Cisco Summa Four

Screening Criteria

Means of achieving criteria Have a complementary technology that fills in a Cisco’s core product space

Offer both short term and long term win-wins for Cisco and the acquired company

Have a technology that can be delivered through Cisco’s existing distribution channels Have a technology and products which can be supported by Cisco’s support organization. Is able to leverage Cisco’s existing infrastructure and resource base to increase its overall value Have a similar understanding and vision of the market

Share a common vision and chemistry with Cisco

Have a similar culture Have a similar risk taking style

Be located ( preferably) in Silicon Valley or near one of Cisco’s remote sites

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Have a company HQs and most facilities close to one Cisco’s main sites

Cisco Systems, Inc: Acquisition Integration for Manufacturing

Evaluation

Have a complementary technology that fills in a need in Cisco’s core product space

•Business strategy : To provide one-stop shop for end-to-end networking solutions . • Challenge : Product categories included High-End Routers, WAN switches and network management systems. Product portfolio didn’t consist of switching platforms or value added telephony services. Summa Four : Extending the product portfolio ?

• Deregulation of the telecommunications industry : Shift from proprietary switches to standards based open programmable switches -> less time to market and reduction in development costs.

• Development of a next generation product(Project Alpha) – Industry’s first standards based programmable switch : Helps in achieving the end-to end networking solutions provider.

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Cisco Systems, Inc: Acquisition Integration for Manufacturing

Have a technology that can be delivered through Cisco’s existing distribution channels

Major buyers were telecommunication service providers ( like AT&T, MCI, Sprint, BT) for both the companies, hence the same distribution partners and VARs can be leveraged. Have a technology and products which can be supported by Cisco’s support organization.

Summa Four’s technology of value added telephony applications was completely new as compared to Cisco’s existing knowledge base. Moreover, its MRP system was not compatible with Cisco’s MRP system. Its home gown test system was far less automated than Cisco’s Autotest system. Is able to leverage Cisco’s existing infrastructure and resource base to increase its overall value

If certain products like VCO/4K turned out to be profitable , then Cisco’s additional capacity and testing infrastructure can be used to produce more of the product.

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Cisco Systems, Inc: Acquisition Integration for Manufacturing

Have a similar understanding and vision of the market

Summa Four was a small firm playing in the niche market and concentrated on one product category only. Cisco had an impressive product line and acquisition was the way to gain access to new technologies. Have a similar culture

Cisco being a big organization had complex processes. Summa Four had built the business in a simple fashion where personal connections and informal processes allowed for quick action. Have a similar risk taking style

Although nothing specifically mentioned, Cisco’s huge product portfolio would enable it to take more risks than a smaller firm like Summa Four Have a company HQs and most facilities close to one Cisco’s main sites

Summa Four’s HQ and manufacturing facility were located in Manchester which was one hour away from Cisco’s R&D facilities.

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Cisco Systems, Inc: Acquisition Integration for Manufacturing

A PRIORI DUE DILIGENCE Cross functional team from Cisco Review company’s manufacturing processes Identify risks Provide input to valuation discussions

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MANUFACTURING INTEGRATION TEAM

Integration team comprising of experienced members from Cisco and acquired company Senior manager within acquired company appointed as the integration team leader

“Buddy System”

MANDATORY INTEGRATION STEPS

Merging information systems: MRP and Autotest Aligning current processes: Evaluating suppliers, assessing outsourcing options, determining product lifecycles Implementing ongoing methodologies: Defect reductions, forecasting, new product introductions

Cisco Systems, Inc: Acquisition Integration for Manufacturing

SITUATION SPECIFIC INTEGRATION STEPS

Manufacturing facility decisions

Employee Integration issues

A priori due diligence of the company’s manufacturing facilities ensures that Cisco is acquiring a company that will better its prospects and not lower Cisco’s profitability

By appointing the senior manager of the acquired company as the integration team leader, the employees there were comfortable and secure- felt that since someone trusted was leading the integration efforts- so nothing would go wrong. Buddy system ensured that new employees learnt by watching and interacting with Cisco people within their company Integrating information systems into Cisco’s MRP and Autoset platforms to reduce complexity and hassle of maintaining multiple systems due to large number of acquisitions Evaluating suppliers important to ensure quality and reliability of vendors- maintain credible brand image of Cisco Since decisions about retaining or shutting down manufacturing facilities and employee integration issues are highly sensitive, evaluating them separately for every acquisition on a case by case basis ensures better transition

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Cisco Systems, Inc: Acquisition Integration for Manufacturing

Merging information systems

Evaluating suppliers

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• Summa Four used a home-grown, PC based test system that was far less automated than Cisco’s Autoset system • Summa Four’s MRP system was from Symix whose software was incompatible with Cisco’s MRP system

• Summa Four purchased large number of individual parts (~5000) from 250 suppliers • 85 suppliers were completely new to Cisco- Supply Ops group will take time to evaluate and approve • 200 of Summa Four’s parts were sole sourced- only one vendor- created pricing and continuity of supply risk

Cisco Systems, Inc: Acquisition Integration for Manufacturing

Employee Integration

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• Summa Four and Cisco were different in terms of scale210 employees in Summa Four versus over 10,000 employees in Cisco • Summa Four had a simple functional organization, personal connections and informal processes. Cisco had far more complex processes. • Summa Four employees worried about the level of influence they would be able to exert in Cisco • Unclear about what role the Summa Four products would play in Cisco • Cultural implication and feeling of ‘being just one of many in the long line of Cisco acquisitions’

Cisco Systems, Inc: Acquisition Integration for Manufacturing

THANK YOU!!!