Cisco Tries New Business Model

The Financial Times has an article (which seems to be publicly available, at least today) about Cisco's efforts at a more entrepreneurial approach to develop new business units, rather than just acquiring them. 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.

If you're in a large company, this article should be a must-read. One reason acquisitions generally do so poorly is that one corporation essentially pays a premium for a revenue stream - like giving someone a ten dollar bill for a five - and then has the additional costs of trying to make everything work together. When you innovate from the inside, the costs are far smaller, you get the full benefit of real success, and it's easier to make the fit work.

One thing that does seem to be missing is dealing with moderate success. Tigns that lose money you can drop and reassign the people involved. But what if a new venture is reasonably successful, yet not so profitable as to make managing it finacially worth the time of the parent corporation? They could sell the group to someone else, but lose access to the personnel who were involved. So, create a separate holding company that manages smaller ventures. That way there is still return on the investment, you don't need the involvement of the main management team other than looking at the holding company as it would an investment in a third party, and you can still bring someone necessary back and, should one of the small ventures suddenly hit on something big, the parent corporation can reap the benefit.