ABSTRACT
It has been noted that not all acquisitions succeed with the most numbers failing; this is usually due to overpayment or integration problems. There are five main ways in which resources from the merging companies can incorporate to generate value. Acquisitions are not equally susceptible to the barriers to their success due to exceptional business models, acquisition process and information advantage. These factors help one be able to easily understand why acquisitions are affected differently by the barriers as well as the sources having the highest success probabilities. This process of resource interaction helps managers to main value sources in the acquisition they are interested in and also foresee obstacles at the due stage; this process also helps managers to revisit their acquisition strategies which have been avoided due to poor striking of acquisitions. It is very crucial to find factors that will lead to success in acquisition; this essay therefore based on how the merging firm’s capabilities and resources are supposed to interact in order to advance the competitive situation of the entity which has already merged (Ewers, 2006, available online).
CISCO SYSTEMS SUCCESSFUL ACQUISITIONS
Acquisition is the state where a large and powerful firm purchases another firm which in most of the cases is smaller; on the other hand, a merger is the state where two firms which may be of the same power come together to form a larger and more powerful firm than before. After acquisition or merger the desired results are to succeed in the firm formed. Cisco system is an exception in which acquisitions always lead to increased valuations. Success in acquisitions come from understanding the factors that lead to valuable acquisition as well as retaining the factor and possible improve it; the factor has been identified as having a competitive advantage in either all or majority of the acquisition’s building blocks which are identification, valuation, negotiation and target’s integration. The success of acquisitions is analyzed better by looking on the results of the acquisitions which are prior. According to Rifkin, (1997), Cisco is known for its success in the mergers it has created by having acquired fourteen firms since 1993.
THE APPROACH USED BY CISCO SYSTEMS IN ORDER TO SUCCEED IN MANY OF ITS ACQUISITIONS
Cisco is known to be a success in most of the acquisitions it has been involved in, this is due to;
Acquisition experience which enables Cisco to be able to easily and faster integrate the acquired firm as well as failing to invest in mergers of equal firm but instead acquiring firms which are smaller in operation size and at their initial stages. Cisco has also the advantage of learning by doing and thereby enjoys the advantages of its experience curve which is going downwards in terms of number of barriers. Lack of following the experience curve leads to getting unplanned results as it was evidenced when Cisco tried to acquire Cerent which is a known and a public firm; it ended up being very expensive for Cisco and even lowered its information advantage.
Information advantage- Cisco has been over the years tracking the emerging technologies together with forming a culture which is acquisition minded and matching its market segmentation aims; this has led the sales forces to help in developing acquisition leads even during sales calls. Cisco does not rely on investment bankers in identifying acquisition opportunities but rather relies on an internal process which is replicable.
The integration expertise exercised by Cisco is an advantage for it enables it to finish its acquisition process within a short time as compared to before when it completed the process in three months.
Cisco also has the advantage of productive resource assembly (one stop shop firm model) for example the one it acquired after it faced competition from Ford and Boeing because it didn’t sell switches; it counteracted this by acquiring Crescendo which makes the switches. Since then, Cisco has been acquiring smaller firms to fill its technology gaps so as to serve its customers better.
There are several human resource practices that are used by Cisco in making its acquisitions successful; these practices include the fact that the managers together with the employees are experienced in acquiring firms for they have in the process for a long time. There is a division in the company which deals with planning on how to successfully acquire firms by dedicating their full time in that process. The technologies used are also very conducive in yielding good results after acquisitions (Rifkin, 1997, available online).
REASONS WHY THE HUMAN RESOURCE ASPECTS HAVE BEEN IGNORED IN FORMATION OF MERGERS AND ACQUISITIONS
Human resource aspects have been handled poorly in the past because the acquiring firms did not see it of importance since they thought the process of acquisition was a one day job. Firms have earlier been relying on banker investments for information on merger opportunities which rendered the need of human resources useless.
CONCLUSION
It is clearly shown that or acquiring firms to succeed in acquisitions, the necessary steps of identification, valuation, negotiation and target’s integration should be followed and integrated well. There should also be set division of managers whose main responsibility is to plan the acquisition process. It is not worth acquiring already established firms because it ends up being very expensive and reduces a firm’s information advantage.
REFERENCES
Ewers Justin (2006) USNews.com: Tech giant Cisco has mastered the art of acquisitions, retrieved on15th November, 2008, available at www.usnews.com/usnews/biztech/articles/060626/26best.htm
Rifkin Glenn (1997) Growth by Acquisition, retrieved on15th November, 2008, available at
www.strategy-business.com/press/16635507/15617
