Business reporter Erik Sherman, writing in his BizBlast blog, recommends the Financial Times’ story about Cisco’s entrepreneurial approach to developing new business units rather than acquiring them, as a must-read for large companies. He says acquisitions do poorly because companies pay a premium for the business and have the added cost of trying to make everything work together.
Sherman writes:
Some of the important lessons are:
* The company wanted to “create a sustainable long-term growth model.”
* Use proven managers to make success more likely.
* Use a “free agent” employee model, where after a certain number of years at the same job, an employee could look for another opportunity within the company. That reduces fighting when someone is transferred between divisions.
* Make use of the enterpreneurs who joined the company through acquisitions because “[t]hey don’t stop being entrepreneurs.”
* Offer incentives like pay bumps when a venture is successful.
* Create an atmosphere where failure is acceptable, because new ventures are inherently risky, and you don’t get breakthroughs by playing it safe.
* Innovate in business models, not just technology.
Perhaps Cisco is shy at publicizing such “entrepreneurial approach to developing new business units” but judging by its $3.2 billion purchase of WebEx, plus other recent acquisitions in the social networking space, and its stated intention to buy more firms, Cisco isn’t going to retire its check book anytime soon.
What I want to know is just where and what are these projects to build new business units from the ground up?
