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Published: April 1, 1997

 
 

Growth by Acquisition: The Case of Cisco Systems

However, we realized about 18 months ago that we did have to become much more visible because our business was going to become more of a marketing game in addition to being a product-technology game. To find out what to do, we watched what Microsoft does in marketing. Microsoft is really awesome. We realized that it gets most of its marketing for free. Since we're a frugal company, that really appealed to us. As a result, we made the decision as a team that we wanted to become much more visible.

S&B: Has your increased visibility changed anything in the acquisitions area?

JOHN CHAMBERS: It allows us to move quicker. When people realize what we do and how good we are at it and how good we are at keeping the people we acquire, it makes it much easier to acquire a company. As a result, we now have a chance to acquire everybody. There's almost no acquisition that goes down, even if one of our competitors is doing the buying, that does not come to us first to see if we are interested.

Unless the company is public, the decision is rarely simply a financial one. For example, there were several companies that would have paid a lot more money for Granite than we did. Andy Bechtolsheim knew the company he wanted to be acquired by. He knew the culture he wanted to become part of. He knew his customers and that his products would come to market through us and that his people not only would not be stifled but would have a chance to play a much larger role.

S&B: How do you measure the success of your acquisitions?

JOHN CHAMBERS: The way we measure the success of small-to-medium-size acquisitions is straightforward. Within three years, we would like to generate in revenue what we paid for the company. If we do that, then the acquisition was a good, solid base hit. If we do more than that -- say we do it in two years or even in one year -- then the acquisition was a home run or a grand slam. Crescendo was a grand slam.

S&B: With acquisitions fueling incredible growth, are you getting so big that you face the same issues that hammered the hardware giants in the late 1980's?

JOHN CHAMBERS: You know, there's no doubt that running at this pace is a challenge. At the top of the list is how do you manage the growth? How do you really create the culture of mergers and acquisitions and new ideas and keep your basic strengths? How do you avoid missing the major technology changes that occur? How do you avoid creating the hierarchy where an overhead structure supporting your sales people and engineers becomes your bottleneck as you drive through it?. How do you avoid getting too far away from your customers? Do I think we could trip in the future? Absolutely.

S&B: Yet you have said there will be 10 or 12 more acquisitions this year. Is this going to go on forever?

JOHN CHAMBERS: If the industry is going to be as big as some people project it to be, and if it continues to grow as fast as people are projecting it to grow, then acquisitions will stay an integral part of our strategy for the next five years.

Reprint No. 97209

 

Authors
Glenn Rifkin, [email protected]
Glenn Rifkin has covered technology for the New York Times and has written for the Harvard Business Review and Fast Company. He is coauthor of Radical Marketing (HarperBusiness, 1999) and The CEO Chronicles (Knowledge Exchange, 1999).
 
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