4.cisco

HarvardBusinessSchool9-600-015Rev.February15,2000NicoleTempest,AssociateDirectoroftheHBSCaliforniaResearchCenter,andDean'sResearchFellowChristianG.KasperpreparedthiscaseunderthesupervisionofProfessorStevenC.WheelwrightandProfessorCharlesA.Holloway,KleinerPerkinsCaufieldandByersProfessorofManagementatStanfordUniversity’sGraduateSchoolofBusinessasthebasisforclassdiscussionratherthantoillustrateeithereffectiveorineffectivehandlingofanadministrativesituation.Copyright©1999bythePresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.1CiscoSystems,Inc.:AcquisitionIntegrationforManufacturing(A)DavidKeller,vicepresidentofmanufacturing,newproductintroduction,andtechnologyatCiscoSystems,Inc.(Cisco),hungupthephoneandsatbacktothinkaboutthechallengesthatlayahead.HehadjustspentthelasthourtalkingwithGaryWilder,directorofmanufacturingoperations,andDickSwee,vicepresidentofengineering,atSummaFourInc.(SummaFour)—asystemscompanywhichdevelopedandmanufacturedprogrammableswitchesusedinthedevelopmentoftelephonyapplications.CiscohadannouncedinJuly1998thatithadreachedanagreementtoacquirepubliclyheldSummaFourfor$116millioninstock.Theconversationhadbeenaboutthemajoreffortthatlayaheadtointegratethetwocompanies’manufacturingorganizations.WhilethedealwasnotexpectedtoofficiallycloseuntilNovember1998,KellerhadcalledWilderandSweetogivethemanoverviewofhowCiscomanagedthesetypesofintegrationprojectssothattheycouldbegintopreparetheSummaFourorganization.KellerhadreviewedtheduediligencereportonSummaFourwrittenbyateamfromhisdepartmentandknewthattheintegrationprocesswouldbecomplex.WhileCiscohadmade25acquisitionspriortotheSummaFouracquisition,mosthadbeenofSiliconValley-basedsoftwareorpre-productionhardwarecompanieswhichhadsmall(ifany)manufacturingorganizations.TheSummaFouracquisitionhadthepotentialtobedifferent.SummaFourwasa22year-oldhardwarecompanywith$42millioninrevenues,over200employees,onemanufacturingplantlocatedinManchester,NewHampshire,andafulllineofproductsbeingshipped.SummaFourrepresentedoneofCisco’slargestacquisitionstodateintermsofcurrentrevenuesandemployees.Kellerwasconcernedaboutjusthowdifficulttheacquisitionintegrationprocesswouldbefromamanufacturingstandpoint.HowwouldtheytreatSummaFour’slegacyandnext-generationproducts?Wherewouldtheybemanufactured?HowwouldCiscodealwithSummaFour’ssuppliers?DiditmakesensetokeeptheManchesterplantoperating?Ifso,forhowlong?WhatrisksdidCiscofaceduringtheintegrationprocessandwhatcouldbedonetohelpmitigatethoserisks?CiscoOverviewCiscoSystems,foundedin1984byLeonardBosackandSandyLerner—ahusbandandwifeteamofcomputerspecialistsatStanfordUniversity—grewoutofaprojecttotietogetherdisparateThisdocumentisauthorizedforuseonlybyYangLiinCorporateandBusinessStrategytaughtbyAnuWadhwafromSeptember2009toMarch2010.600-015CiscoSystems,Inc.:AcquisitionIntegrationforManufacturing(A)2computernetworksoncampus.BosackandLernerdevelopedthefirst“multi-protocol”router—aspecializedmicrocomputerthatsatbetweentwoormorenetworks(eventhosewithdifferentoperatingsystems)andallowedthosenetworksto“talk”toeachotherbydeciphering,translating,andfunnelingdatabetweenthem.AsBosackexplainedbackthen:“Wenetworknetworks.”1Cisco’stechnologyopenedupthepotentialforlinkingalloftheworld’sdisparatecomputernetworkstogetherinmuchthesamewayasdifferenttelephonenetworkswerelinkedaroundtheworld.TechnologypioneeredbyCiscoprovidedthefunctionalityfortheWorldWideWeb.AstheglobalInternetandcorporateIntranetsgrewinimportance,sotoodidCisco.Withanearlyfootholdinthisrapidlygrowingindustry,Ciscoquicklybecametheleaderinthedatanetworkingequipmentmarket—the“plumbing”oftheInternet.By1998,mostofthelarge-scaleroutersthatpoweredtheInternetweremadebyCisco.WhileroutersandswitchescontinuedtobeCisco’scoreproducts,thecompany’sproductlinehadexpandedtoincludeabroadrangeofothernetworkingsolutions,includingWebsitemanagementtools,dial-upandotheraccesssolutions,Internetappliances,andnetworkmanagementsoftware.(SeeExhibit1foralistofCisco’sproductcategories.)Cisco’sbroadproductlineenabledittooffercustomersan“end-to-end”networksolution—anoptionwhichover50%ofFortune500companieswereactivelyconsidering,accordingtoCisco.By1998thecompanyheldthenumberoneornumbertwopositionin14ofthe15marketsinwhichitcompeted.Asaresult,Ciscohadbecomeasafedecisionforlargecompanies.Asoneindustryanalystcommented,“Ihaveheardfromanumberofreallylargeclients:‘It’slikeIBMintheolddays—youwon’tgetfiredforchoosingthem.’”2In1996Ciscoenteredthe$250billiontelecomequipmentmarket,whichwasundergoingsignificantchangeduetorapidadvancesintechnology.Whereashistoricallytherehadbeenthreeseparatetypesofnetworks—phonenetworksfortransmittingvoice,computernetworksfortransmittingdata,andbroadcastnetwor