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Published: April 1, 1997

 
 

Growth by Acquisition: The Case of Cisco Systems

In fact, half of the chief executives and most of the senior managers of the 14 companies acquired since late 1993 are still with Cisco. Consultants who work with merged companies marvel at Cisco's ability to win acceptance from so many entrepreneurs for its corporate vision.

Mr. Giancarlo, for example, came to Cisco as part of the 1994 purchase of a small switching company known as Kalpana, which he co-founded. A technology visionary who had also started several other companies, Mr. Giancarlo was offered a job running Cisco's business development organization, spearheading acquisitions. Though he had no interest in becoming "a deal junkie," he was intrigued by the company's willingness to entrust him with the influential post.

"Cisco is able to hold onto people like me," he says. "They gave me a chance to play a major role."

For other founders and C.E.O.'s of acquired companies, like Andy Bechtolsheim, the founder of Granite, a manufacturer of computer switches, Cisco provides an unusual haven. Already wealthy, these entrepreneurs are
driven by the desire to "build breakthrough products that can change the world overnight," Mr. Giancarlo says. Clearly, by leveraging Cisco's sales, marketing and distribution might, a startup's product stands a far greater chance of having a profound impact on the market. It is this synergy that has helped Cisco retain such stars as Mr. Bechtolsheim, who was also a co-founder of Sun Microsystems and who would otherwise chafe at the restrictions of a big company.

For Cisco management, the challenge lies in retaining control and balance amid the euphoric growth rates. Thus far, Cisco has retained the entrepreneurial spirit of a startup. But the company has mushroomed from 500 employees in 1991 to more than 10,000 this year. While continuing to aggressively pursue more acquisitions, management must constantly reinforce and emphasize the value of its own internal development organization. More importantly, Cisco, by shopping for a spate of disparate technologies to flesh out its product line, faces the challenge of tying all these varied products into seamless networks for its customers.

Mr. Chambers, the company's chief executive, is not unaware of these concerns.

"We're paranoid," he said. "A lot of companies are arrogant. They're on top and they believe they belong there. We've got almost the reverse attitude. We've got a tremendous fear of failing. We make Andy Grove at Intel look relaxed."

AN INTERVIEW WITH JOHN T CHAMBERS
PRESIDENT AND CHIEF EXECUTIVE OF CISCO SYSTEMS

John T. Chambers, a 47-year-old native of West Virginia and a former I.B.M. and Wang Laboratories marketing veteran, joined Cisco Systems Inc. in 1991. He came in as the heir apparent to the chief executive, John P. Morgridge, and fashioned the company's aggressive growth strategy, which included plans for Cisco to be a partner, create joint ventures and, most of all, acquire its way to a dominant position in the data networking marketplace. Mr. Chambers, who become chief executive in January 1995, spoke recently with Strategy & Business from Cisco headquarters in San Jose, Calif.

S&B: From its founding in 1984, Cisco seemed content to compete in the marketplace in traditional ways. Then, in 1993, the company changed its strategy and put a premium on speed as well as growth. Why did you adopt the new approach?

JOHN CHAMBERS: We decided to become more aggressive as a company and to look at the market more in Internet years, as opposed to calendar years. Things are changing so fast with regard to the Internet that each regular business calendar year equals seven Internet business years. So instead of looking at a one-year plan, we began looking at every quarter and adjusting our plan up or down.

 
 
 
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