How to Commit to Integration from Start to Finish

Text Version of the Interview

How do you commit to integration? 

Integration and Corp dev partnership is critical.

The analogy I made with MPI is, you could have a great development team building a new product from scratch. Still, if they throw it over the wall and just say, go build it and scale it, you don't have a lot of opportunity to be able to design for manufacturability and scalability. 

And that's something Cisco is really good at. Making integration as part of the Corp dev strategy and the business strategy.

When our business leaders are looking at their portfolio and areas that they need to accelerate growth, we want to have a seat at the table as those discussions happen, even before the target is selected.

It's not good enough to be a great M&A integration team, but over at Cisco, you need to understand the technology, who's buying it, and why they are buying it. 

We're not negotiating the deal, but we are very much heard of the deal modeling and input into what success looks like. We start building out the integration plan and having complete alignment with the business leaders and with the corporate development team. 

But I would have to say the area that we continue to hone is the strategy. Having clarity around all the strategy elements allows us to be on the road to success from the beginning around integration.

I feel the times that maybe we weren't as successful as we like to be is when a strategy is not as clear or is interpreted differently by different people. So that alignment sets the stage for the integration strategy.

So you shape integration from strategy?

Absolutely. And what we've done is, we've honed it a bit and came up with three outcomes that we want to achieve.

So we call them acquisition strategy alignment meetings that we're having with all of the business leaders. And some of it starts very early. We may be listening to a lot, but we tend to ask a lot of probing questions. There will be two sessions of this. 

In the third strategy session, before we close, we bring in the target leaders and have them sit down with our team to have a strategy alignment session even before we close.

And while we certainly stay away from things that we can't speak about, what's important is to get that alignment. They know their business way better than we know it and we are making our best view of their business based on what we've learned.

So the more we can get their validation, the better. It allows us to get to that early alignment between the two companies, particularly around the product strategy, the go-to-market strategy, and the people. 

Involving Integration

So we get involved, a lot of times, before we even have a target developed. We may have a technology space that we want to pursue a target in. And our engagement level increases as we get closer to identifying the target. 

Our leaders are very clear that integration strategy needs to be part of that commitment process. So, everyone is committing to purchasing the company and committing to the integration plan.

Now, it may be very high, but it's still directionally committing to what the end state looks like and the pace we're going to get there.

Also, our role is around doing reality checks to what the value drivers are. So we do develop the value drivers for the commit process with the business leaders and focus on the technology integration, go-to-market and people. Retention of people is critical because they are essential in achieving value drivers. 

So we own the development of the value drivers, but the business leaders are the owners for delivering on the value drivers. 

So we work with them very closely to define what they are, how we're going to measure them, and who specifically is going to own these value drivers.

Success Metrics?

We tend to get pretty granular. The three main buckets that we look at are technology integration, financials, and talent retention. What I found most interesting is our evolution around the talent piece of it.

Initially, we aim for no greater than 20% attrition, over a three to four-year retention period. But we have completely evolved that. If we're going to achieve the technology integration and the financial, it will require people. 

You need salespeople to go sell it. You need engineers actually to go do the work. And so we went back and looked at, what are we committing to for those two value drivers? And what is the talent retention that we need to achieve that? 

It's not a blanket anymore. It's going to vary by acquisition, and it's going to vary by the specific talent categories. So what we need for engineers may look different from what we need for sales leaders, coming into the company and retaining that talent. 

And we look at early indicators, not just retention. If you're looking at attrition, you're already too late. People are out the door by that time. So we've come up with early indicators for all the value drivers. 

We're looking at the engagement of the talent. We do a poll survey to see how they are feeling being at Cisco over the course of a light call. Are they progressing in the organization? Do they have two feet in versus one foot out at one foot in? 

We take it from the perspective of an acquired talent didn't choose to come to Cisco; they got acquired. The decision-makers may have made that choice for them. But we want everyone to stay. 

Main Role of Integration During Diligence

We typically buy very much smaller companies than Cisco, so we are not a merger of equals. We are very conscious that we tend to overwhelm the targets as we come into due diligence. 

We have five to six tracks around diligence, which are typical, around legal finance people, technical, operational diligence.

We lead the operational diligence piece, but we also coordinate across all the diligence tracks to ensure that we are not overwhelming the target.

We are very focused on diligence because diligence is taking us to the final commit milestone and to that definitive agreement. 

Then, diligence is focused around our thesis, the acquisition, validating that thesis to say, this is what we're thinking, this is how we're thinking about how we're going to achieve that. These are the metrics that we're putting in place. Are we able to validate that during diligence? 

And that's what we manage around diligence is making sure that everything is coordinated and using the information and not asking the same question multiple times. So we're trying to share the information across our internal teams. 

After diligence, the integration team runs the executive diligence readout, which is all about bringing all the deal sponsors together and having that highest level readout of our findings and our risk coming out of diligence. 

We talk about the top 2 to 3 risks, and they need to understand what they are and how are we suggesting it be mitigated? And this rolls back to the deal model. Because if mitigation is going to cost a certain amount of dollars, then we've got to put that back into the deal model and make sure that those costs are included because otherwise they're not accounted for.

Importance of Agility

Agile is very important when you're doing integration. There are common things across acquisitions and I'm not coming in and saying that every acquisition is different. There are differences in each acquisition. But we do start off with sort of a common foundation from which we're working from. 

We have a methodology or a playbook and approach, but what's key to the leaders that I'm bringing into the team is that they can work with the agility needed to understand what is required for each acquisition.

You're not going to go in with the same cookie-cutter approach to every deal. But you are starting with an approach that allows us to have a common language and a common starting point. 

After we move out of our executive diligence readout, we go through our final commit process; we get to our definitive agreement with the company, we announce. We get going very quickly post-announced on as much as we can get done until we close.

Due to some extensive regulatory issues, we had a recent acquisition that took 605 days to get from announcement to close. 

And what we took advantage of was those 605 days, and a big part of that was keeping the mind share of the targeted employees engaged. So they understood Cisco better and better because you could lose a lot of mind share from talented employees through that extensive period.

How to Balance Agile and Checklist Approach?

We lead from the value creation goals, but we also have a set of compliance areas. And then, we have a bunch of functional requirements that we bring to bear when we're building out that integration plan. 

So for each of the value drivers, we have a value driver plan for all the compliance areas; we have a compliance plan on how we're going to achieve those.

For the functional areas, we have a similar plan for those more often than not; there are some things between the functional areas and those value creation that we have to elevate up to the executive level to say, is it this or that?

How will we make sure it's a win-win and that we're not hindering the scalability from achieving a value driver? 

We track all of this in our M&A hub. So we have a single source of truth for everything M&A that we have built, and we track all of the compliance and functional requirements. The value drivers for every acquisition and how we perform to those in a single source of truth.

How about Knowledge Management?

We have grown our M&A hub. It started because we had data every year. Data was everywhere, and the unfortunate thing is if someone left, the data would go with them because it was in their head. It may have been on their laptop wherever, so it wasn't curated. 

So we built a multi-year plan. It's taken us about four years to get to a place where data is all in one place. We use it for our workflow, and we would like to get to a state of being predictive. So that we can predict risks that we may incur on future acquisitions based on our past performance.

Now we are lucky that we've made over 220 acquisitions. So we have a pretty robust data set, and we're able to curate that data by type of acquisition, the number of people, location, and all different ways we can cut and slice it. 

Honestly, that's where knowledge management comes into play because a part of our M&A hub is a repository for each deal we are collecting.

So you go better educated into that initial, those very early meetings with the business teams. And that's the value add that we bring because we've made 220 acquisitions. 

Through the way that we are communicating those knowledge articles, everyone has access to it. So now we get the power of the team. 

How do you Organize that Much Information?

It's not easy. We're continuing to refine it to decide what is good to know and what will make a difference.  

It's not something that we're handing off to an IT team to develop a tool. This is something that we have to curate ourselves because we're the only ones that know it.

We've got a lot of support in pulling the information, but I think what is helping us is the discipline around pinpointing the knowledge article used for a particular deal. 

I hold a lot of reviews with my team, and I go through the data myself with them, and I ask them to pull up their deal, take me through how your deal is performing, take me through where you are in hitting your value drivers and let me look at what the lessons learned are.

What is also helping us is our board-level acquisition committee. They have been asking us many questions about acquisition performance, the lessons learned, and how to make the next one better. 

Tools used in the M&A Hub

We don't use a commercial tool. We built it ourselves over the years from scratch. We went and queried a lot of consulting companies, and we didn't find anything readily available for the scope of what we're looking for.  

We are currently adding a lot of functional data to make it a single source. The more people use it, the quality of the M&A hub improves. 

Other Techniques for Continuous Improvement?

I want to make a point that the M&A hub is a tool. It's not a philosophy; it's not the process. So you first have to start with the mindset. 

I took my team through a very big journey in a mindset change, from checkers on tasks to focusing on the value creation and why we bought the company.

Some people come along on that journey, and some don't, and then you realize the talent you need to deliver on that actual value creation. The M&A hub was running in parallel, so we knew we needed a repository for data.

But what led that philosophy around continuous improvement is focused on that mindset shift to value creation—using data to inform future success.  

I'll tell you a secret, one of the hardest things is ensuring accountability survives the leadership movement. We find it more successful to tie why we bought a company to a strategy than if we tie it to a leader. 

Sometimes you have a leader that wants to buy a specific company for some reason. But if that leader leaves or moves into a different role, the likelihood of success of that acquisition is not as high.

If we tie it to a strategy that stands the test of time and stands leaders changing, success is higher. So accountability and governance are things that we continue to get better at.

How has your Corp Dev Changed Over the Years?

What has changed are the companies that we're buying. They're very different companies than what we bought, more than 5 to 10 years ago.

The companies we're buying are leading that charge at Cisco. Cisco has evolved around SAS, cloud-first, recurring revenue, more software. And that's a bigger shift than buying businesses that you're already in.

And then, we would lift and shift them into an existing business model. We're using the acquisitions to help us create our new business models, our new capabilities. 

So when you think about leadership talent expertise that we're bringing in areas that we're building that are not native to us, talent retention and engagement is crucial. We're spending a lot of time looking at how we engage the leaders beyond what we have done in the past.

It's not just good enough to lead your business, but how can we leverage your experience to the bigger company. So that's been a big change.