LAS VEGAS—Cisco Systems Inc. President and CEO John Chambers kicked off the Networld + Interop show this morning with an optimistic talk on the next phase of productivity and technology innovation.
The self-described optimist of the industry asserted that technology will continue to increase productivity on a global basis. Despite the hesitancy among business leaders to spend on new projects, Chambers believes that a new business model, which he called the “networked virtual organization,” will drive those productivity increases.
In addressing the big question—when will business spending pick up, Chambers saw no definitive answer in his own crystal ball. But he believes that within two to four months after businesses see their own productivity improve, they will begin spending again.
Chambers said that most economists expect to see a productivity increase of three to five percent within the next several years, and that there is a one-to-one correlation between productivity increases and Gross Domestic Product (GDP) growth. The productivity increases will require a change in business processes, but half of those increases will come from Web-based businesses. And the IT companies that drive productivity increases will see their sales pick up.
In a Fortune 500 CEO and CIO leadership conference Chambers was involved in earlier, he was surprised to learn that the CEOs believed that IT is the enabler of their business strategies. “That is why I am the optimist of the industry,” he said.
Another surprise that came out of the council was the finding that most large IT projects are launched based on the CEOs experience, intuition and “gut feel,” said Chambers. Although cost justification is done before companies begin such projects, those are the primary criteria for moving ahead.
The survey conducted at the conference also revealed that the number one reason to choose a networking vendor was for its service and support, followed by its ability to provide integration capabilities and then price.
Using Cisco as an example of how to respond to changing market conditions, Chambers said that to remain successful, companies must plan to see the impact from their major decisions not in the first one to three years, but in three to five years. Cisco, he said, has spent the last two and a half years realigning its resources. “We moved a huge amount of resources that will result in gains three to five years from now,” he said.
Today Cisco spends 40 percent of its R&D resources focused on service providers—rather than enterprises. “Were investing for the future. The companies that dont do that get left behind quickly,” he said.
A strong culture that can adapt quickly to change can better handle unpleasant surprises. After the economic downturn, “It took us only one quarter to adjust and get positioned for the upturn,” he said. A new business model that leveraged new systems allowed Cisco to do that.
The company of the future is the networked virtual organization that retains work associated with its core competencies and out-tasks contextual work to trusted partners. But out-tasking is not outsourcing—it requires that the company retain strategy and control implementation. And it requires standardization of data and network systems, and the partners have to be ready to embrace it, he said. Cisco, which has out-tasked most of its manufacturing, ships almost 95 percent of its products to customers without Cisco employees touching them, he said. And 73 percent of service and support calls are handled online by customers themselves at a much lower cost.
Other trends that Chambers sees in the networking industry is a shift from using acquisitions to enter new markets to companies doing it themselves—in conjunction with partners. In addition, the market is moving away from buying “boxes” and moving toward transparent architectures.
The next major wave of innovation in the networking industry will come from moving more intelligence into the network, he said. In a demonstration of his vision, Chambers led a demonstration of new networked technologies that will bring great productivity improvements to the construction industry “by the end of the decade,” he said.
Chambers sees the greatest growth opportunities in the industry in 12 new markets that Cisco is aggressively pursuing—but in an integrated manner. Those include storage area networks, wireless for business and in the home with the Linksys acquisition, IP telephony and security.
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