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'Need to invest in an educated and flexible workforce'

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CIOL Bureau
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The IT industry is going to change dramatically. The

service provider industry is going to change dramatically. Applications and

storage and processes will change dramatically. Therefore, the type of

productivity or competitive advantage you might be able to gain will also change

dramatically.  This is an excerpt from John Chambers, President and CEO, Cisco

Systems, where he shares his perspectives on Cisco and the networking industry

in the Executive Thought Leadership series.

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Productivity, Labor, and Capital

The traditional

capital investments that increase organizational productivity are land,

buildings, and equipment. Other productivity gains come from improvements in

labor quality, such as education or skills training. But what are the relative

contributions of these options? These numbers vary considerably from survey to

survey. The U.S. Bureau of Labor Statistics estimates that a little more than 50

percent of productivity gains from 1948 to 2001 came from technology investments

and related process changes. Nearly 35 percent came from capital investments,

and the remainder from educational improvements and employee development. But

the more important question is about the investment target, not the selection of

tools.

Production

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Since the Industrial

Revolution, most productivity investments have been directed at reducing

production costs. Competitive advantage has been gained-and lost-on the

battleground of cost of goods sold. Innovations ranging from the assembly line

to industrial robots to Japanese kanban manufacturing systems have delivered

tremendous improvements in manufacturing productivity. While the total value of

output has grown substantially, competition has translated much of this

productivity into a steady decline in value-added and labor costs associated

with goods production, below 30 percent today in most developed-country

economies. The result is steadily diminishing returns from production-focused

productivity.

Transaction

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During the 1980s and

1990s, many organizations shifted their focus to improving the productivity not

just of the production of goods but of the entire economic transaction. This

also coincided with the increasing percentage of services-based companies in the

economy. Innovations ranging from credit cards to inventory management and

transportation have allowed companies to attain, and in some cases retain,

competitive advantages in their industries. Although a significant opportunity

remains in automating transactions, I believe that the era of diminishing

returns for transaction productivity has begun and that the next productivity

horizon is emerging.

Interactions: The Next

Productivity Horizon

Improvements in

transaction productivity really began to accelerate during the 1990s. I might be

biased, but I would argue that it was the growth of network connections as well

as rapidly evolving market transitions that enabled many of these changes.

Banking networks enabled ATMs; airline networks led to e-tickets and automated

airport check-in; suppliers and manufacturers monitored inventory and production

status over corporate networks.

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Another contribution

of the network is increased information timeliness and availability. Economic

theory would tell you that this increase in information makes the market behave

more rationally because consumers and businesses make decisions based on better

information. But purchase decisions are not wholly rational. As more of the

rules-based activities are automated, people (as consumers and employees) are

increasingly dealing with unanticipated issues, as well as those that require

judgment and insight.

This underscores the

importance of the human component and the need to invest in an educated and

flexible workforce. Adding value and context in the exchange of information is a

significant capability of people that computers and networks have not yet fully

achieved. As markets move toward greater transparency, these

interactions
will be an important

source of competitive advantage.

Know Your Customer

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One indication of

this is the movement toward really knowing our customers, regardless of

industry. Governments are looking at new ways to work together with citizens.

The healthcare industry is tackling the issue of managing patients across

multiple systems. Whether you're in healthcare, retail, or finance, how do you

identify customers and change the customer exchange from one of greeting and

query (“How may I help you?”) to one of recognition and value-added interaction?

We can observe this

shift happening in specific job changes in many industries. Retailers are using

self-checkout to move employees from the checkout counter to the sales floor.

Employees on the sales floor have a greater opportunity to interact with

customers, adding information and context to purchase decisions, which improves

sales outcomes. Banking and financial services are training tellers and other

staff members to handle everything from mortgage and insurance advice to estate

planning. The stock-trade transactions you once called your broker to execute

are dealt with online, freeing up brokers to provide a wide range of financial

advice. In the public sector, governments are developing portals that provide a

single contact point for many citizen interactions, such as license renewals,

business registrations, and tax activities. These are just a few examples of how

industries are automating rules-based activities and moving their human capital

to focus on adding more value to customer interactions.

Cross-Functional Interactions

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If you think about

many of the successes in the automation of transactions, they were largely

contained within one functional group, whether it was manufacturing, sales, or

services. And we learned that in many of these scenarios, if you didn't change

the process, you would be disappointed in the results. This becomes even more

important as you begin to think about interactions across departments and

functions; and they will extend beyond the enterprise to customers, suppliers,

and partners in ways that we are only beginning to understand. Coordinating this

broader set of complex interactions is a challenge.

Interactions and Technology

Infrastructure

Now what impact do

these interactions have on a company's technology infrastructure? It begins with

enabling the CEO and executive leadership team to do things they were not able

to do before .

Designing applications and flexibility that can accommodate

these cross-functional capabilities will be critical for success.

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The greatest impacts

you'll see are the changes to applications, storage, and the data center. To

fully enable interactions, employees will need to use data from the data center,

branch offices, suppliers, and the Web. This will change where data is stored

and where processors will reside, and it will alter the functions of the network

components. Instead of applications and data and storage coming together on a

single device, it will spread throughout the entire network, transparently to

the user. This has a lot of implications for what can be achieved.

Interactions at Cisco

What are we

attempting to do to make this transition? A lot of productivity growth at Cisco

has come from building upon transactional items or specific functions. The next

generation is almost all based on interactions between functional units: between

engineering and sales; between ourselves, our customers, and our channel

partners; and between engineering, manufacturing, and service.

The key takeaway,

regardless of how you view Cisco in this scenario, is this: the IT industry is

going to change dramatically. The service provider industry is going to change

dramatically. Applications and storage and processes will change dramatically.

Therefore, the type of productivity or competitive advantage you might be able

to gain will also change dramatically.

Transactions to Interactions

Our next series of

projects are not a major human resource application or a major sales

productivity application. Instead, we are focused on applications such as Quote

to Cash (managing the process from customer request to delivery and payment),

Issue to Resolution (managing the process from customer notification of a

problem to resolution and corrective action), Idea to Offering (supervising the

process until we ship our first product, whether the idea comes from engineering

or business development). When you think about these types of applications, they

are cross-functional. And we are not organized cross-functionally. It must come

together at the top.

So how do you begin

to think about addressing these priorities? We need to enable the CIO to be

successful in that environment, knowing full well that we're going to continue

to extract transactional benefits while moving the strategy to the next level.

We need to enable business and functional leaders to connect their information

and processes across functions and then with partners and customers. If we are

going to grow at 10 to 15 percent productivity, it is these interactions in real

time that we need to be focused on for the next decade.

Courtesy:



www.cisco.com





http://newsroom.cisco.com/dlls/tln/exec_team/chambers/perspectives.html