632598256894

When Chambers felt comfortable that Cerent could successfully become part of Cisco, he
personally negotiated the $7 billion purchase price for the remaining 91% stake with Russo. The
discussions took a total of two and a half hours over three days. When the deal was announced on
August 25, 1999, the second—and arguably the most important—phase of Cisco‟s acquisition strategy
kicked in. Over the years, including an occasional failure, Cisco had developed a finely tuned
implementation plan for new acquisitions. The plan has three main pieces:
1. Don‟t forget the customer.
2. Salespeople are critical.
3. The small things garner loyalty.
There is often a customer backlash to merger announcements, as their perception of products and
brands may change. In the recent spate of pharmaceutical industry mergers, only those firms that
avoided pairing up experienced substantial sales growth. As part of the external environment,
customers are easy to ignore in the short term when the tendency is to focus on the internal aspects of
the implementation. This is a big mistake. To allay customer fears, in the weeks after Cerent was
acquired, Russo and his top sales executive attended the annual Cisco sales convention meeting and
Chambers joined sales calls to several of Cerent‟s main customers.
This lesson did not come cheaply. When Cisco acquired StrataCom in 1996, it immediately reduced
the commission schedule of StrataCom‟s sales force and reassigned several key accounts to Cisco
salespeople. Within a few months a third of StrataCom‟s sales team had quit; sales fell drastically, and
Cisco had to scramble to retain customers. In the Cerent implementation, the sales forces of the two
companies remained independent and Cerent‟s salespeople received pay increases of 15% to 20% to
bring them into line with Cisco‟s compensation practices. As a result, there was little turnover, and
sales grew.
Cisco executives realized early on that the strategic rationale for an acquisition and their grand
plans for the future meant little to the target‟s mid- and low-level employees. They had more basic
concerns like job retention and changes in their day-to-day activities. Cisco had also learned that
quickly winning over these employees and keeping them focused on their jobs were critical to a
successful implementation. This process begins weeks before the deal is done, as the Cisco transition
team works to map each employee at the target into a Cisco job.
As Cerent employees left the meeting where the acquisition was announced, they were each given
an information packet on Cisco, telephone and e-mail contacts for Cisco executives, and a chart
comparing the vacation, medical, and retirement benefits of the two companies. There were follow-up
sessions over the next several days to answer any lingering questions. Cisco also agreed to honor
several aspects of Cerent‟s personnel policies that were more generous than their own (e.g., more
generous expense allowances and permitting previously promised sabbaticals to be taken). Cisco
understood that these were relatively small items in the larger context of a successful and timely
transition.
When the merger was actually completed, Cerent employees had new IDs and business cards within
days. By the following week, the e-mail and voice mail systems had been converted to Cisco‟s
standards, and all of Cerent‟s computer systems were updated. By the end of September, one month
after the acquisition announcement, the new employee mapping had been implemented. Most