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Email this citationCIAO DATE: 11/02
Economic Action Does Not Take Place in a Vacuum: Understanding Cisco's Acquisition and Development Strategy
David Mayer and Martin F. Kenney
Working Paper 148
September 2002
Abstract
Typically, economists and finance researchers have considered corporate acquisitions as arm’s length transactions consummated in a relatively perfect market for corporate control, an appealing story no doubt, but it consigns the real world difficulties of managing the acquisition process into a black box. The key to making a successful acquisition does not begin with strategy and end with integration, rather it begins with understanding and participating in the external ecosystem and ends with managing the internal dynamics by which the newly acquired firm will be integrated. This paper finds that traditional “economistic” perspectives ignore the social and organizational dimensions within which the acquisition process is embedded. In tandem with the economist’s erasure of the social; the temporal and processual dimensions were ignored. Put differently, acquisitions are treated as point-in-time events occurring in an environment that operates like the stock market in which corporate control, organizational knowledge, and employee fealty is transferred as seamlessly as stock shares. These assumptions ignore the social, temporal, and processual dimensions so critical for explaining acquisition success and failure.
Our assertion of the significance of the social and temporal dimensions does not diminish either the importance of strategic intent and planning or economic considerations. Rather it suggests that economic actions do not occur in a vacuum. Every aspect of the acquisition process has organizational considerations that cannot be separated from strategy and economics. In fast-changing, high-technology fields, very often the capabilities of the employees of the acquired firm are a significant, if not preponderant, component of a firm’s value, thus their retention is vital for the preservation of the acquisition’s value. Put differently, if these employees leave or their practice is significantly disrupted, then the acquisition is almost certain to fail. To complicate matters, the most valuable personnel are those that are the most mobile.
