Module 1: Strategic Imperatives

Cisco Press

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The Internet represents a new and powerful way to communicate information faster, cheaper, and with greater flexibility. This should allow organizations to do the following:

  • Reduce the transaction costs of locating and purchasing required supplies, including labor

  • Enhance the efficiency of producing and delivering goods and services through lowered inventories and enhanced cooperation among designers of new products and services in different locations, whether inside or outside the firm

  • Reduce the cost and improve the effectiveness of dealing with customers by out-tasking the customer-facing process with Internet-based, self-service applications

It is important to note that the mere communication of information at higher speeds does not result in business transformation. It is the combination of this communication with the ability to add value to the communication that provides transformational impact. As information is generated through collaboration within the Internet, it can be multiplied, amplified, and enhanced to generate new information and insights that otherwise would not have resulted had conventional forms of communication been utilized.

The Convergence of IT Standards and Productivity

Why did this transformation in information and transportation technology take place? Largely, it is a story of the evolution of standards and can be described in the context of computing.

When data processing was a function of mainframe computers, computing was centralized and focused on data analysis and record keeping. The impact on productivity was nominal. Mainframe computers were used primarily to support back-office functions such as accounting, recording transactions, and tracking personnel. Information and business processes were not extended to many of the business personnel; the IT impact on productivity increases was minimal, if at all.

Hampering positive business impacts of IT efforts was the extreme customization required of mainframe systems. Standards, to the extent that they were used at all, were implicit at basic levels, such as the number of bits per byte. Most computers were not interoperable, and networks, where they existed, used proprietary protocols and arcane control methods.

As mainframes gave way to minicomputers tied together with primitive networks, the impact of IT on business increased. It meant computers could be used to enable business operations. Because many more users could leverage computers in their job, IT was able to increase the overall productivity of the organization.

Standards were still a problem, however, and they were mostly proprietary, making interoperability between systems manufacturers difficult.

During the 1990s, a number of standards were developed and generally adopted. TCP/IP as a data interchange standard gave rise to the Internet and the World Wide Web, while standards for computer architectures and functionality gave rise to interoperable hardware and software. In addition, the general adoption of desktop computers gave just about every professional employee access to personal computing and data networking.

This ubiquitous access ensured that computing could be applied to just about all back-office as well as customer-facing functions. The impact on productivity has been profound. Dr. Alan Greenspan, former chairman of the U.S. Federal Reserve, noted that much of the productivity increases experienced in the United States has been as a result of the application of IT to business. According to a study conducted by Cisco, the expected financial impact on the U.S. economy alone, through 2010, will amount to more than $1.6 trillion in increased revenues attributable to information technology implementations. In addition, over a half a trillion dollars in cost savings will be recognized during the same period.

As this influence has extended to the global economy, significant increases in productivity are being experienced worldwide.

This impact on revenues and costs comes at a price. The Internet is an information engine that is indiscriminant regarding the information being transported or its use. This has introduced a whole new area of concern that has to do with who owns and gets to control information and its flows. The next section shows how.

The Internet and Public and Private Sectors

When should information be shared, under what conditions, and should the government be involved? In the twentieth century, these questions were fairly trivial. The creator of the information owned that information. Where there was doubt, there were copyright and patent laws to resolve disputes.

In the age of the Internet, these questions have become increasingly important and complex. When information flows freely and can easily be acquired and repurposed, the rights of information owners are easy to abridge.

When the information in question is personal, the security and privacy issues quickly become critical. Increasingly, governments have moved to protect the privacy of personal data with rules associated with data protection. HIPAA, the Health Insurance Portability and Accountability Act in the United States, attempts to protect the privacy of personal health information. Similar laws in Europe, either under consideration or already in effect, seek similar safeguards.

Additional rules, such as the Sarbanes Oxley Act in the United States, seek to ensure the accuracy of financial reporting data by publicly traded companies by mandating severe consequences if such data is distorted. Data security, as a consequence, has become a big issue for enterprises.

All these regulations are a direct result of the ease with which the Internet allows data to migrate. However, despite all the problems related to this freer access to information, the Internet is providing many more benefits.

The Internet has allowed organizations to significantly strengthen their relationships with customers and constituents while also empowering their employees. In addition, the Internet has enabled businesses to develop virtual organizations in which to extend their scope and power, and to strengthen relationships with suppliers and manufacturers.

The most successful organizations fundamentally know what their customers want and need and are organized to address those needs better than their competitors. In the past, this was somewhat of a hit or miss proposition. Organizations frequently used market research surveys to assess customer needs and desires. Although customer surveys are still being used, innovative companies such as Amazon, eBay, and others are using IT and the Internet to capture this information in real time using the web and analytic tools to monitor preferences and changes in buying behaviors while profiling actual and prospective customers on a daily basis.

At the same time, Internet-based applications allow for the direct interaction between the back-end systems (those systems concerned with inventory and financial management) of the enterprise and the customer. This enables a level of intimacy and customer knowledge that significantly improves the delivery of service and potential to maximize the revenue generated.

Customers use the Internet to research products and services, download information such as brochures and user manuals, and access customer support information at their convenience. By providing personalization such as online order receipts, products marked for future purchase, and access to useful information including customer feedback, a business builds greater customer loyalty and preference. Because of the Internet, a customer is much more likely to find interactions with businesses convenient and satisfying.

Organizations also benefit internally from the ability of the Internet to facilitate better communications and interactions, encouraging greater employee empowerment. Secure access to the tools and information of the organization facilitates the ability of an employee to work effectively and efficiently.

Prior to the web, a significant portion of employee time was spent looking for and organizing information. Compared to their counterparts from the twentieth century, employees today spend far less time looking for company data and much more time using it.

One area of profound transformation in the age of the Internet has been the degree to which organizations can connect to leverage strengths of others and to form virtual organizations. Virtual in this sense means that the organization is composed of connections, not physical structures or people in close physical proximity. The Internet has allowed businesses to extend systems and information to suppliers and channel partners to facilitate the production and delivery of goods and services to consumers, while concurrently partitioning the private information of the company. This has led to improvements of efficiency and profitability for all parties in the supply chain.

As in other areas, the loss of ambiguity in communications has increased satisfaction and loyalty between organizations. It has also enabled the delivery of goods and services at much lower prices and without many of the overheads that characterize conventional business arrangements.

The most important impact on the interaction of organizations, though, has been the degree to which the Internet enables one organization to gain the benefits of the resources, skills, and capabilities of another. This has allowed organizations to specialize in what they do best, magnify their capabilities, and create an extended workforce as partners take on tasks that were originally done by the organization.

The Internet and IT can transform the interactions of an organization with its suppliers and manufacturers. Through the sharing of information, the relationship between an organization and suppliers is strengthened, enabling just-in-time processes to function reliably. This bonding is also enabled with other partners, such as distributors, resellers, shippers, and service providers. In each case, access to information concerning product orders, delivery status, and customer requirements improves the flow of goods and services to customers. Smooth product flows enabled by web-based applications and centralized information systems results in increased inventory cycles, decreased friction, and improved cash flow for all the participants in a delivery channel.

When partners can effectively take on tasks that an organization would otherwise have had to do, the organization can focus on its core skills and maximize its investment in the development of intellectual property that can improve the quality of its product or service.

The Public Sector

Organizations in the public sector also benefit. As tax rates and the cost of governing rise, constituents become increasingly concerned that taxes are being utilized efficiently. In the past, this has perversely led to ever greater bureaucracies devoted to audit and control. Today, networks and distributed processing can efficiently deliver and, more importantly, track the delivery of benefits and services.

The movement of online public services is considered so important to effective government that a number of international institutions are involved in promoting it. For example, the World Bank has identified several online programs, known as e-government programs, as a way for governments to promote the development of local economies. The World Bank has put together an e-government handbook for developing countries to help governments identify and make the necessary changes.

The World Bank highlights five major benefits of e-government:

  • Better service delivery to citizens

  • Improved services for businesses

  • More clarity of information

  • Reduced opportunities for corruption

  • Greater empowerment through information

  • More efficient government purchasing

As both public and private sector organizations reap the benefits of increased automation enabled by extensive networking, fundamental changes to global society are taking place. Some of these changes are discussed next.

The Internet and Global Trends

Although future generations might look back on the twentieth century as the age of warfare or even the age of industrialization, they will certainly view the twenty-first century as the onset of the age of the global economy. Fueled by the Internet, this global economy has generated several notable trends, including these:

  • Globalization

  • Specialization and outsourcing

  • Increasing customer expectations

  • Compressed value-add cycles

This section examines each trend in depth and shows how it is contributing to the changes.

Globalization, or the rise of the global marketplace, enables companies, no matter where they might be located, to service customers anywhere on the planet. The Internet is enabling new and specialized competitors to address market opportunities faster than ever before. This acceleration increases the pressure on existing businesses and competitors. Thus, to survive, businesses must continuously monitor the competitive environment and create strategies that will help achieve competitive differentiation and operational efficiency.

Globalization also drives outsourcing and specialization. Organizations are engaging outside vendors to manufacture and produce their products for them. In the past, organizations manufactured the whole product themselves and had control over the entire process.

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