Module 1: Strategic Imperatives

Cisco Press

All these modules are designed to provide a firm grounding in the application of technology to business. When used in combination with classroom study and exercises, this text will give you the tools you need to build a successful business armed with the appropriate information technology to compete effectively in the global business environment of the twenty-first century.

It begins with a review of the forces shaping business in markets today.

Global Trends and Strategic Imperatives

As noted in the previous section, the way business is conducted has fundamentally changed in the past decade. Empowered by the Internet, IT is now an essential part of business and society.

For example, although cooking and serving fast food might, on first examination, seem to be a non–technology-related undertaking, the truly successful fast food restaurants are intensely dependent on IT. Inventory is tracked and managed, distribution is planned, and replenishment is executed automatically based on target inventory levels and expected delivery times. This allows real-time changes based on actual demand, reduces excess inventory and spoilage, and eliminates lost sales due to out-of-stock situations. Business intelligence is also gathered in real time, allowing businesses to monitor changes in customer preferences, advertising, and buying behaviors. By comparison, smaller fast food operations that rely on manual processes (even using electronic records) suffer from lost productivity and human error through manual processes. In addition, delays in sensing and responding to change in demand or disruption in suppliers can result in reduced sales and profits.

Likewise, for exporters and outsourcers who are trading across geographical borders, the extension of IT through the Internet is proving to be essential to competing globally. The Internet is enabling both product and information flows, creating a new virtual form of transportation, and enabling business to extend its reach to other markets and customer bases. It allows a business to inexpensively achieve a world-spanning presence that, in the past, was only available to large companies that had extensive advertising capabilities.

The Internet and IT can be used in many ways and to varying degrees to bring benefits to all businesses and public sector organizations. Organizations are using the Internet and IT strategically to create new products and services, improve productivity and efficiency, increase revenue, and improve customer satisfaction. Organizations are also using the Internet and IT to improve the efficiency and effectiveness of communication, collaboration, and process sharing. Used effectively, the Internet and IT can help your organization compete and survive in the economy of today.

By the end of this module, you will be able to do the following:

  • Describe the global trends and impact of the Internet and IT on business and the public sector organizations in driving productivity, efficiency, innovation, customer satisfaction, and quality of service.

  • Describe the business and market drivers for the use of the Internet and IT.

  • Explain why the use of the Internet is a strategic imperative for competitiveness of business, industries, and countries.

  • Explain how external integration is driving financial performance and customer value for the organization.

The next section discusses how the Internet has impacted global productivity and competitiveness.

The Impact of the Internet on Global Productivity and Competitiveness

The Internet and IT are changing the world and the way business is conducted and services are delivered. New technology advancements allow both private and public organizations to improve productivity and efficiency, deliver new customer value, and transform their operations.

In this section, you will learn how the Internet and IT do the following:

  • Drive productivity and competitiveness

  • Affect business in the public and private sectors

  • Influence current global business trends

  • Help organizations respond effectively to new trends

The Internet and Global Productivity

The evolution of business has largely been the process of managing the means for communication, such as telephone, telegraph, printing press, and transportation. Historically, commerce evolved as a way to communicate information and to move products from producers to consumers. The individual who enabled the transportation of the product was able to generate a profit on the transport.

Modes of communication initially involved writing letters, which were delivered by an unstructured mail delivery system such as someone traveling in that direction. The first commercial telegraph was used in Great Britain in 1839, ironically, within the railroad industry. Commercial use of telephones arrived in the later part of the nineteenth century. These communication devices were point-to-point until Bell emulated the Western Union telegraph exchange concept, which introduced what eventually came to be known as the public switched telephone network. Rapid advances in wiring technology, from a single wire to twisted pair to four pair, allowed long distance and international calling capability. Cellular telephony was developed as an offshoot of radio frequencies. Handheld cell phones were introduced in 1973 with a media event demonstrating the tool between Motorola and Bell Labs. Also in 1973, packet-switched voice was carried over ARPANET, the precursor to the Internet, utilizing the Network Voice Protocol, which ran on top of the earliest versions of IP. Early in the twenty-first century came the advent of voice over the Internet infrastructure, based on IP. This is known today as VoIP. Throughout the history of electric telephony, the voice communication provider market rhythmically expanded and contracted, very much like today.

Modes of transportation initially involved the development of roads, then ships, followed by canals, rail lines, highways, trucking, and aircraft. In each case, the transportation function enabled new forms of business and new ways to link businesses. As each mode of transportation evolved, it initially involved a boom where entrepreneurs moved quickly to build infrastructure, followed rapidly by a burst, where excess capacity drove down investment and markets. Ultimately, in each case, there came a time where the new form of transportation led to new markets and business models and where the excess capacity was consumed and then augmented.

An important point to note is that the evolution of new forms of transportation also involved increasingly abbreviated cycles of adoption. Whereas primitive roads took 1000 years to transform business, railroads took only 200 years, and airfreight took a mere 50 years to impact business.

An important concept here is that transportation is a way to deliver things of value from one place to another. Now with the advent of the Information Age, the thing of value is actionable information or intellectual property. The Internet, standards-based information systems, and fast, low-cost logistics networks have enabled global value chains that have reduced costs by improving efficiencies and accelerating information and product flows. In this regard, the Internet may be considered a new transportation system, and it has evolved at breathtaking speed. In a mere four years, the Internet connected more than 50 million people, and it is now approaching more than 1 billion people. Projections completed recently by research firms estimate that well over half of the world will be digitally connected by 2010.

When Al Gore coined the phrase "information superhighway," he only got it half right. Although the Internet can be thought of as a highway, it is also something more. Unlike highways, in which there is only a transportation function and it is limited by time and space, the Internet is not limited by either dimension. As shown in Figure 1-1, as intelligence is being built into the Internet, it is increasingly becoming a virtual marketplace where collaboration is leveraged to generate more value almost instantaneously.

Figure 1-1

Virtual marketplace

The dramatic increase in the use of the Internet and IT over the past decade has helped increase the competitiveness of businesses that harness its power. The expanded use of the Internet and IT has also enhanced the productivity of organizations, governments, and individuals. The Internet is driving these increases by doing the following:

  • Collapsing timeframes: Unlike a road, the Internet is not traversed in the classical sense of traveling somewhere. On the human scale of interaction, it is enough to present data to the network to make it instantaneously available to the receiver. In a sense, this accelerates travel to the speed of light and radically collapses the timeframes associated with information exchange.

  • Changing relationships: In the age of the Internet, it is no longer possible to be unaware of the activities of either businesses or their customers. Markets are beginning to approach the ideal market condition of perfect knowledge. This fact is radically reshaping the ways in which business is conducted. Now markets and businesses operate in much greater transparency, where fewer secrets are kept from customers, competitors, and other business constituents.

  • Enabling collaboration: Collaboration is the reason that business has traditionally built office complexes and campuses. A fundamental strategy of business is to bring together resources and enable people with good ideas to interact and coordinate actions to create value and generate a profit. In the age of the Internet, office buildings, complexes, and campuses have become less important. Collaboration can be facilitated electronically through a web presence. This means that rather than building expensive office buildings, businesses can use networked technology to place human minds in close logical proximity so that ideas can be generated and actions coordinated. In many cases, businesses are becoming more virtual, operating without the physical constraints of the past.

  • Shortening time to market: Using collaboration facilitated by the Internet, businesses can quickly generate information that can be made available to suppliers and customers, radically shortening the time to market. It is no longer necessary for businesses to rely on physical interactions of people to develop and ready products for markets. Now people can work together over time and distance in real time or asynchronously. For example, engineering teams in various parts of the world can work 24 hours a day on different aspects of a product to enable it to be developed and delivered more quickly. Time-to-market and feedback loops are now defined by the time it takes to make decisions rather than the time required to modify business processes.

  • Creating economies of scale: In the past, many products were never introduced because they lacked a sufficient market. Now, automation combined with the connectivity afforded by the Internet allows almost any product to find a global market, thus creating the economies of scale necessary to produce a product profitably.

  • Transforming customer value: Customer value is determined by the perceived difference between the customer evaluation of all the benefits and the costs of offering the perceived alternatives. IT-enabled benefits such as shorter time to market, faster delivery, increased ability to customize, and improved customer service levels are transforming customer value.

The Net Impact Study, conducted in 2002 by Varian, Litan, Elder, and Shutter, found that both large and small organizations that adopted Internet business solutions realized significant financial returns for their efforts. A study called "Net Impact 2003: Driving Networked Business Productivity," conducted by Momentum Research Group, identified specific characteristics of the organization that contributed to the increase in revenue and reduction in costs when using Internet business solutions.

Organizations that indicated the greatest levels of revenue generation did the following:

  • Deployed Internet business solutions focused on customer service and support and research and development (R&D)

  • Worked to enforce data standardization across the organization

  • Focused on ensuring that mobile users had access to the same data that they would on their desktop

  • Experienced greater purchase volumes from existing customers since the adoption of Internet business solutions

The benefits of the Internet not only impact the organization, but affect entire economies. As more organizations use the Internet to cut costs, productivity rates improve, which in turn translate into a better economy.

Citizens enjoy a higher standard of living due to an improved economy in several ways:

  • Through growth in real wages, which reflects productivity

  • Through slower inflation rates, which also enhance real wages

  • Through added spending on social programs, which improves the quality of life and potential tax cuts due to larger government surpluses

Productivity growth is especially important to economic policy makers who are concerned with improving the quality of the citizens' lives. For budget policy makers, projections of productivity growth are the most critical element in long-term budget forecasting, despite the fact that productivity growth is one of the most uncertain elements to predict.

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