Case #4 – Open Innovation through Acquisition at Cisco

Having looked at a somewhat “extreme” approach to open innovation in my last posting, I return to a more classical one this time: open innovation through acquisitions. This is a crucial topic for research and practice, which I would summarize as follows (inspired by work of my colleague Bart Clarysse at Imperial College): most innovative small firms get acquired, and even if they are the source of new ideas, commercialization and wide product diffusion will usually happen only after acquisition by the large firm. This links in nicely with one of the core ideas behind open innovation – namely that large firms must understand that “not all the smart people work for you.” Hence, it will often be sensible to look around, find these people and their ideas, and try to make them part of your own firm.

Few companies are as good at this approach as Cisco – I would even go as far as saying that almost all of Cisco’s growth can be attributed to smart acquisitions. The question then becomes: what makes Cisco so successful at acquiring other firms? The answer lies in the unique approach they have developed and refined through experience, which is described in the HBS Case Cisco System, Inc.: Acquisition Integration for Manufacturing (Case Number 9-600-015) by Tempest, Kasper, Wheelwright, and Holloway. Using the specific example of Cisco’s acquisition of Summa Four, Inc., the case lays out brilliantly all elements of Cisco’s acquisition and integration process.

In the context of open innovation, the case functions brilliantly to analyze two core points made by this paradigm: first, why would an innovative firm such as Cisco look outside its boundaries for new ideas? Second, provided this is indeed a valuable and sensible thing to do, how can you reap the benefits of these external ideas? In answering these two questions, I usually try to illustrate how being good at open innovation through acquisitions can be a source of competitive advantage and, maybe even more importantly, how you can develop this capability. Accordingly, this case fits nicely into a syllabus emphasizing not only the merits of open innovation, but that also tries to explore the “how” of things, and I would recommend combining it with other cases that go into a similar direction (an example is “Intel Research” which will be one of the next cases I will discuss). However, I have also successfully used this case, or even only parts of it, in classes on technology and innovation management in general, and specifically in the context of how companies can develop and extend their technology portfolios through acquisitions. Especially for audiences with a technical background, the case setting is very easy to grasp, which has allowed me to even use it successfully with 3^rd and 4^th year undergrads with a minor in engineering or IT. Nonetheless, since the core problem of how to handle acquisitions should largely transcend the context, I have rarely seen more senior students struggle with the case because they lacked a technology background. Finally, I imagine that one could also take this case toward other directions to more strongly emphasize latent issues about organizational behavior and human resource management.

In addition to an excellent teaching note (HBS Case 5-600-134), the authors also provide a “B” case (HBS Case 9-600-016) which is basically an update on the Summa Four acquisition several months into the process. Personally, I have tended to emphasize issues about innovation strategy and the benefits of acquisitions more strongly, so I have often skipped the “B” case which is somewhat more aligned to an HR perspective on the case. Having said that, it is clear that if your intent is to focus more on the operational side of things, the “B” case will become a natural extension to the original case discussion. All in all, the Cisco case has become part of my standard case portfolio – and because of its versatility, it is not only a great addition to syllabi focusing on open innovation, but to any class looking into the management and enactment of technology strategy.

References

Steven C. Wheelwright, Charles A. Holloway, Christian G. Kasper, Nicole Tempest “Cisco Systems, Inc.: Acquisition Integration for Manufacturing (A)” HBS Case 9-600-015, February 15, 2000, http://cb.hbsp.harvard.edu/cb/web/product_detail.seam?R=600015-PDF-ENG, last accessed June 24, 2011

Alan MacCormack, Kerry Herman “Intel Research: Exploring the Future” HBS Case 9-605-051, October 27, 2005, http://cb.hbsp.harvard.edu/cb/web/product_detail.seam?R=605051-PDF-ENG, last accessed June 24, 2011