Yesterday's Cisco earnings call provided, in addition to financial guidance, an interesting perspective on how CEO John Chambers views growth by acquistion as a competitive strategy.
Cisco is famously acquisitive of companies large and small, but a passing comment in yesterday's call showed that not only is Chambers healthily skeptical about integrating acquired companies, but there was even a suggestion that the difficulty of this integration process can also be a competitive edge for Cisco:
As you see a number of our peers adjust to our successes, we believe that you will see them form similar partnerships and move in acquisitions. My view on acquisitions has not changed. Even though Cisco is usually very successful in this area, vast majority of acquisitions have been and will continue to be unsuccessful.
In other words, by continuing to grow and broaden its portfolio and focus, Cisco forces its competitors to try and keep up, often by adopting the less-than-optimal strategy of growing by merger and acquisition. And indeed, as Chambers suggests, integrating an acquired company is at least as likely to be a drain and distraction as it is a net plus.
In the communications space, the big moves of course have been Avaya-Nortel and HP-3Com/Palm. Avaya has shown that it understands the importance of sending the clear message that the Nortel integration is going smoothly: Avaya has made major PR pushes around its product roadmap for the integration, announced last January, and its first major product announcement since the acquisition closed--a broad-ranging rollout of products and capabilities across the portfolio last month. All of this is intended to send the signal that the Nortel integration is going smoothly.
Ironically, in my interview with Avaya linked above, Steve Bandrowczak of Avaya played the merger-integration card when I asked him whether HP's addition of the 3Com portfolio worries him as a competitor for the not-Cisco slot in the data infrastructure race. Steve pointed specifically to the integration and product portfolio rationalization challenge as a factor for enterprises to consider when looking at the new, expanded HP.
Assuming the trend of consolidation continues, enterprise communications managers will have to examine these integration and product decisions closely when choosing a communications partner.
