Question

Strategic Human Resources – Assignment Sheet 2
Case Study:
In the past, the decision criteria for mergers and acquisitions were typically based on considerations such as the strategic fit of the merged organizations, financial criteria, and operational criteria. Mergers and acquisitions were often conducted without much regard for the human resource issues that would be faced when the organizations were joined. As a result, several undesirable effects on the organizations’ human resources commonly occurred. Nonetheless, competitive conditions favor mergers and acquisitions and they remain a frequent occurrence. Examples of mergers among some of the largest companies include the following: Honeywell and Allied Signal, British Petroleum and Amoco, Exxon and Mobil, Lockheed and Martin, Boeing and McDonnell Douglas, SBC and Pacific Telesis, America Online and Time Warner, Burlington Northern and Santa Fe, Union Pacific and Southern Pacific, Daimler-Benz and Chrysler, Ford and Volvo, and Bank of America and Nations Bank.
Layoffs often accompany mergers or acquisitions, particularly if the two organizations are from the same industry. In addition to layoffs related to redundancies, top managers of acquiring firms may terminate some competent employees because they do not fit in with the new culture of the merged organization or because their loyalty to the new management may be suspect. The desire for a good fit with the cultural objectives of the new organization and loyalty are understandable. However, the depletion of the stock of human resources deserves serious consideration, just as with physical resources. Unfortunately, the way that mergers and acquisitions have been carried out has often conveyed a lack of concern for human resources.
A sense of this disregard is revealed in the following observation:
Post combination integration strategies vary in tactics, some resemble to “marriage & love’ but in reality, collaborative mergers are much more hostile in implementing forceful decision and financial takeovers. Yet, as a cursory scan of virtually any newspaper or popular business magazine readily reveals, the simple fact is that the latter are much more common than the former.
The cumulative effects of these developments often cause employee morale and loyalty to decline, and feelings of betrayal may develop. Nonetheless, such adverse consequences are not inevitable. A few companies, such as Cisco Systems, which has made over 50 acquisitions (https://www.cisco.com/c/en/us/about/corporate-strategy-office/acquisitions/acquisitions-list-years.html), are very adept in handling the human resource issues associated with these actions. An example of one of Cisco’s practices is illustrative. At Cisco Systems, no one from an acquired firm is laid off without the personal approval of Cisco’s CEO as well as the CEO of the firm that was acquired.

QUESTIONS:
1. Investigate the approach that Cisco Systems has used in its many successful acquisitions.

What are some of the human resource practices that have made its acquisitions successful?

Answer 1

Cisco's 1st acquisition, Crescendo Communications, located in Sunnyvale, California with 60 employeeshaving no manufacturing facilities and little overhead. Company had just begun shipping a switch that could immediately be integrated into Cisco's product line. Cost of Crescendo acquisition was $97 million in 1993 and by 2000 it generated more than $7.4 billion in annual revenues. Cisco decided to merge companies and for this In 1994 a manager was hired to focus exclusively upon acquisitions as a business process. It reinforced as a best strategy and In 1997 the pace increased to six acquisitions per year that a full-time acquisition manager was appointed. A business integration unit was established in 1998 to assist in directing the integration process and finally by 2001, the HR team devoted to acquisitions had grown to 21 persons.

The strategy was simple. When Cisco identifies a new market opportunity, a dialogue is initiated between the business units to confirm the need for the technology. All this is informal and considers whether the product should be developed internally or via acquisition. So it is proved that acquisition is the preferable strategy using existing internal information and proactive market study.

Since the acquisition premiums are so great in high-technology firms, the future product stream is critical. Cisco’s due diligence process examines the organizational health of the firm, the goals and aspirations of its key employees. After the announcement, meetings were conducted at the acquired firm to inform the reasons for the deal, the impact upon them, their role and location in Cisco, how their compensation and benefits will be affected to the employees.

As of January 2001, Cisco had acquired 71 firms for over $34.5 billion and effectively managed these acquisitions to become an industry leader. Without these acquisitions it could not have maintained a compounded annual growth in revenues and profits of over 30 per cent from 1987 through 2000 which is huge.

The majority (68 per cent) had 100 or fewer employees and 34 per cent had fewer than 50 employees. In terms of ownership, 61 (86 per cent) were private firms and most of these were closely held. The other 10 (14 per cent) were public firms or divisions of public firms. Of the 66 firms for which we were able to identify the product status, 43 (65 per cent) were shipping prior to being acquired.

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