Innovation is the engine that powers Cisco. Its machinery was first assembled by an entrepreneurial husband and wife team with a great idea to connect the computers of two departments at Stanford University. It has since been turbo-charged by the simple notion that an open, standards-based communication protocol can be extended across the many ways of bringing together people, process, data and things to create networked connections. Now, that innovation engine is driving Cisco to become the world’s leading IT company with the power of capturing the next phase of the internet – the Internet of Everything – to make networked connections more relevant and valuable than ever before. Cisco will do this through building on in-house R&D and investing in employees, alongside acquiring great technologies, business models and talent during this time of massive industry change, when it matters most.
Our build, buy, partner approach is at the heart of Cisco’s innovation culture. It is an integrated toolkit that is critical to maintaining sustainable long-term differentiation, particularly as markets go through major transitions and disruption. Cisco first led innovation in the hugely disruptive routing arena by building incredibly relevant solutions during the infancy of the Internet. We then expanded into new disruptive markets, such as switching, with pivotal acquisitions of companies like Crescendo, Grand Junction and Granite. Later, Cisco extended into areas where major transitions continue to take place today, such as collaboration, mobility, data center and video with deals like WebEx, Starent, Meraki, Nuova, and NDS.
So where are we now and how did we get here?
In 2012, M&A deal volume in the industry dropped more than 15 percent while overall deal consideration dropped by a dramatic 30 percent. Despite this trend, 2012 represented the most active M&A year for Cisco in over a decade with 14 acquisitions and nearly $8 billion in transactions. After two of the quietest years for M&A at Cisco, why have we kicked our M&A motor into high gear? Well the answer can be found in the journey we have been on over the last couple of years. That journey started with a new Strategy. It has been fueled by Readiness. And, it has arrived through Actionability.
2010 and 2011 were challenging times for Cisco in which the company wrestled with driving growth across many priority areas—arguably difficult for any one company to handle. That, in combination with downward pressure on the business within Cisco’s market segments, resulted in sharpening the company strategy in 2011. We refined our focus from 30+ market adjacencies to 5 foundational priorities. This shift allowed for the development of a reinvigorated corporate strategy as well as individual market initiatives closely coupled with the priority areas.
In late 2011, with a solid strategy in place, management turned its attention back to what it had always done from its humble beginnings: lead in strategic categories and extend leadership to new markets. With a breadth of talented leadership, fresh ideas began to flow to key posts across Cisco’s engineering, sales and services ranks.
The combination of good strategy and exceptional leadership inside the business allowed Cisco to aggressively seek out opportunities in the market during a time when the tech M&A landscape seemed to be largely void of meaningful activity. As an example, the steady-step execution of a clear Cisco Mobility strategy has delivered for our customers in a big way. In the span of a quarter, Cisco acquired Cariden, Broadhop, and Intucell—all of which are part of an overall drive to bring more intelligence from the very ends of networks to the IP edge where Cisco can add value and solve customer problems. Other examples include leadership in Unified Access and Data Center where deals like Meraki and Cloupia enable Cisco to continue to stress next generation enterprise architectures and business models that are adjacent to Cisco’s core business. Finally, in the area of Video, Cisco delivered on its software-based Videoscape architectural strategy through a series of well-mapped acquisitions, culminating in the $5 billion acquisition of NDS, the largest tech deal of 2012.
As we drive a higher pace of M&A, we have kept a close eye on how to “save to invest”, ever-clarifying the portfolio through carefully selected divestitures such as the sale of Linksys to Belkin. These kinds of moves continue to help sharpen our focus in areas where Cisco can compete to win.
We continue to evaluate exciting new opportunities to lead the industry in a time of powerful market transitions and disruption. Cisco will be active, but disciplined, in our M&A approach—which has been, and always will be, built on a platform of solid strategy, operational readiness, and market actionability.
I look forward to sharing more about our moves as they unfold in 2013.