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Cisco 1 Table of Contents Abstract . Executive Summary... Introduction Cisco Systems, Inc. Overview Analysis .

.6 Internal and External Environment Scans ..6 Current Strategy .7 Evaluation of the use of Acquisition and Mergers.. 8 Recommendation .... Conclusion ...... References ... 12 13 14 3 4 5 5

Cisco 2 Abstract This research intent to describe and evaluate the acquisition strategy employed by Cisco Systems, Inc., from now on Cisco, in a bid to increase its operations within the internetworking and networking sector of the technology industry. This objective is accomplished with usage of literature review from journals, news, books and Ciscos website which contains information on the same subject. In conclusion, the goal is to create n understanding for application of acquisition strategy by Cisco as a way of enhancing its operations to achieve growth and expansion, as well as innovation and market share. This paper provides an executive summary, background information about Cisco and the environmental analysis. Environmental analysis includes both internal and external environment. In addition, the paper wrap up with recommendations and conclusion on the topic.

Cisco 3 Executive Summary The internet booming had a drastic impact on culture and commerce; it promoted the creation of new business models, provided information accessibility and made available new communication means. It transformed humans communication, serving as a useful channel to exchange information in a prompt manner. Successful companies within the network equipment industry involved those who had kept up with the changing environment. As an innovator of computer communications and networking solutions, Cisco has become the global market manufacturer of internet routers and the primary provider of commercial communication network devices offering their customers an end to end network solution (Carpenter 2009). With a target to earn 30% of their revenues from acquisition and partnership Cisco strategically focused on using acquisitions and partnerships to gain access to new technology and retain intellectual assets. Today they are involved in the very latest field of information tech virtualization, otherwise called the Cloud. The Cisco CloudVerse, is one of the latest strategic moves that provide manageable service interconnection of public, private and hybrid clouds. The purpose of this paper is to analyze Ciscos current business model, strategies and achievement of competitive advantage in the network equipment industry. A brief overview of the firm provides an understanding of its performance and strategic development many years after its inception. By evaluating and highlighting relevant internal and external environment factors, we can better assess how these facts impact their current and ongoing strategy. Evaluation of such relevant factors is by means of different strategic management tools such as The PESTEL and SWOT amongst other models. With the guidance of the Business Strategic Diamond model we can present recommendations to the Board of Directors. Introduction

Cisco 4 It is undisputable that acquisitions involve uncertainty hence very risky with respect to employing appropriate strategies for promoting growth. On the other hand, layoffs and cultural conflicts are expectations that follow acquisitions and mergers. Acquisitions are scenarios where one firm succeeds in attaining its objectives and strategic growth while the acquire company is likely to disintegrate and become inexistence. Despite of this outcome, many leading technological firms still believe it is one of the best strategies not only to gain competitive advantage by reducing intensity of rivalry but also attaining specific objectives in relation to momentum, market share, growth, profitability, and expansion. Cisco has employed acquisition largely; other companies such as Microsoft and GE have also grown and expand through acquisitions strategies. Cisco, being global market leader in internetworking significantly benefits from acquisitions strategies. For instance, in 2000 Cisco had the largest capitalization in the global arena (Cisco 2008). In line to this and many more benefits Cisco obtains through its acquisitions strategy, the following is a discussion entailing analysis of the firm while providing recommendations based on Business Strategic Diamond Model Cisco Systems, Inc. Overview As an effort to find ways to connect computers networks, a team of computer specialists at Stanford University developed the first multi-protocol router. Incorporated in 1984 Cisco Systems, Inc. has become the worldwide leader in data networking solutions. Ciscos mission to shape the future of the internet by creating unprecedented value and opportunity for our customers, employees, investors, and ecosystem partners (Cisco 2011) has transformed how people connect, communicate and collaborate. Their broad line of products and services for transporting data, voice and video allows users to access or transfer information regardless of time, place or computer

Cisco 5 system type. Ciscos culture focused on unifying the relationships between collaboration, customers, employees and community. Due to the rapidly changing environment were Cisco operates, an inherent part of their success has been their acquisition and partnerships strategy, which allows them to gain access to new technology and provide a broad range of products to the market in a timely fashion way (Carpenter 2009). Since their first acquisition in 1993, they have maintained an appetite for purchasing companies. As customers are an important component of their business, they establish long lasting relationships to identify their needs and provide more efficient and timely solutions which in turn lead to cost savings, process efficiencies, and closer relationships with their customers, prospects, business partners, suppliers, and employees. Currently the company employees over 70,000 employees and conducts business globally generating $43 billion in revenues and selling its products in approximately 95 countries through a combination of direct sales and reseller and distribution channels (Cisco 2011). Analysis Cisco operates in a rapid changing and growing environment, their technology provided the functionality for the World Wide Web .The growth on the global internet importance and the integrated network services have positively influenced Ciscos growth positioning them as a leader in the data networking equipment market. External Environment Scan In the global market an unstable political environment, changes in tax law, international operation regulations and foreign current exchange rates can adversely influence operations and revenues. Unfavorable worldwide economies and market conditions can contribute to slowdowns and credit problems, reducing product demand, increasing product price and supplies constraints.

Cisco 6 The usage of fast communication and information appeals to people of all nationalities and ages. The constant technological changes forces companies to modify their operational structure to keep up with customer demands requiring great amounts of investments in Research and Development. To protect the companys developments and property rights companies in the U.S uses patents, copyrights and trademarks, however in some foreign countries it may not apply. The degree of rivalry among the technology industry is high, although there are only a few large players, there is a moderate number of a new entrant. Acquisitions and mergers have been a strategy of various companies to prevent new players from growing. The availability of numerous suppliers reduces the risk of power of suppliers. In the industry there are larger buyers such as government, telecommunications, internet service and media providers that can exert some price pressure. The degree of substitutes is high, as new technology evolves rapidly. Internal Environment Scan Internally, Cisco enjoys so many strengths, which have so far enabled them to achieve most of their targets, objectives and goals. By being an excellent pioneer in matters of internet and networking Ciscos has gain solid brand name recognition. As a pioneer in internetworking, they have pulled users of internet before establishment of other firms securing a reasonable market and customer based. Cisco has a diverse range of internet product and other services that continue to attract many internet users. Also, Cisco offers some other specific services that supports their end to end network solution such as after sales solutions, including technical support services and advanced services (Cisco 2011), which have the capability of attracting and retaining more internet users. Through certified program internally designed by Cisco, many users opt for the firms services as opposed to the competitors given the fact that they can obtain adequate training on product usage.

Cisco 7 Based on these strengths internally enjoyed by Cisco, many opportunities arise that the company takes advantage of in an attempt to enhance further growth and expansion. The technological sector in undeveloped parts of the globe with a great number in terms of population, such as India, provides more opportunities for Cisco to take advantage of in respect to accomplish its strategies and objectives. Information technology and education are becoming inseparable in India consequently more opportunities for Cisco. Whats more, through the established good relationship between Cisco and Chinese government, there is a possibility of not only expanding its operations in China but also accessing other Asian countries. In any case, many individuals within contemporary environment are changing from old methods of communications to new methods, internetworking being a perfect example. Although Cisco enjoys from strengths and opportunities internally, the firm suffers from its weaknesses, which later on exposes it to environmental threats. Uncompetitive prices resulting from unfavorable pricing strategies amongst internetworking firms adversely affect operations of the firm. Such weaknesses expose the firm and the entire industry to high risks involved in current financial and economic crises. Even though there is a good relationship between Cisco and Chinese government, they still have very few distributors and integrators within the surrounding. Failing to take such an advantage leads to reduction in sales and difficulties in achieving objectives and goals. Lastly, uncertainty of 3G wireless networks, which has seen many forms of the network developed, poses significant challenge to the firm and poor intellectual property rights in China. Current Strategy Cisco uses a comprehensive mix of acquisitions, partnerships, outsourcing, and research and development to enter high emerging markets. With a well-defined vision Changing the Way We Work, Live, Play, and Learn (Cisco 2011) Cisco has driven their employees, acquisitions and

Cisco 8 overall strategy to operating efficiently, meeting consumers demand. By doing so, Cisco has preserved their position as leader in the information systems industry. Ciscos 2011 strategic objectives are: simplifying their operational model, aligning the costs structure to their transition in the marketplace, divesting or exiting underperformed operations and deliver value to our shareholders. Their current strategic goals focus on their 5 priorities: Leadership in their core business, Collaboration, Data center virtualization/cloud, Video and Architectures for business transformation (Cisco 2011). The main strategy applied by Cisco in achieving its business objectives and goals is the acquisition and mergers. Acquisition strategy employed by Cisco involves a combination of the research, development, acquisitions, and entering into partners with emerging markets or firms. The strategy of applying a mix of the three core concepts of strategies is to enhance growth. Cisco refers to this growth strategy as Build, Buy, Partner (Cisco, 2011). This name referring to current growth strategy employed by Cisco identifies the three tools applicable in growth and expansion namely building, buying, and partnering tools. The mix of the tools involve studying of new technologies through formation of partners with inventors (Partner), using R&D to enhance development of the technology (Build), and finish by acquiring the inventor (Buy) as a result bringing the technology into the market as their own. A perfect example involving application of the mix of the mentioned tools is during the entrance into optical transport segment of the market by Cisco in 1995 where the firm partnered with Monterey Network, learn its new technology while utilizing R&D to enhance development speed, and later on acquired the firm in 1997 for $ 500 million (Cisco, 2011).

Evaluation of the use of Acquisition and Mergers

Cisco 9 Ciscos growth strategy through acquisitions, mergers and partnerships has given them the competitive advantage by gaining access to new technologies, products and markets, speeding up the availability of new business complemented by the integration of additional assets, resources and capabilities. Even though acquisitions are not good strategies of growth as one firm suffers while the other gains especially in respect to layoffs and cultural clashes. By developing a standardized integration process that includes 10 mandatory steps, the new companies can be integrated into each of the companys major areas. Ciscos 3 primary goals on acquisitions are: employee retention, new product development with their New Product Introduction (NPI) and Return on Investment (ROI). Cisco attempts to retain most of the employees previously in the acquired firm. The reason for retaining such employees is for Cisco to acquire intellectual assets that will give all information and ideas regarding newly developed technology, complemented by ensuring to keep customers and other stakeholders. Notably, Cisco as a firm only mainly acquires those firms proving to be innovative and inventive. For this reason, Cisco benefits on having a record 2.1% employee turnover against that of the industry, which is approximately 20%. Moreover, Cisco focuses on retaining such employees because it is difficult to find, select, and recruit a team of employees capable, trained, and experienced to replace such employees in case they retrenched. Another aspect of Ciscos acquisition growth strategy other than retention of employees is development of new product. Employing acquisition strategy in growth is another way of Cisco finding substitutes for research and development that occur within the firm. This enables its establishment of market position quick enough while other firms still perform R&D to come up with unique products. Even though acquisitions and R&D are applicable by Cisco, acquisitions are preferred by them. Cisco through acquisition brings into the firm new and advanced technologies

Cisco 10 to help in coming up with new and unique products likely to attract and retain customers. They are able to obtain advanced and developed technologies capable of enabling the firm meets its growth and expansion objectives and goals. Cisco to a significant level concentrates on acquiring small and new start-ups that show serious invention and innovations capabilities. Once a new start-up displays leading edge-technologies, Cisco becomes interested and acquires the firm thereby obtaining the benefits that build up from developing new products through application of the advanced and new technology. The other bits relating to acquisition strategy engaged by Cisco in an attempt to grow and expand are market share and merger of equals. Amongst the objectives of Cisco are to attain the leadership position through acquisition of at least 50% market share in every market entry and to have at least 20% of market share under its control (Cisco 2011). By leveraging its sales team and third party distribution to sell the new acquired product as quickly as possible the can grown revenues and generate a high ROI. Attaining a leadership position and dominating a market is a complex and tedious task that needs some shortcuts as employed by Cisco. Cisco employs acquisition as a way of attaining these objectives in order to control every market it enters. On a different perspective, acquisition strategy for growth as employed by Cisco disregards acquisitions as mergers. Whereas in mergers both parties have control over the new firm, in acquisition the acquired firm ceases to exist while the acquiring firm takes full control of operations.

Recommendation

Cisco 11 From the perspective of Business Strategy Diamond model, Cisco needs to revive its acquisition strategies in the event that the firm wishes to continue enjoying merits associated with acquisitions as before.

It is highly recommended that Cisco Systems enhance the speed of expansion as well as sequence of initiatives under the staging component of this strategic tool.

Cisco under differentiators needs to define their pricing strategies, styling, customization, product reliability, as well as the image and speed to the market. So far the organization enjoys high speed to the market through acquisition but this is adversely affected by uncompetitive pricing from competitors.

It is also recommended that Cisco should be clear on the core technologies and market segments that will be of viable to its objectives and goals. Going into all markets and acquiring firms with new technologies is not a good idea as the firm may reach a point where it becomes inactive due to many challenging technologies.

Under economic logic, it should be in the interest of Cisco to ensure that there is minimization of costs through scale advantages and replication advantages. While employing pricing strategies under the economic logic, Cisco needs to employ premium pricing for proprietary product features. Regarding the new product, Cloud Index, there is need for Cisco to define its objectives, pricing strategy, as well as marketing strategy applicable in penetrating the market. Cloud index is an important tool for forecasting growth of global data and this should be vital in helping the firm forecast its future growth as well while taking it to the market. Conclusion

Cisco 12 Despite fears that acquisition is inappropriate when employed as a growth strategy, Cisco Systems Inc. has so far attained the market leader position through the same concept. It is undisputable that acquisitions are unfair strategies of enhancing growth and expansion of firms. Nevertheless, organizations especially in highly competitive industries need to devise favorable means, tools, and techniques that will enable them acquire competitive advantage thereby attaining their objectives and goals. Cisco Systems Inc. through its acquisition strategy for growth and expansion is one of the rare examples for successful companies in the global world applying the same strategy. Indeed, Cisco Systems Inc. is today a market leader due to its acquisition business strategy employed over the years.

References

Cisco 13 Cisco (2011). 2011 Cisco Annual Report. Retrieved November 24, 2011 from http://www.cisco.com/web/about/ac49/ac20/ac19/ar2011/letter/index.html Cisco (2011). Cisco Main-Website. Retrieved December 2, 2011 from: www.cisco.com Cisco (2011). Cloud. Retrieved December 2, 2011, from: http://www.cisco.com/web/solutions/trends/cloud/index.html Forbes (9/13/2011). Two strategy lesson for Cisco Systems. Retrieved December 5, 2011 from: http://www.forbes.com/sites/panosmourdoukoutas/2011/09/13/two-strategy-lessons-forcisco-systems/ Mason, A., & Carpenter, (2009). Concept and cases strategic management a dynamic perspective. (Second ed.). Upper Saddle River: Pearson Prentice Hall. Wikipedia (2011). Mergers and Acquisitions. Retrieved December 1, 2011 from: http://en.wikipedia.org/wiki/Mergers_and_acquisitions