How Cisco Manages M&A Integration: Strategy & Process Explained

In this episode, John DeRusso, director of corporate development integration at Cisco, explains that it is vitally important for the employees of an acquired company to feel understood and comfortable.

How Cisco Manages M&A Integration: Strategy & Process Explained

9 Jun
John DeRusso
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How Cisco Manages M&A Integration: Strategy & Process Explained

How Cisco Manages M&A Integration: Strategy & Process Explained

“Project yourself into their circumstance and feel what they’re feeling in a genuine way.” - John DeRusso

In this episode, John DeRusso, director of corporate development integration at Cisco, explains that it is vitally important for the employees of an acquired company to feel understood and comfortable.

special guests

John DeRusso
Director of Acquisition Integration at Cisco

Hosted by

Kison Patel

Episode Transcript

We can start off with our topic around integrations. Why are some integrations successful and some not?

Acquisitions can fail for reasons of strategy and they can fail for reasons of execution. The strategy piece is all about what you are trying to do with the deal and what are you trying to achieve, whereas the execution pieces are all about how you are following through and what’s the path you are taking in order to achieve those objectives.

There are always surprises. If you have a bad strategy or if something happens in the marketplace the deal may fail even if the execution was perfect. 

Could you give me some examples of that?

On the strategy side, sometimes you may think that there is a market there, so you make an acquisition that gives you more market share, but sometimes that market just evaporates.

On the execution side, it is a lot more subtle and you can have people that never make the transition to wanting to be part of your company, and if you don’t hit a critical mass of those folks wanting to stay around than you’ve lost too much.

Overall, there can be people issues, culture issues, or technology issues, depending on the capabilities that you are bringing in. 

How do you retain those people? Is there a clear goal or strategy you start with early on?

Absolutely. Even if the company has got a product or a service in the marketplace, we always think of them as tech and talent in nature, so we consider the people’s experience from the very beginning. We want to know who are the people, how do they work and what’s their culture.

As we go through diligence, we assess what is the nature of the company and we work to educate people at every step of the way so that they know what’s coming down the pike. If you perceive people as a wellspring of innovation instead of seeing them as a cost, you are going to act differently because they are valuable to you and you want them to be part of your company. 

What’s your approach to diffusing the initial stirred up controversy regarding the uncontrollable phobia that goes to the target company when it comes to the integration and what it may bring?

When you go down the path of an acquisition, very few people know it is going to happen, and for most people, the announcement of the acquisition comes as a big shock. We have a very aggressive communication that starts with the executive leadership in advance of the acquisition being announced and we try to present them our game plan related to people. 

We help the leaders of the acquired company lead their company through this transition, by arming them with information, knowledge, and insight, but we also recognize that those teams work for them, which means that they are going to be looking to their own leadership in approaching this.

The best synergies, the best magnification of the innovation that you are after usually come from combining things together and using common processes that allow people to share information the best and the easiest way.

What points do you have in integration where you feel the most excitement?

It is the first sit-down session with the company that would be acquired, which is usually around a list of things that are provided in advance that we would like to hear more about in order to better understand how your company works, that I find to be exhilarating.

The announcement would be that the next exciting moment where the deal is made known to the public and the employees. 

When it comes to the potential deal happening, how do you keep that quiet? 

We have a very professional organization that simply does not leak. The acquired companies have been very mature in their own right and have kept things under wraps prior to announcements. On the deal-making side, keeping it quiet is part of the condition of the deal. 

Can we dive in a little bit more into planning, in terms of when it starts and what happens?

Our planning process starts before permission to negotiate because we need to know what is the concept of how we would integrate that company. We need to know if it is going to be difficult or easy, slow or fast, expensive, or not.

At the end of the day, the cost and the effort to integrate is going to be a part of the cost to do the deal in the first place. We get involved in those formative conversations super early. 

What are some of the key indicators that come to mind in terms of looking at what’s going to be easy versus what’s going to be hard?

A lot has to do with how much that company looks like you. If it’s purely tech and talent play and the folks in the company are just going to become part of a business unit, that would be more straightforward and there will be fewer things standing in the way. 

Once the broader ecosystem is involved, we analyze whether that company looks like us or they are different. It’s OK to be different and it can be a good way to change your own company, but we need to think about whether or not we have the capabilities that align with what that company would need as part of Cisco. 

How do acquired employees contribute to acquisition value?

The past innovation can be organic, but sometimes it’s just best to go inorganic. So, where does that knowledge come from that you are after? It comes from the very folks that you are acquiring, so they are the very key part of the success of the acquisition.

How do you go about protecting the value of acquired employees?

I’ll go back to the potential shock that they’ve just experienced. Their lives changed in a way that they did not predict was going to happen.

People that are successful in this business have got a tremendous amount of empathy, the ability to project yourself into the circumstance of the other person, feel what they are feeling in a very genuine way, and then programmatically, but also instinctively address those concerns in the best way possible.

Generally speaking, you want people to stay around, so you need to take the necessary steps that make them feel comfortable in their new environment. 

Where do customers fall during this process?

One thing that can happen in acquisition and integration is that you can become very internally focussed, but it’s very important to be much broader in your view of how to integrate and look across the entire stakeholder community.

There are shareholders, there are employees that are gained into the company, there are functions that are gaining those employees overtime, but there’s also the customers and the partners that you are doing business with.

Empathy matters in all cases. Customers and partners are going through big-time change as well, so just like with employees, there needs to be a lot of communication with customers and the people who are working with those customers. 

I worked with a vendor that got acquired and the first experience was a total cutback in service. How do you guys deal with that specifically?

We are very communicative with customers of the acquired companies. The nature of communications is done in deep partnership with the acquired companies’ leadership and then is prepared as something that can be provided through the acquired companies’ sales organization to those customers.

We put change management as a super high objective as we are going through the change and try to manage everyone through it in a way that is most comfortable for them. 

The reality is, however, that some things are not going to go necessarily well, so what is really important is that you’ve got early detection of potential issues, and secondly,  there needs to be a very fast reaction and correction when that happens. 

It sounds like building a process for integration to handle all these different aspects, including what you just mentioned is the common thing.

We absolutely have got a process, a framework that takes you through step by step. Since every integration and acquisition is different, the question is how do you apply these guidelines, but essentially, that basis is always there. We are not winging it and we always have a game plan that takes us from the very first meeting to closing the integration.

Which brings up how do those decisions get made?

Early on, when you are still framing the deal, or when you may not even have a deal yet, there is the point where the company tries to figure out how they are going to go with it whether or not they are going to sign the deal.

Involved in that decision is the business sponsor, the executive that wants this to happen, and other executive parties. They are shaping the basic outlines based upon how the teams have informed them to that point.

After the deal closes, there are still decisions to be made. These are the outlines of how we want the offer to be presented down the road and how we anticipate going to market. Along the way, there has to be a mechanism in place to make those decisions, which we call governance.

You need a sufficiently broad representation of where the decision-making team can consider the left or the right fork in the road. 

The other party in that conversation is representation from the acquired company and their key executive whose role is crucial because they know their customers, their channel partners, and their employees better than anyone on the acquiring side.

How do those doing the decision making interact with integration teams?

On one hand, governance bodies need to represent their functional responsibilities, bringing them to the table, and on the other hand, you want them to have a large responsibility. They should be wearing two hats at the same time.

You should always look at them as the owner of the outcome. You own the proposals that are being brought to this decision-making body, ten you talk about them together, discuss it and then a decision gets made. 

How do you keep all this communication from becoming an entangled mess?

Sometimes it’s helpful to just have a broader base communication that goes out periodically to a very broad community once the deal is done. This is to keep them informed about where we are and where we are going.

When you meet with governance bodies, a director, VP, and SVP it’s important to track things and then keep the integration team informed of what is going on.

How do you decide the degree of integration?

There is a cardinal rule in integrations that says don’t destroy the value, so it's advisable to integrate as much as you can, but not so much that you do harm.

How integrated is too integrated is the question the governance body deals with, because they are responsible for the end state and because they’ve got representation from the acquired company and also from the acquirer.

What’s your philosophy when it comes to the timeframe?

Psychologically, when a very large scale change occurs, people have got this shock effect that positions them to accept even bigger changes to come. The longer you take to work through integration, the more that wears off and they pick up some sort of resilience to change. So generally, you should integrate as fast as possible, but sometimes you need to have a more measured approach and lay it out over time. 

What’s the most difficult part of the integration?

It’s helping people through the change. There is this constant effort to help people see what you already know, which is that integration is a good thing. Another challenge lies in the fact that you can’t predict the future and the outcomes.

So, if something happens that’s not good during the course of the integration, be super communicative about it, be hyper planning about it, let everybody know what the plan is.

What are some of the surprises that you’ve come across during integrations? Can you give me an example?

In companies that are smaller, their network topology might not be fully well documented. So if in the process, even after careful planning you are moving their network and how it works on your network you suddenly cut off an avenue that’s customer-related, that’s a problem.

This is when you have to dive into what’s a fast way to fix it so that those customers experience harm over an extended period and how can you address that.

What’s the craziest thing you’ve seen?

Actually I have been very fortunate and haven’t seen a lot of craziness. 

Let’s dive into the lifetime career lessons learned. What would be your lessons learned over your career?

I think it's most important to recognize that you’ve got an extremely key job that involves causing other people to make really important decisions and at the same time you need to win trust and confidence.

You need to help executives be successful and find ways to help them with areas they have blindspots in, so that the decisions that get made in the general direction and feel are more positive than it otherwise might have been.

Also, it is essential to practice being empathetic. Go through the thought process of putting yourself in other people’s shoes and see the world as they see it. I guarantee that will inform you how to go about things.

That is really eye-opening because things you might have not thought of suddenly become so completely obvious in terms of how you would want to move forward.

I am curious, what would you say are the key skills one should have in your role?

I think natural curiosity about how things work is essential, and so is the ability to bring people with different points of view together to ultimately achieve common ground.

Ending credits

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