(T)here are acquisitions, and then there are acquisitions... Cisco is one of the few companies that have found a way to succeed in this risky business. Since it made its first acquisition in 1993, the world's No. 1 maker of computer networking equipment has gobbled up a total of 110 companies--an average of about one every six weeks for 13 years. It has had its fair share of flubs and failures, of course, but since 2002, more than 90 percent of the workers acquired by Cisco have stayed with the company. Cisco's business, built largely through acquisition, is booming. The company's routers and switches--the two networking devices that keep the Internet humming by allowing computers to talk to one another--have captured more than 70 percent of the expanding $23 billion markets... Sixteen years after it went public, Cisco's market capitalization, at some $120 billion, is bigger than those of Dell, Xerox, and Apple combined.

The reason why Cisco's acquisition strategy has been successful is attributed to their "professionalization" of the process. In short, they have turned acquisitions into one of their core capability:

How has Cisco succeeded where so many others have failed? Simply put, experts say, it has professionalized a process that other companies turn to only on occasion--usually out of either greed or necessity. "My experience with most companies is that they do acquisitions infrequently and integration is somebody's nighttime job," says Brett Galloway, the former CEO of Airespace, a wireless networking company Cisco acquired last year. "Cisco has people who do this full time--it's a core function of the company."

The people who do this full-time are known as "The BD Group":

The nucleus of the company's acquisitions machine is its business development group, a 40-person team tucked into a nondescript cubicle farm in Cisco's sprawling San Jose office complex. The BD group, as it's called, has a diverse staff, ranging from Ph.D.'s in engineering to experts in silicon chips to M.B.A.'s with investment banking experience. Together, they identify potential buys, conduct due diligence on target companies, negotiate with senior execs, and integrate new companies into the greater Cisco whole. (The company now has more than 48,000 employees.) For over a decade, the group has operated under the same set of basic principles: Buy small, buy early in the product's life cycle (that is, preferably before it becomes the next big hit), and, most important, put the people you're acquiring above everything else. "At the end of the day, it's always an art, not a science," says Dan Scheinman, the senior vice president for corporate development, who has overseen the group since 2001--and who reports directly to Chairman and CEO John Chambers. "People have to like each other and trust each other."

To be sure, the acquisition strategy has evolved over the years, not surprising given that the firm didn't do its first acquistion until 1993, nearly 9 years after its founding:

The Cisco acquisition process was not always so seamless. For almost 10 years after it was founded in 1984, the company wasn't in the business of acquisitions at all: It sold routers and only routers. The market was growing rapidly, and Cisco went public in 1990. But three years later, when a faster and cheaper piece of hardware, the switch, seemed to threaten its business, Cisco engineers scrambled to start production of their own version. Soon, though, executives realized their product was going to be late to market. Cisco needed a switch that worked--and fast. Enter acquisition No. 1: Crescendo Communications, a small switch maker that Cisco purchased in 1993 for $95million. Though Cisco's engineers grumbled that they could have produced their own switch in time, the deal worked. Cisco got into the market ahead of the competition, most of Crescendo's executives stayed with the company, and switches became a core Cisco business. The switching unit now generates almost $10 billion in annual revenues.

From there it was onward and downward- down the learning curve that is:

What began as a one-time event soon evolved into a long-term strategy--and is now an essential part of Cisco culture. While most big tech companies rely heavily on R&D to create products and business lines, Cisco, after Crescendo, decided to go another way. "It's the A&D approach to growth--acquisition and development," says Charles O'Reilly, a Stanford business professor who wrote a case study on Cisco in the '90s.

And as they have moved down that curve, the word has spread far and wide that getting acquired by Cisco is a good thing, a career-enhancing rather than career-ending move:

As Cisco has made a name for itself in acquisitions, engineers and entrepreneurs at small tech start-ups in Silicon Valley, Boston, and Research Triangle Park, N.C.--or, increasingly, in Tel Aviv, where Cisco has made nine acquisitions in recent years--are happy to be acquired. There is a clear career path, after all, for employees at Cisco who join the company this way. The senior vice presidents of switching, operations, and security all came from acquisitions. Hooper himself, the point person on M&A transactions, is proof positive that working for Cisco does not mean being put out to pasture. "With Cisco, the acquisition is not the end but the beginning," he says. "The people we're acquiring have to feel the same way: It's the beginning of the next generation of that company."

With to spend $1.1 Billion in India in the coming three years, Cisco shows no sign of changing their succesful acquisition strategy anytime in the near future. It remains to be seen whether and to what degree other firms can benefit from Cisco's experience. If they are wise, they'll pay more attention to Cisco's motivations than to the specific processes and tactics because therein lies the moral of this corporate success story. It is, I think, the difference the between acquisition and acquisitiveness. The latter is most oft defined as "a strong desire to acquire and possess"; it is a synonym for greed. And I find it interesting that that word, greed, was mentioned explicitly in the article; we were told that Cisco's acquisitions are driven by a strategy, not by "greed or necessity."

Aristotle considered acquisitiveness a moral failing, a character flaw. Karl Marx viewed it as the Achilles heel of capitalism, as something that would eventually bring about its demise. Since then, economist and philosophers have tried, with some success, to show that "greed is good", at least in the realm of commercial intercourse. Perhaps the moral of this story is that acquisition guided by a strategy that has people and opportunity for them at its core is as different from acquisitiveness as a corporation can get these days...and it seems to pay off handsomely to boot.

Tags: cisco | acquisitions | acquisition |

Disclosure: Cynthia Powell, Part-Time Public Relations Specialist at U.S. News & World Report, brought to my attention the article upon which this post is based.