 begin operating when the deal is made public. Cisco is ready "from day 1 to explain how the two companies will come together and deliver unique value and how the integration effort will be structured to deliver value." The company does not “want the [acquired] organization to be left in limbo,” which can happen if the integration process is not well thought out. Additionally, during the integration process, it is important to know how far the integration should go. Sometimes the integration is too deep and the value sought in the acquisition is destroyed. Sometimes it may even be useful to keep the business separate from Cisco's other operations to allow the business to operate without integration until the necessary learning is completed. “Cisco learned the hard way that complex transactions require you to know in a high level of detail how you are going to create value.”

Questions:

1. From the “Reasons for Acquisitions” section of the chapter, what are the main reasons for Cisco's acquisition strategy?

2. Of the acquisitions that Cisco has completed, which are horizontal   acquisitions  and which are vertical acquisitions? Which of these acquisitions do you think has the best chance of success and why?

3. Explain John Chambers' views on acquisitions. How have his views affected the nature of Cisco's acquisition strategy?

4. Describe the core plan Cisco has to guide the  integration  of an acquired business into its operations. What are the strengths of this plan and what are its potential weaknesses?