Monday, October 05, 2009

Cisco Buys Norwegian Firm for $3 Billion
NYT, 10/2/09

Successful innovation across full business designs –segmenting target customers and determining the desired outcomes for them; developing a value proposition for those targets; and defining a sustainable value capture model—should require an expansion of one’s capabilities (in the broadest sense from physical and HR assets, to market access, to intellectual property etc.) if the organization is pushed hard enough. My belief is that your current capability platform must be a critical component of achieving the desired growth business design (if not, why do it) but it should not be limiting. How to achieve those capabilities is always an issue. There are generally three options: build them yourself; buy them; or form partnerships/alliances (a key component of our class on Implementing Organic Growth Strategies --

This article on Cisco’s recent capability plan to build their business for video conferencing exemplifies that the answer is situational.

M&A to Fill Capability voids:

"Cisco sells companies expensive, room-size videoconferencing systems known as TelePresence systems. Tandberg has similar technology but also sells smaller, cheaper conferencing units. In addition, Tandberg has specialized software for managing videoconferencing systems and for creating connections between systems that rely on different underlying technology.
“It really enables us to build out our portfolio,” said Ned Hooper, a senior vice president at Cisco.
Cisco’s corporate videoconferencing products require the company to outfit a customer’s conference room with several large display screens, networking equipment and even special tables, chairs and wall paint. By contrast, Tandberg has a range of gear, including high-definition video systems that can sit on desks or be used with personal computers."

M&A to drive growth for existing capabilities and to go into new markets:

"Cisco has bought close to 40 companies in the last five years…….the acquisitions have suited Cisco’s mission of backing products that generate more Internet traffic, which in turn drives demand for the networking hardware that has long been the core of its business.
The deals have also thrust Cisco into new markets like consumer electronics, business collaboration software and computer servers where the company now finds itself in direct competition with its traditional business partners, like Hewlett-Packard, Microsoft and I.B.M."

They will form alliances when it is the preferred approach particularly when the challenge of integrating an acquired company is very difficult, in this case a true service business vs. what Cisco normally does:

"Still, companies like Cisco, Dell and EMC must find ways to match the heft of Hewlett-Packard and I.B.M., which have huge technology services businesses to complement their hardware and software pursuits.
Rather than acquiring a large services company, Cisco will continue to partner with independent players like Accenture and Wipro, Mr. Chambers said.
“I think that is a more scalable, faster-speed and less confrontational model,” he said."

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