CASE NUMBER: HR-10

OCTOBER 27, 1998

Cisco Systems:
The Acquisition of Technology is
the Acquisition of People
"I learned early in life there might be people smarter than you, but if you have a combination of skills and
strategy, you can beat them."
John Chambers
CEO Cisco Systems

"One of Ciscos core strategies for growth is acquisitions, and one of the primary purposes for
acquisitions is for the engineering and R&D talent."
Barbara Beck
VP Human Resources

"Cisco is among the rarest of Wall Street birds: an internet-driven company with a proven business plan,
actual products and ample profits.
Lee Gomes
Wall Street Journal, 7/20/98

Cisco Systems is a $6 billion high technology stealth company, largely unknown to the
general public. Insiders joke that Cisco is often confused with Sysco, a huge distributor of
foodstuffs for restaurants. Yet, it is the fastest-growing high technology company in history and
the third -largest company on Wall Street. Its CEO, John Chambers, gets little of the attention
paid to bigger stars of the high tech world like Bill Gates, Larry Ellison, or even Lew Platt of HP.
But if you had the prescience to invest $1,000 in Cisco stock in 1990, youd now be walking
around with roughly $100,000. How did this company, with unglamorous origins making routers
for computer networks, become the worldwide leader in networking for the internet--a company
referred to in a recent article as "the Godzilla of datacom"? The answer is found in a unique
approach to a technology business that is based on people, frugality, and attention to customers.
It is a success born out of a winning HR approach that adds real value to the business. If
executives at Cisco have their way, in the next decade this approach will change the so-called
Wintel duopoly of Microsoft and Intel into a Cisco-based triopoly, Wintelco.

This case was prepared by Professor Charles OReilly as a basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation. Support for this case was provided by the Human Resources Initiative of the
Stanford Graduate School of Business.
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Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 2

Background
Cisco was founded in 1984 by Leonard Bosack and Sandy Lerner, husband and wife
academics at Stanford University who invented a technology to link their separate computer
systems together. With venture funding from Don Valentine at Sequoia Capital and a new CEO
in John Morgridge, Cisco went public in 1990 and today is one of Americas great success
stories, with revenue growth nearly a hundredfold in seven years (See Exhibit 1 for financial
information). Ciscos current market capitalization of over $100 billion is larger than that of
General Motors. Cisco reached this level in only 12 years--it took Microsoft 20 years to attain
the same level. The company was also ranked 25th in Fortunes "100 Best Companies to Work
For in America" and has a voluntary attrition rate among employees of only six percent--low by
most standards but extraordinary in Silicon Valley. In 1998, it has more than 13,000 employees
operating in over 54 countries around the world. Its products enable computers to communicate
with each other, offering customers end-to-end scalable network solutions.

Networks are one of the least sexy businesses in the world. They consist mainly of
routers, switches, servers, and software which comprise local area networks (LANs), wide area
networks (WANs), and the remote access network. Initially the development of computer
networks resulted in the formation of hundreds of small firms each seeking their own niche.
Cisco began by offering high-end routers and competed primarily in the LAN market. These are
the stand-alone boxes that scan network traffic and send it along to the proper address. However,
in 1993 Cisco changed its strategy and began to diversify into other network markets and
technologies.

Over the past decade it has migrated aggressively into end-to-end service across the
markets. Competitors followed similar strategies with LAN firms like Cisco acquiring WAN
providers like StrataCom and WAN players like 3Com purchasing an internet access firm like
U.S. Robotics. This has resulted in a smaller number of medium to large firms like Cisco, 3Com,
Bay Networks, Cabletron, and Ascend as the dominant players in this industry (Exhibit 2 offers a
simplified schematic of this market).

This transition has been accelerated as customers who rely more heavily on networks
demand not only product innovation and quality but also service and reliability--something
smaller competitors were unable to provide on a consistent basis. For instance, a Fortune survey
of 1000 companies revealed that 40 percent of respondents said that they would like a single
supplier to provide all their networking hardware.

The good news for Cisco is that about 65 percent of all LANs now use Cisco routers as
well as the companys network software. This installed base provides an invaluable source of
repeat business. The bad news is that growth in this segment has slowed to about 20% as
compared to 100 percent in switches and other parts of the network market, with many
technology experts arguing that the heyday of routers is over. Indeed, a newcomer to the field,
Ipsilon Networks, has introduced a technology that reduces the need for routers to translate
between disparate networks, leading one industry analyst to note that, "Ipsilon itself isnt that
important. They could go out of business in 12 months and nobody would care. But the ideas that
they are releasing into the market could impact Cisco." Developments like this have led some
industry observers to claim that Cisco has reached its zenith as a company, and that in a
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 3

simplified switched network world, Cisco will be relegated to the status of a legacy supplier,
replicating the decline of DEC and Wang of an earlier generation.

These developments highlight the need for Cisco to be flexible in its strategy and
technology. Commenting on this, one industry analyst observed that "Three years ago, switching
was the biggest threat to Cisco. Now theyre the leader" in this market segment. CEO Chambers
has a simple response to these criticisms about a lack of clarity in Ciscos strategy: "We let our
customers decide."

But becoming a true one-stop shop for networking solutions in the face of continual
technological change will not be easy. Two major challenges confront Cisco. First, unlike some
industries in which product development may take years, in the computer network business the
average product lifecycle is estimated to be 18 months on the hardware side with a product half-
life of only six months for software. Worse, an industry rule-of-thumb is that each new product
solution should offer twice the speed at the same or less cost. Second, in spite of their
attractiveness as a source of technology, mergers and acquisitions often fail. For example,
consider the experience of Bay Networks, one of Ciscos major competitors. In 1994, California-
based Synoptics and Massachusetts-based Wellfleet, two companies of about equal size merged
to become Bay Networks. The new firm is still suffering. The combination of two coasts and two
cultures has created one large mess, and the company has lost ground to Cisco that it may never
recover. Chambers noted that when this merger first took place, the combined entity was bigger
than Cisco. "Three years later, we are three times their size."

In this environment, Cisco recognizes that if the company does not have the internal
resources to develop a new product within six months, it must buy its way into the market or
miss the window of opportunity. But to do this and avoid the usual pitfalls of most mergers and
acquisitions will not be easy. How can Cisco simultaneously adapt to short-cycle, rapid change,
grow to offer the scale and scope customers demand, effectively integrate new acquisitions
without losing critical intellectual capital, and do this without losing control or adopting the
micro-management that will kill the entrepreneurial culture they have developed? Chambers puts
it succinctly, "The truth is that nobody knows what itll take to win in the future."

Competing on Internet Time

Growth Through Acquisitions
In 1993, Chambers and his senior team realized that as fast as they had grown up until
then, they had missed important opportunities. They concluded that their earlier conservatism
had cost them at least 20 percent in growth that they could have had if they had been more
aggressive. "Our conservatism was one of our strengths--were more than a bit paranoid. But you
always want to balance this paranoia with the confidence and ability to move forward..." There
was also a concern with the increasing pace of change--from calendar years to internet years,
where each calendar year is equivalent to seven internet years. Based on this realization,
Chambers says that "instead of looking at a one-year plan, we began looking at every quarter and
adjusting our plan up or down." He went on to note, "we made the conscious decision, for
example, that we were going to attempt to shape the future of the entire industry. We decided to
play very aggressively and truly attempt in the networking industry what Microsoft did with PCs
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 4

and IBM did with mainframes." To do this required them to move out of their "religious"
technology mind-set into a non-religious view of technology that acknowledged that customers
were the arbiters of choice. This quickly led them to the decision to acquire new technologies.
Since 1993, Cisco has acquired 24 companies (see Exhibit 3). This is an average of an
acquisition of one firm per quarter over the past five years.

Their initial approach to acquisitions began with an acknowledgement that most mergers
and acquisitions are beset with problems--with some studies suggesting that over 50 percent of
mergers fail. In reflecting on the decision not to seek out a merger of equals, Chambers noted "If
you merge two companies that are growing at 80 percent rates, you stand a very good chance of
stalling both of them out. Thats a fact. When you combine companies, for a period of time, no
matter how smoothly they operate, you lose business momentum. Our industry is not like the
banking industry, where you are acquiring branch banks and customers. In our industry, you are
acquiring people. And if you dont keep those people, you have made a terrible, terrible
investment... So we focus first on the people and how we incorporate them into out company,
and then we focus on how to drive the business."

An awareness of the frequent failure of mergers and acquisitions has prompted Cisco to
devise an approach that would help maximize success. Drawing a lesson from Hewlett-Packard,
Chambers and his team adopted a philosophy of breaking up markets into segments. Using the
General Electric mentality of being either the #1 or #2 player in each segment led them to a set
of strategic guidelines for Cisco:

x The use of business units to target specific market segments

x The importance of being either #1 or #2 in each segment in which they compete
x The definition of a set of criteria that could be used to determine the suitability of an
acquisition
x The reliance on empowered teams and programs to increase the speed of assimilation of
the acquired company
x The notion that the acquisition of technology was the acquisition of people.

The Planning Matrix

Since the market moves too quickly for all innovation to come from within Cisco, early
feasibility studies lead to decisions about whether a product is to be developed in-house or to
acquire the technology through acquisition. If the decision is to develop in-house, product
planning moves to the next phase and a well-specified development process is followed. If the
decision is to acquire a technology, the next step is to involve business development to determine
the most appropriate acquisition target. One of the key tools resulting from these rules was the
development of a planning matrix to analyze emerging markets.

This matrix uses a grid of markets by source of innovation (internal development,

acquisition, partnering, or OEM) for each line of business to permit the identification of
opportunities for market leadership--with market leadership defined by Chambers as an initial 20
percent share with an eventual 50 percent share. Currently this matrix is used to assess 16 plus
separate markets. A determination is then made of the products, services, and distribution needs
for each market segment and a way of getting these products developed and sold--whether
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 5

internally, through joint development, or acquisition. These decisions are then used to fill in the
matrix, including those areas where Cisco is currently not playing or is lagging the market.

Senior management oversight of technology development and product release is done

through monthly "Technology Forum" meetings. At these meetings, all products in the pipeline
are reviewed with manufacturing present. Cross-functional teams (engineering, manufacturing,
marketing) follow the product from final design to manufacturing to first customer ship. This
process also serves as a new engineer boot camp to augment interaction between engineering and
manufacturing. Manufacturing efficiency isnt an important measure for product success with
roughly 80 percent outsourced, but there is continual pressure to reduce costs.

In doing this, the recognition is never lost that the acquisition is not of technology but of
people--and that all efforts must be made to retain this pool of talent if the acquisition is to be
successful. Selby Wellman, senior vice president of business units, says that although 70-80
percent of Ciscos products are developed in-house, these are often done by engineers who
started with smaller firms acquired by Cisco. "From this perspective, Cisco will never engage in
a "hostile" takeover. To assure this, the entire acquisition process must be characterized by
honesty and trust--both before the acquisition and after. This means all people must be fully
informed throughout the acquisition in order to avoid negative surprises and maximize retention.

The Business Development Process

Charles Giancarlo, vice president for business development, heads up Ciscos merger and
acquisition unit. The group is comprised of finance and human resource personnel and
supplemented by business unit leaders and technology specialists. This team of 50-60 people
continually analyzes new markets and technologies for their fit with Ciscos strategic plans. Any
target candidate must have the requisite "great" technology that can be turned into a definitive
product within six months, have a shared vision, and be culturally compatible (e.g., aggressive,
focused, entrepreneurial). Lack of this fit, or a lack of honesty, results in a decision on Ciscos
part to seek other candidates. Giancarlo always insists on having leaders from the various
business units involved in the negotiations because an acquired company must be embraced by
an internal group "or it will flounder and die."

Typically this process results in the identification of a small technology-driven firm with
between 60-100 employees whose product has not yet hit the market. They shy away from old-
line, slow moving firms or from turnaround candidates. In many respects, the ideal candidates
look like an early-stage Cisco and are referred to within the company as "Cisco-kids". Their
employees are more motivated by developing "cool" technology than by monetary gain. For
instance, Howard Charney, now an SVP at Cisco, cofounder of both 3Com and Grand Junction
Networks, left 3Com because of the politics but stayed when Grand Junction was acquired, says
that while he misses some of the control he enjoyed before the acquisition, "What theyve given
me instead is the chance to kick our products through the roof." He says, "Im still running an
operation whose mission is managing lives and technology, but I dont worry about cash flow. I
dont worry about having enough R&D money to keep up with the big boys. We are the big
boys."

Adhering to this approach helps guarantee a quick win for both the acquired company
and Cisco and further cements the embryonic relationship. This early success also sets the stage
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 6

for the long-term wins. For example, Ciscos first acquisition, Crescendo, cost $89 million in
1993 for a company with only $10 million in revenue. Chambers said that at the time, they
"caught unbelievable heat in the press" for making this purchase. But this unit now provides over
$500 million in annual revenues and is worth more than $4 billion to the shareholders, a four-
year return of 430 percent. A Booz, Allen & Hamilton report shows other Cisco acquisition
returns ranging from 10 percent (Nashoba) to 466 percent (Newport).

Throughout the acquisition process, the Cisco team constantly screens the target against
the following five principles: (1) the presence of a shared vision; (2) the likelihood of a short-
term win-win for both the acquired company and Cisco; (3) a long-term win-win for all parties;
(4) the right chemistry or cultural compatibility, and (5) reasonable geographic proximity. Beau
Parnell, director of human resource development and a key player in the integration of new
acquisitions, stressed that you cannot overemphasize the importance of chemistry in determining
the suitability of an acquisition.

The process of due diligence begins with informal conversations between senior Cisco
managers and the CEO and senior team of the target firm. This is typically followed by an
exchange of documents on technology and human resources. Part of this assessment process is
based on what information the target is prepared to share or not share. In the Cisco experience,
excessive secrecy may signal a lack of openness and honesty. They also look for how flexible the
target firms managers are in the conversation and how widely they share their equity within the
company. Again, an unwillingness to share the equity may signal a misfit for Ciscos values
Similarly, "we wont do a deal if the candidate company has accelerated vesting" of stock
options, says Giancarlo. With these "golden parachute" provisions, "The minute you buy the
company, they all get rich. We prefer golden handcuffs," he says. Typically, these consist of
two-year non-compete agreements with key executives and technical personnel and the provision
of Cisco stock options that vest over time. Mike Volpi, VP of Business Development, notes that
this approach is also an effective way for Cisco to retain people.

Once a decision is made to continue negotiations, Selby Wellman is direct in saying,

"When we acquire a company, we dont tell them, Well leave you alone. We say, Well change
everything." But Ed Kozel, Ciscos Chief Technical Officer, adds "we try to establish an
environment where we are attractive to small, innovative companies." Chambers says that
"Weve learned that to make it [the acquisition] successful, you have to tell employees up front
what you are going to do, because trust is everything in this business. You have got to tell them
early so you dont betray their trust later." This direct approach seems to work well enough so
that venture capitalists and entrepreneurs now often seek out Cisco as a primary exit strategy.

Ordinarily this exchange takes about two weeks. During this process Cisco sets up a "war
room" and the acquisition team works extensively to assess the fit of the target for Cisco. When,
after due diligence, the business team believes that these conditions exist, the business unit team
leader sponsoring the acquisition must approve the candidate for the deal to proceed. Success at
this stage results in signed employment agreements with the top team of the acquired company.

Adhering to these guidelines, Cisco has made a number of decisions not to go ahead with
an acquisition because of a determination of a lack of cultural fit. Chambers volunteered that
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 7

"Weve killed nearly as many acquisitions as weve made...even when they were very tempting. I
believe it takes courage to walk away from a deal. It really does. You can get caught up in
winning the acquisition and lose sight of what will make it successful. Thats why we take such a
disciplined approach." For instance, once Cisco had a chance to acquire a company on great
financial terms. But even though the price was right and there was even a fit on chemistry,
Chambers passed on the deal because he knew that they would not need the employees after the
initial product was absorbed into the Cisco line. Chambers wouldnt acquire the company
knowing that they would have to lay off the employees. While at Wang "I did five layoffs
totaling 5,000 people. It nearly killed me. I vowed I would never do that again to employees or
shareholders."

The HR Screen
Mimi Gigoux is a director in the corporate acquisitions group responsible for due
diligence on the HR side. Her activities begin before a decision is made to acquire a company
with a careful scrutiny of management styles, organizational structure, and cultural fit issues. She
notes that these are topics that are highly visible in the early stages of discussion since the key
personnel at the target company are often far more concerned about their own future than they
are the actual acquisition price of the firm. This offers her a window into their style and the
operating basis of the company.

In one acquisition, her due diligence uncovered $60 million in uncovered pension
liabilities--more than the actual price of the company. In another instance, an acquisition
discussion was well underway with seemingly good fit around the technology and product when
she discovered that, because of the stock distribution arrangements, it would be very difficult for
Cisco to retain key engineers. This was changed and the acquisition was completed--and the
engineering talent stayed.

Chambers instructed the business development group to take all possible actions to retain
all personnel, although the senior management and key technologists are most important. Gigoux
periodically follows up on their retention rates. Part of the success of the HR screen can be seen
in these retention figures. In her latest calculation, the turnover rate for acquired personnel is
identical for the Cisco population as a whole, 13 percent. Over 70 percent of the senior managers
from acquired firms are still with Cisco. These are people who often have multiple start-ups
under their belts and substantial personal wealth. But her follow-up studies show that they stay
because they now have the corporate resources and backing to back their dream projects.

Integrating New Acquisitions

Once the deal is approved, the final details and formal arrangements such as price are
worked out. In most acquisitions, because of the amount of honest communication and mutual
sizing up that has occurred, the formal deal is closed quickly. The subtext for this process is
captured in a Cisco saying about acquisitions and product development: "Early if not elegant,"
meaning that time to market is more important than getting things completely right. This makes
good sense in a world of 18-month product lifecycles where if youre late, the market might not
exist anymore. Underscoring the importance of speed, the goal is to ship the acquired companys
product under the Cisco label by the time the deal is closed, usually within 3-6 months.
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 8

With a final agreement, the focus shifts immediately to integrating the new company into
Cisco as quickly as possible. Integration teams (e.g., MIS, product, logistics) act immediately to
see that new employees are up on the intranet, have office space and free soft drinks, and get
immediate training in the Cisco way. This is made easier since more than half of Ciscos
employees have been hired within the past four years and have a culture of welcoming new
members with little "insider versus outsider" attitudes.

Mimi welcomes new employees with an acknowledgement that change is painful and--
like taking off a band-aid--theyll do it fast. Her goal is complete honesty. She pulls no punches,
informing people that this was an acquisition, not a merger of equals. She also offers a first
lesson, noting to the new employees that "The more flexible and positive you are, the better it
will be for you." But she also points out the plentiful good news, e.g., retention plans,
compensation, benefits, increased vacation days, tuition reimbursement, career opportunities, etc.

In a typical acquisition, the engineering, marketing, and sales units will be integrated into
the sponsoring business unit while human resources, service, manufacturing, and distribution are
merged into the Cisco infrastructure. This integration takes place at two levels, structural and
cultural. The structural part includes the organizational rearrangements needed to assure
operation of the business functions and rationalization of functions such as payroll, information
systems, and other services. This process has been refined to the point that it usually takes only
two to three months to occur, with smaller acquisitions being completed in as few as 10 days and
the largest, with 1200 employees, taking only four months.

Cultural integration includes the use of integration teams who explain and model Ciscos
values, orientation sessions, and the assignment of "buddies". These teams are composed of
Cisco employees and members of the new unit who are chartered to perform specific tasks. This
process serves both to ensure the accomplishment of specific tasks and to begin the process of
bonding between old and new Cisco employees. Special orientation sessions involve employees
from previously acquired companies who offer their insights as well as change management
sessions to assist the people within the acquired firm in supporting the transition. The "buddy"
system involves pairing each new employee with a seasoned Cisco veteran of equal stature and
similar job responsibility. The buddy offers personalized attention better suited to conveying the
Cisco values and culture.

In the early stages of the transition all integration processes are monitored and controlled
by project management. This group is comprised of employees who themselves have come from
an acquired company and have experienced the process themselves. They also act as a source of
institutional knowledge and learning, ensuring that new insights and refinements are added to the
acquisition process. There is also a careful effort to assess and track 30, 60, 90. and 120-day
milestones so that there is no loss of productivity. During this phase Mimi acts as a conduit,
ensuring that the new company isnt overrun by 12,000 Cisco employees who are fascinated with
the new company and want to "help." At the conclusion of this process, there is a "lessons-
learned" review designed to improve the acquisition process for the next iteration.

This does not mean that all employees of acquisitions stay with Cisco. As one member of
the business development team observed, "Cisco isnt for everybody. Some people dont fit."
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 9

Even Chambers is clear when he claims that Ciscos goal is "to hire the top 10 percent of the
people in the industry--who fit the Cisco culture." In arguing why the guidelines are so
important, he likens the process to marriage. "If you are selecting a partner for life, your ability
to select the partner after one date isnt very good." That is why this selection process is crucial
for successful acquisitions. "If you dont spend a fair amount of time on the evaluation of what
are the key ingredients for that, your probability of having a successful marriage after one date is
pretty small. We spend a lot of time on the up-front."

Since the purpose of any acquisition is to retain people and their intellectual capital, the
processes are designed to empower and retain people. Giancarlo notes that retaining the leaders
of the acquired firm is critical since "If you dont retain executive management, you dont retain
the rank and file." In fact, half of the chief executives and most of the senior management of the
companies acquired since 1993 are still with Cisco. Giancarlo, who came to Cisco as a part of a
1994 deal and had founded several other companies says, "Cisco is able to hold onto people like
me because they gave me a chance to play a major role." Others, like Andy Bechtolsheim, who
was a founder of Sun Microsystems, came to Cisco when his start-up Granite Systems was
acquired in 1996. He stays because of a desire to build breakthrough products that, with Ciscos
marketing, sales, and distribution, can change the world. He also stays because "Most people at
Cisco came from start-ups, so the place has a small-company mentality."

Research by Acquisition?
The importance of retention is underscored by the objective for each acquired company
to generate revenues within three years that will pay for the acquisition. Ed Kozel says that Cisco
looks for companies with leading edge technologies in growth markets and defines Cisco as an
"applied technology [company] and not a basic research company." This means focusing on
acquisitions with high potential products that are close to being ready for the market. To date, all
acquisitions older than two and a half years have met this criterion.

Not all acquisitions, however, have been successful. Mike Volpi, VP of business
development, described their performance in acquiring Kaplana and Lightstream in October of
1994 as a case in point. Cisco was unable to leverage Kaplanas value-added-retail channel for its
own purposes and the academic culture at Lightstream didnt blend well with Ciscos pragmatic
business culture. Still, Volpi says, he believes that they would make the same decision again
since these companies helped Cisco temporarily fill a product space until subsequent acquisitions
were made.

Volpi points out that acquisitions not only bring in the obvious technical talent but also is
an important way to bring in scarce managerial talent--a critical element in a fast-growing
company. He is optimistic. "We have the process down. We have a generic process. Sometimes
in all this speed we end up paying too much. But the acquisitions are not financial--we dont do
them because we can swing a good deal--they are strategic. We do them to grow the company in
the right direction."

Upon reflection, several elements of Ciscos experience with acquisitions are seen as key.
First, the focus of any acquisition is driven by a clear identification of specific
technology/product needs as identified in their strategic matrix . Second, the vision of the leader
of the company being acquired and the direction they are headed must be compatible with
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 10

Ciscos. Says Chambers, "If your visions are not the same--about where the industry is going,
what role each company wants to play --you are constantly going to be at war... So you have to
look at the visions of both companies and if they are dramatically different, you should back
away." Third, people must recognize that only one culture can survive. For example, Dick
Mobley, former President and CEO of StrataCom, a 1996 acquisition, observed that, "In addition
to having complementary technologies and a shared vision of future networking architectures,
Cisco and StrataCom are both entrepreneurial, fast-growing Silicon Valley companies that thrive
on the dynamic networking market. Theres an excellent fit of cultures, values, and chemistry."
The fact that Cisco is a player in all the hot network technology areas makes it attractive to the
employees of acquired firms.

Fourth, there is a need to set very clear expectations as to how the merged entity will
function. For instance, who will be the leader of the combined operation and to whom will this
person report? Fifth, transitions must be done quickly. Leaving acquisitions alone doesnt work.
Finally, there must be short- and long-term wins for the stakeholders in both companies. Short-
term is typically defined in financial terms. In the long-term all constituencies, shareholders,
employees, customers, and business partners, must also benefit. Almost embarrassed, Chambers
says, "I know that sounds corny, but it is true." Since Cisco pays between $500,000 and $2
million per employee, the economic rationale for retaining these assets is clear.

Ciscos Strategy, Organization and Leadership

John Chambers
John Chambers, Ciscos CEO, has an energetic, self-effacing manner that has been
described as having less CEO-style bravado than the cheerful, earnest energy of a country
doctor--something both his parents were. A Fortune writer, noting his West Virginia accent,
once described him as talking "like Mister Rogers on speed." With both business and law
degrees, he joined Cisco in 1991 after stints at Wang Labs, where he had been senior vice
president of U.S. Operations, and IBM. Noting his experience at Wang, one admirer observed
that this "taught him how a high-tech company ought not to be run," especially as "a textbook
example of the vertically integrated company that didnt change with the times." He is a
charismatic but modest leader who carefully watches the bottom line, always flies coach class,
and has been known to double up in hotel rooms to save money. In fact, when asked why the
senior management of Cisco was becoming more high profile, Chambers acknowledged that
after studying Microsoft "We realized that it gets most of its marketing for free. Since were a
frugal company, that really appealed to us. As a result, we made the decision as a team that we
wanted to become much more visible."

Chambers says, "My definition of leadership is: dont ask someone else to do something
you wouldnt do." He is an admirer of Hewlett-Packard as a company that has transformed itself
over the years. "They adjusted their vision to what the market required, and they flourished," he
said. "They are fine people. They make agreements on a handshake. Theyre what wed like to be
when we grow up." He has also learned important lessons from his time at IBM and Wang. "I
learned at both companies that in high tech, if you dont stay ahead of trends, theyll destroy
everything you work for and tragically disrupt the lives of your employees. I dont ever want to
go through that again." He also claims that he bases his strategy on what his father taught him as
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 11

they played competitive bridge when he was a teenager: "I learned early in life there might be
people smarter than you, but if you have a combination of skills and strategy, you can beat
them." In 1996 Business Week magazine named him one of the "Hot CEOs" of 1996.

But, "Employees dont mistake John Chambers kindness for weakness," says Ed Kozel,
Ciscos Chief Technical Officer and Vice President of Business Development. There are three
things that can get you fired at Cisco: no business results; you dont recruit and develop the right
people; or youre not a team player. One executive seconded this view noting "Hes probably the
most polite person in the world to fire you. But boy, he doesnt hold back." Another Cisco
executive, a 17-year veteran of DEC, reinforces this view. "One thing that keeps Cisco healthy as
we get larger is the fact that a lot of people on the executive staff have come from places that
caused their own downfall. My back arches and my fur goes up when I see us going down one of
those tracks, like setting up a committee to make a decision. Or making it difficult for people to
get recognition, because some manager wants to grab it. Or focusing on internal competition
rather than the real competition. Or not being sensitive to people who are fast trackers but dont
quite fit."

Ciscos Strategy
In contrast to many technology companies, Cisco does not have a technology religion;
that is, it refuses to take a rigid approach that favors one technology and imposes that approach
on customers as the only answer. Ciscos philosophy is to listen carefully to customer requests,
monitor all technological advancements, and offer customers a range of options from which to
choose. In doing this, Cisco attempts to develop products around widely accepted industry
standards. In some instances, technologies developed by Cisco have become the industry
standard, but their starting position with regard to customers is to espouse no technology
religion.

Cisco defines their company mission to "Be the supplier of choice by leading all
competitors in customer satisfaction, product leadership, market share, and profitability." Their
business purpose is: "To shape the future of global networking by creating unprecedented
opportunities and value for our customers, employees, partners, and investors." In their view, a
global networked business is an enterprise of any size that strategically uses information and
communications to build a network of strong, interactive relationships with all its key
constituencies. This business model opens the corporate information infrastructure to all major
constituencies rather than relying on the information gatekeepers common in other approaches to
information management. In applying this model to itself, Cisco does over $7 million a day in
electronic commerce--or over 57 percent of its total sales--and estimates savings of over $325
million a year in operating costs, improved customer satisfaction, and strategic competitive
advantage in areas such as customer support, product ordering, and delivery times.

To achieve their mission and purpose, Cisco espouses five core values: A dedication to
customer success; Innovation and learning; Partnerships; Teamwork; and Doing more with less.
Each of these values is continually articulated and reinforced in the mission statement, current
initiatives, values, purpose, policies and practices, and culture of the company. Customer
satisfaction, for example, drives the entire organization. CEO Chambers constantly reinforces
this view, "There is a one-to-one relationship between customer satisfaction and profitability. A
lot of companies lose sight of that," he says. Underscoring the importance of customer
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 12

satisfaction as a core value, he personally reviews as many as 15 critical accounts each day, often
calling on customers himself to straighten out problems. "Im probably the only CEO in the
world in a company this size who does this," says Chambers. "But the fact that I pay attention to
these issues at this level means that the whole company has to." Further, Chambers asks
employees on critical accounts (defined less by the size than the fact that someone associated
with the account is concerned about its instability) to leave a voice mail for him every evening.
"Sure, e-mail would be more efficient," he says, "But I want to hear the emotion, I want to hear
the frustration, I want to hear that persons level of comfort with the strategy were employing.
And you cant get that through e-mail." In the mid-nineties, roughly two-thirds of Ciscos
customers called themselves "satisfied." Now 85 percent of customers are satisfied. The jump in
ratings occurred the first year all employees bonuses were tied to how well the company was
doing as a whole.

Innovation and learning is another value that permeates the company. There is constant
pressure from Chambers and senior staff to "make it happen", whatever it takes. Individuals are
encouraged to think and respond as they consider appropriate and consistent with the company's
values. They are encouraged to take risks and think outside the box--to look for new ways of
doing things to achieve Cisco's strategic objectives. A "not-invented-here" attitude isn't tolerated.
As Chambers says, "You must take risks to succeed--if you do the same thing that everyone else
has done in the same situation, you will get exactly the same result. If you take a risk and don't
succeed, learn from that failure. But make no mistake about it, if you take a risk and fail, don't
ever plan on making that same mistake twice. There is no room in this organization for people
who cannot learn from failure. It's more important to do and make mistakes than to sit back and
wait to get permission."

Openness is also the rule with people encouraged to challenge the status quo. For
instance, Chambers holds a monthly "birthday breakfast" meeting open to anyone with a recent
birthday and answers every question put to him--no matter how tough the question. To ensure
that the questions and criticisms will be honest, he strongly discourages directors and vice
presidents from attending these meetings. At the same time, "Doing more with less" is deeply
ingrained. Nobody flies first class; there is no executive dining room; and executives brag about
how much less their buildings cost than others in the Valley. "We're very cheap," boasts Ed
Kozel, the Chief Technology Officer. Teamwork is also one of Chamber's most important
themes and one of three things that can get a person fired at Cisco. Says Chambers, "If people
aren't team players, they're off my team."

These values do not stand alone but are put in the context of executing the business
strategy. To reinforce this, every employee at Cisco is expected to be able to recite what the top
initiatives are for the year. Managers are expected to provide frequent updates on the status of
initiatives and there is tremendous peer pressure to know what these initiatives are.

In spite of this idealism, Cisco is still a hard-nosed realist when it comes to achieving
business results. The company's goal is extreme profitability through market domination,
achieved as quickly as possible. To do this, they have borrowed a page from GE's playbook and
demand that every business be #1 or #2 in their specific market segments. Maximizing return is
especially difficult in light of the short product lifecycles that characterize Cisco's industry.
Therefore, rapid adaptation is crucial for success. "One of our strengths," says Chambers, "is the
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 13

ability to eat our young when the market grows so fast." For instance, in 1995 Cisco acquired a
company for $120 million. Even though the future of their technology was very promising,
customers wanted more immediate solutions. Rather than wait for the customers to realize the
value of the new technology, Cisco scrapped the future and purchased another company with less
advanced technology, but one that the customers were comfortable with. In Chambers view, this
ability to scrap earlier efforts and move on is what separates companies like Cisco and Microsoft
from the rest of the pack. "The companies that get in trouble are those that fall in love with
religious technologies. The key to success is having a culture with the discipline to accept
change and not fight religious wars."

Organization Design
At the time of the 1993 shift in strategy, senior management decided to follow Hewlett-
Packards lead and organize by business units. At that time, they were organized by product
lines. However, since they believed that time-to-market was they key to successful domination of
the market, they realized that Cisco needed to act like a small company from a product
development point of view while retaining big-company strengths in manufacturing, distribution,
and finance. This led them to an independent market-focused organizational design based on
line-of-business (LOBs) in three domains: Enterprises (large corporations such Intel and local
governments), Service Providers (such as telephone companies), and Small/Medium Businesses
(such as universities). There is also a direct sales force with LOB market focus and a centralized
R&D function funded at the rate of about 12 percent of sales, about the same percentage as rival
3Com. All component manufacturing is outsourced but there is a centralized final assembly and
test manufacturing organization. There are also frequent reorganizations to respond to changing
markets.

To ensure decentralization, Cisco has adopted a policy of setting stretch goals--goals that
people would never have thought possible--and making these a part of the culture. Chambers
described how "Rather than trying to do the impossible just by working harder--we asked: What
are we going to do uniquely to accomplish our stretch goals? The first thing is to empower
teams. We went through an evolution from a very tight central management group with four or
five people making all the decisions to the empowerment of groups. Our aim was to drive our
strategy down through the company." The overarching intent is to develop high-value added
products that offer high margins. Achieving high margins and profitability growth is key to
Ciscos continual investment in technology.

The low levels of vertical integration increase Ciscos flexibility to expand into new
product lines. This decentralized structure also helps assimilate new acquisitions into relatively
autonomous business units and gives Cisco the small company feel that is attractive to
acquisition partners. Says Chambers, "Partnering is our heritage. Very few people in this
industry partner well, so its a huge competitive advantage." Arguing that networking is too
complex for any one company to tackle, he claims that "Its better to partner than to compete
because it allows time-to-market advantages and, more importantly, it grows the pie bigger for
everybody faster." With this philosophy, Cisco has entered into partnerships with MCI, HP,
Microsoft, Intel, Alcatel, and the U.S. Postal Service among others.
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 14

Human Resources
In terms of its formal structure, there is little to differentiate Ciscos HR organization
from its competitors or other organizations of a similar size. There are the usual functional and
line HR organizations (e.g., training, development, staffing, etc.). Their staffing ratio of about
one HR professional per 70 employees is lower than some of their competitors and not as
efficient as VP of HR Barbara Beck would like it to be. The real difference in how HR
contributes is in how it acts, the role it plays in helping execute the business strategy, and the
impact it has on the performance of Cisco employees. An illustration of this can be seen in the
experience of a journalist from Wired Magazine who made the trek to Cisco to report on the
experience of the employees, whom he referred to as "Ciscoids."

After spending some time there, he wrote that Cisco employees were "basically very,
very good mechanics of a type that is peculiar to our age: they build the plumbing of the internet.
And all they do is smile, smile, smile." His attempt to find something bad about working at Cisco
met with comments from employees such as: "Its addictive. It can take over your life if you let
it. Its electronic heroin!" Another employee enthused, "You get amazed at your own
productivity. You can work any 60 hours a week you want!" Some managers have even
complained that a big problem is to convince employees to go home at night. The journalists
ultimate answer to the question, Why are these people smiling?: They all believe that its a great
place to work--and theyre all getting rich from stock options. They also take the stock price
personally. Said one employee, "If I do my job right it will support the stock. If I screw up and
the stock goes down, people will come around and beat on me with hammers." So how does
Cisco develop this sense of ownership and loyalty? Human resource policies and practices are
the key, and it all begins with recruiting.

Recruitment and Selection

For the past several years Cisco has hired an average of over 1,000 new employees every
three months--and it has done this in Silicon Valley, one of the tightest job markets in the
country. The simple logistics of identifying and processing the applications necessary to
accomplish this feat is daunting. But the Cisco Human Resource staff is up to the challenge.
First, the recruiting team identified exactly the kind of people they needed to hire. Next, by
holding focus groups with ideal recruitment targets, they figured out where they spend their time
and how they do their job hunting. Then the team got innovative in designing the hiring process,
including infiltrating art fairs, microbrewery festivals, and other places frequented by potential
recruits. Rather than listing specific job openings, Ciscos ads feature their website address. As
Barbara Beck notes, Cisco is a high tech company and "If you dont leverage the technology, you
wont be able to leverage HRs capabilities." Besides, Beck notes, "The top 10 percent are not
typically found in the first round of layoffs from other companies, and they usually arent
cruising through the want ads." This means that the HR strategy for recruiting relies heavily on
the Internet.

First, by monitoring the Cisco website, they realized that their jobs page recorded over
500,000 hits per month--with the heaviest load occurring between 10 a.m. and 2 p.m. Silicon
Valley time. This meant that people were trolling for jobs on company time. To help facilitate
this Cisco is developing software to make life easy for stealthy job seekers. It will let users click
on pull down menus and profile themselves in 10 minutes. If the boss walks by, users can hit a
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 15

button that activates a screen disguise--changing it to "Gift list for Boss and Workmates" or
"Seven successful Habits of a Great Employee." The real power of this website, however, is that
it actively targets passive job seekers by making it fun and easy to match personal skills and
interests to job openings. For instance, to attract applicants, Cisco is also linked to the Dilbert
Web page, the darling of disenfranchised programmers. Importantly, the site allows visitors to
their website to pair up with a volunteer "friend" from within the company. Focus group results
had shown that referrals from friends were a powerful factor in the job search process. As a
result, from 30-50 percent of all resumes are submitted electronically and automatically routed
into a database that can be accessed immediately. Beck claims "Going online has provided us
with a tremendous boost in productivity. Its facilitating communication, and its making it easier
for everyone to use HR services. It allows us to add maximum value. Were working very hard to
stay ahead of the technology curve and have an extremely sophisticated human resources
organization."

But the technology part isnt the full story. To really involve potential recruits, the
Friends Program is key. Michael McNeal, Ciscos director of employment designed this effort to
"put some grace into the hiring process." For example, when Dawn Wilson, a printed-circuit
board designer at Tandem Computers was surfing the Cisco website, she clicked on the "make
friends @ Cisco" button and was swept into the recruiting pipeline. The day after she did this, a
printed circuit board designer at Cisco called her at home and talked about life at Cisco. He
referred her to his boss and a few days later she had a relaxed visited to Cisco. After a minimum
of five interviews, she accepted a job--even though she had been at Tandem for 11 years and was
not really looking to leave. Having a "friend" made the difference. Chambers claims that about
60 percent of the people who join Cisco join because they have a friend there. And every time a
referral is hired, the Cisco employee gets from $500-1,000. The day they make the referral they
also become eligible for prizes like stainless steel commuter mugs, athletic bags, and trips to
Hawaii. Small wonder that referral rates at Cisco are twice the industry norm.

Clearly, if all Cisco did was pay employees for referral, the ultimate success rate for
retaining employees would suffer. To rapidly turn new employees into motivated and productive
employees requires the same sophistication in the orientation and indoctrination process, and
Cisco has done this. Beau Parnell, director of human resource development, calls a new
employees first day "the most important eight hours in the world." His personal mission is to
help Cisco achieve "the fastest time to productivity for new hires in the country." To do this he
created the Fast Start program, a collection of employee-orientation initiatives that alerts
facilities teams before the new recruit arrives so that the employee begins with a fully functional
workspace, has assigned a "buddy" (a peer in the company) who can answer questions about how
Cisco works, and enrolls the new hire in a two-day course called "Cisco Business Essentials" that
begins the indoctrination. Two weeks after theyve begun, the new hires boss receives an e-mail
reminding them to review departmental initiatives and personal goals with the new employee.

Managing the Culture

Given the importance of Ciscos values for continued success, HR also ensures that the
culture is aligned with the business strategy and continually reinforced. In explaining why
previous mergers among large technology firms have failed, Chambers says: "If you look at
AT&T and NCR, or IBM with ROLM, the acquirer did not understand that it was acquiring
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 16

people and a culture. If you dont have a culture that quickly embraces the new acquisition, if you
are not careful about the selection process, then the odds are high that your acquisition will fail."
Chambers believes that part of the reason for this is that acquisitions are left too independent for
too long. Or worse, they know they are going to be combined and political warfare sets in.

To reinforce the culture a variety of mechanisms are used to relentlessly communicate the
values. Quarterly "all hands" meetings are held to communicate the big picture and to make sure
everyone feels included. This is seen as becoming more important with growth and inevitable
compartmentalization. The culture and values are also emphasized in communications through
the company intranet, with webcasts of important events delivered to desktop computers.
Attempts are made to create an exciting environment through high levels of motivation,
empowerment, recognition, and removing barriers to creativity. Like any good Silicon Valley
company, Cisco also has parties--including a Christmas bash with 100 food stations and
entertainment ranging from Elvis imitators to psychics. They have also hired Ringling Bros.
Barnum & Bailey or Cirque du Soleil for other events and provide the usual complement of other
employee-friendly services such as on-site stores, dry cleaning services, fitness centers, ATMs,
and automobile oil changes and mobile dental clinics with appointments made via e-mail. As one
employee said, I have a very Cisco-centric view of the world. It would be difficult for me to go
to [a competitor] at this point because I feel a part of Cisco... its become a part of my life,
especially the people I work with."

The culture and values are also reinforced through the way jobs are structured and
managed. Micromanagement is rare. "I dont have to get permission on every little thing. Theres
no time for it," says one employee. Another adds that "when theres a problem, its put more as a
question to the team--a challenge, rather than dictating the task." At Cisco, unlike Dilbert-land,
senior management get cubicles in the center of the fluorescent-lit pool while employees get the
windows--but all offices are the same 12 feet by 12 feet. For Cisco employees in sales offices
there arent even assigned spaces; its all "hot desks" or "non-territorial" office space.

Aligning the Reward System

The reward system is also carefully aligned with the strategy and values of the company.
Stock options are distributed generously, with a full 40 percent of all Cisco stock options in the
hands of individual employees without managerial rank, and the average employee who has been
with Cisco for over a year has over $125,000 in profit on unexercised options. Thats on top of an
average starting salary of about $70,000. The fact that most acquisitions involve the replacement
of local stock options with Cisco options is a big selling point--given that Cisco shares have split
five times since 1990 and doubled in value in 1996 alone. But executive salaries are only about
25 percent of the industry average. Chambers is paid $250,000 and former CEO John Morgridge
earns a mere $50,000 as chairman. Management salaries are about 65 percent of the industry
average.

Individual contributions are widely celebrated around the company. Mimi Gigoux said,
"Never in my life have I seen such consistency in recognition." For example, with the approval
of the boss, anybody can give anybody else an on-the-spot bonus ranging from a free dinner to as
much as $5,000 for going the extra mile--and these can be approved within 24 hours. To
encourage the use of these, the annual performance review includes an evaluation of whether
supervisors have spent their reward budget. Company bonuses are also generous, with all
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 17

employees receiving stock options when they join and most getting annual renewal grants. Since
1994, one-third of each employees annual bonus is linked to the achievement of a predetermined
level of customer satisfaction assessed through regular surveys.

But this emphasis on positive rewards does not mean that poor performance is tolerated.
John Radford, an HR director with overall responsibility for compensation, notes that "We also
have Mutual Separation Policy, which is like no-fault divorce." This is an aggressive severance
package designed to help move out the bottom five percent of employees every year.

All this has led some industry observers to note that Cisco is almost a cult. The voluntary
attrition rate among employees is only six percent. Headhunters acknowledge that it is nearly
impossible to pry people out of Cisco. One said, "Other than a start-up, I dont know that many
engineers who would want to work someplace else." Even a self-professed industry cynic
acknowledges that they are a cut above the rest. "Youve got to point to the management team, to
their smart investments, their speed of getting things done, the fact that they could spot what the
next generation products would be." But, to sustain this edge, the people at Cisco understand that
change is the only constant. Janet Skadden, director of human resources, says, "The company is
obsoleting its own products every six to twelve months. The same is true for HR."

The Continuing Challenge

To succeed in the future, Ciscos strategy boils down to four elements: assembling a
broad enough product offering to become the preferred one-stop shopping destination for wired
businesses, systematizing the art of acquisitions so that they can continue to ride the technology
wave, defining the software standards for network gear, and picking the right strategic partners.
These are complex and risky tasks for which there are no guarantees and acquisitions remain the
key. They provide the continued source of new products and technologies, added market share,
access to scarce intellectual capital, and the opportunity to move products to market more rapidly
than might be done if all new products were developed internally. When it works, these
acquisitions also provide the acquired company and its employees with new sources of funding,
distribution channels, a wellspring of experience, and large financial rewards.

But there are also considerable risks with this strategy. Unless executed flawlessly, a
stream of mergers and acquisitions can lead to poor communication and coordination,
overlapping technologies, wasteful political infighting, and customer confusion. It is easy to see
how this approach to innovation could fail. A recent Business Week article (4/28/97) detailed
some of the challenges facing Cisco. It cited lower revenue growth, the late delivery of new
products and upgrades, nimble new rivals as well as the emergence of newly merged large
competitors, the development of new low-cost alternative technologies, a complicated product
line, and internal turf wars as sapping Ciscos future potential. One insider reported that
engineers were spending their time integrating acquired technologies rather than developing
ground-breaking new ones. There are also reports of Microsoft software that will perform the
routing functions for PCs. Intel is also working to put the entire routing function on their
microprocessors.
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 18

Future success requires continued flexibility and speed. this means they need to attract
the best people and stay in touch with expanding customer markets. Innovation is key. But Cisco
has not yet faced any real adversity as an organization and the growth rate of the network market
may mask problems with their approach that will only become visible during periods of crisis.
Chambers worries about this. "How do you really create a culture of mergers and acquisitions
and new ideas and keep your basic strengths? How do you avoid creating the hierarchy where an
overhead structure supporting your sales people and engineers becomes your bottleneck as you
drive through it? How do you avoid getting too far from your customers? Do I think we could
trip in the future? Absolutely."

But Chambers is optimistic. "The markets have voted; were bigger than the next four or
five networking companies combined. I see IBM and Nortel [Northern Telecom] as our most
likely end-to-end competition, but more as system integrators." The market seems to bear him
out. In 1997, Ciscos market share of routers was 84 percent, 73 percent of IBM systems network
architecture, 38 percent of frame relay devices, and 35 percent of LAN switches. In achieving
this end-to-end dominance, however, Cisco may need to evolve from being primarily a
technology company to more of a sales and service provider. A major concern among many
industry observers is whether Cisco will be able to make this transition and integrate all their
products into one cohesive, comprehensible family. Don Miller, an analyst at Dataquest, says
"The companys product catalog looks like the phone book; it can be really confusing. They need
to integrate and assimilate their products as soon as possible, but making all this stuff sing
together is difficult." Others echo this view noting that Ciscos problems are made more
complicated by their lack of a unifying network platform such as those provided by their
competitors.

Chambers believes that companies that will thrive in the internet economy are those with
the ability to change before the rest of the world realizes that they have to change. He says, "We
worry about getting too far from the customer because companies that get fat and happy get in
trouble." Smiling, he says, "Its that paranoia that keeps us on top. We make Andy Grove look
relaxed."
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 19

Exhibit 1
Financial Data (1994-1997)

1997 1996 1995 1994

Revenue $6.4 bil $4.1 bil $2.2 bil $1.3 bil

Assets $5.4 bil $3.6 bil $2.0 bil $1.1 bil

Net Income $1 bil $913 mil $456 mil $323 mil

ROA 19% 25% 23% 29%

ROE 19% 32% 29% 36%

Income/common share $1.52 $1.37 $0.72 $0.54

Employees (approx) 12,000 9,000 4,000 2,000

 Exhibit 2
Ciscos Market Segments

C.
2
.4.

r .4

I
Cisco Systems: The Acquisition of Technology is the Acquisition of People HR-10 p. 21

Exhibit 3
Cisco Acquisitions

Company Date

1. Crescendo Communications September, 1993

2. Newport Systems August, 1994
3. Kaplana, Inc. October, 1994
4. LightStream Corp. December, 1994
5. Combinet, Inc. August, 1995
6. Internet Junction September, 1995
7. Grand Junction September, 1995
8. Network Translation October, 1995
9. TGV Software, Inc. January, 1996
10. StrataCom, Inc. April, 1996
11. Telebit-MICA Technologies July, 1996
12. Nashoba Networks, Inc. August, 1996
13. Granite Systems, Inc. September, 1996
14. Netsys Technologies October, 1996
15. Telesend March, 1997
16. Skystone Systems, Inc. June, 1997
17. Global Internet Software June, 1997
18. Ardent Communications June, 1997
19. Dagaz Technologies July, 1997
20. LightSpeed International December, 1997
21. WheelGroup Corporation February, 1998
22. NetSpeed, Inc. March, 1998
23. Precept Software March, 1998
24. CLASS Data Systems May, 1998