Cisco’s Acquisition Strategy
Customers that requested skills or technologies that Cisco lacked were taken extremely seriously. Indeed, when selecting a company to acquire, Cisco often acted on its customers’ recommendations. For example, when Cisco entered the digital subscriber line (DSL) market, the president of U.S. West (now Qwest) approached Chambers at Cisco and said that a small company had a particular technology that it wanted to incorporate into its system. The similar technology that Cisco was developing was not what the customer needed. Several months later Cisco bought the company.
The culture of its potential acquisition targets was also an important consideration for Cisco, which preferred customer-focused to technology-focused firms. Cisco avoided companies that invented “cool gadgets” and appeared more enamored of the technology than of how effectively it solved a customer’s problem. “We have struggled when we bought companies that were technology- focused... we had to convert them over to being customer-focused instead, and that’s a hard process,” Volpi explained. He elaborated:
Generally speaking, the smaller the company, the more customer interaction is felt throughout the organization. If you have a twenty-person company, it is likely that eighteen of those people speak to customers on a regular basis. But when you have a 40,000-person company, chances are only 10,000 ever talk to customers. The ratio gets worse as the company gets bigger. So we tried to buy companies that are small, because they tend to be more inherently focused on the customer and they align with our culture and processes much easier.
Cisco’s Acquisition StrategyCustomers that requested skills or technologies that Cisco lacked were taken extremely seriously. Indeed, when selecting a company to acquire, Cisco often acted on its customers’ recommendations. For example, when Cisco entered the digital subscriber line (DSL) market, the president of U.S. West (now Qwest) approached Chambers at Cisco and said that a small company had a particular technology that it wanted to incorporate into its system. The similar technology that Cisco was developing was not what the customer needed. Several months later Cisco bought the company.The culture of its potential acquisition targets was also an important consideration for Cisco, which preferred customer-focused to technology-focused firms. Cisco avoided companies that invented “cool gadgets” and appeared more enamored of the technology than of how effectively it solved a customer’s problem. “We have struggled when we bought companies that were technology- focused... we had to convert them over to being customer-focused instead, and that’s a hard process,” Volpi explained. He elaborated:Generally speaking, the smaller the company, the more customer interaction is felt throughout the organization. If you have a twenty-person company, it is likely that eighteen of those people speak to customers on a regular basis. But when you have a 40,000-person company, chances are only 10,000 ever talk to customers. The ratio gets worse as the company gets bigger. So we tried to buy companies that are small, because they tend to be more inherently focused on the customer and they align with our culture and processes much easier.
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