the new economy, business performance and the current economy :

The New Economy, business performance and the current economy :CYBERGEOGRAPHY and its BUSINESS IMPLICATIONSDr Howard A. RubinEVP, META [email protected] 764 4931

It is time to reshape your thinking about technology, business, and society This is not simply a new business as usualInformation TechnologyDistributed ComputingThe InternetPervasive Computing

What We Are Hearing About 21st Century IT: The New Economics of ITThe average company will spend an average of 3.84% of revenues on IT in 2001, compared to 3.50% in 2000Average IT spending per employee was $10,052 in 2000, up from $8,407 in 1999; it will be $12,700 in 2001As a result, the pressure on IT to produce more effectively for less will continue to increase2.15%2.59%3.16%3.50%3.84%13.65%42.05%36.70%22.34%9.70%0%5%10%15%20%25%30%35%40%45%19971998199920002001 (Est)IT $ as Percent of RevenueIT Spending ChangeAfter decades of expansion, the growth rate of the IT economy is slowing:

What We Are Hearing About 21st Century IT: The New IT Economics in Financial Services

IT as % of Revenue: Average Across the Sector

Copyright 2001, Rubin Systems and META Group, Inc.

Change in IT Spending: Average Across All Sectors


IT Spending Per Employee: Average Across All Sectors


What We Are Hearing About 21st Century IT: The New IT Economic Rankings


Rank

IT % Of Revenue 00

Change IT Spending 00

IT Spend/ Employee 00

IT Spending ($) 00

1

Financial Services

Professional Services

Financial Services

Telecommunications

2

Banking

Banking

Insurance

Financial Services

3

Telecommunications

Construction & Eng.

Energy

Energy

4


Pharmaceuticals

Utilities

IT

5

Health Care

Energy

Telecommunications

Insurance

6

IT

Financial Services

IT

Manufacturing

7

Transportation

Consumer Products

Banking

Banking

8

Insurance

IT

Construction & Eng.

Transportation

9

Media

Electronics

Pharmaceuticals

Pharmaceuticals

10

Utilities

Health Care

Health Care

Consumer Products

11

Energy

Retail

Consumer Products


12

Pharmaceuticals

Metal/Nat. Resources

Media

Electronics

13

Consumer Products

Manufacturing

Chemicals

Utilities

14

Electronics

Media

Transportation

Health Care

15

Manufacturing

Hospitality & Travel


Food/Bev. Processing

16

Chemicals

Utilities

Retail

Chemicals

17


Insurance

Manufacturing

Retail

18




Media

19


Telecommunications

Electronics


20

Retail

Transportation



21

Construction & Eng.

Chemicals


Construction & Eng.

What we are hearing about IT in the 21st century company: The overall financial viewOverall Change in IT Spending and IT Spending as a Percent of RevenueTime scale distorted

It is time to reshape your thinking about technology, business, and societyThere are now both Digital Divides and Digital Opportunities

Both can be easy to missHeavier than air flying machines are impossibleLord Kelvin, President of the Royal Society, 1895Everything that can be invented, has been inventedCharles Duell, Commissioner/US Patent Office, 1899The wireless music box has no imaginable commercial value. Who would want to pay for a message sent to nobody in particular?Advisors to David Sarnoff in 1922Who the hell wants to hear actors talk?H. M. Warner of Warner Brothers, 1927Computers in the future will have to weigh more than 1.5 tonsPopular Mechanics March of Science, 1949There is no reason anyone would want a computer in their homeKen Olson, Chair and Founder Digital Equipment Corp, 1977

Reshape your thinking about technology, business, and societyPanel used with permission of IBM Global Services and Michel Shank

Reshape your thinking about technology, business, and societyIts fair to say that the rules of business are changing faster today than ever before In the next 10 years, this will have a profound effect on the winners and losers.

Its not as simple as saying that everybody has got to have a Web site and do electronic commerce. Its a profound change in terms of how information flows inside companies, to partners, and to customers.

Bill Gates

Reshape your thinking about technology, business, and societyThere is growing confidence that the so-called legacy companies and I count Chase as one of them not only play a role in the new Dotconomy, but have the key assets to succeed. We should not be defensive about the word legacy. We bring a number of strengths to the table. Weve got proven products and services, distribution and fulfillment capabilities, and financial strength. Most importantly we bring power brands to the table. Very few of the dot-coms have those advantages! All the elements are there: Customers who trust us; technology that enables us; and an untapped market of spectacular proportion.

Bill Harrison, Chase

Network age factsDuring this briefing

6,000 people will have used the Internet for the first time10,000 people will get mobile phones in the U.S.38,000,000 voice mails will be sent worldwide300,000,000 e-mails will be logged+Cyber-communities have been createdThe tectonic plates of the web have shifted

Leveraging globalization & digitizationIf you dont know where you are going, any road will do!

If you dont know where you are, a map wont help!

The evolution of the Internet1

The evolution of the Internet

The landscape for business is cybergeography

The cybergeography of the planet is changing continuouslyCybergeography

In the past year, our research team developed the Global New e-Economy (GNEI) index to attempt to assess the tremendous amount of changes occurring as a result of digitization, globalization, and the New e-Economy. The GNEI index measures across five main variables:Knowledge Jobs:Technological Innovation Capacity: Economic Dynamism & Competition: Globalization: Transformation to a Digital Economy:

Mapping CybergeographyNew indices

Why?: New factors are driving economic and business success in today's information and knowledge based economy.

What is the motivation for a new economy index --- the Global New e-Economy Index?

Nations and businesses need New Economy data to make the right decisions in the uncharted regions of cyberspace .We are operating in a region where longitude and latitude have simply not been defined


The dynamics of the New Economy are now truly global. Industrial age measures of production and performance are decreasing in relevance in the information age. It seems reasonable to speculate that better predictors of a nations or regions growth and potential can be found by looking at their information processing capacity and capability.


Only 2 to 5 out of 100 people today can pass this Global Economy/New Economy IQ test..

Which countries have the fastest growing GDP?Ireland, China, Poland, Hungary, IndiaWhich countries have the greatest computers per capita?US, Sweden, Finland, Iceland, NorwayWhich countries have the greatest number of Internet hosts per capita?Finland, US, Iceland, Norway, Canada, New ZealandWhich countries have the greatest number of phones per capita?Luxembourg, Sweden, US, Switzerland, NorwayWhich have the greatest number of cell phones per capita?Finland, Sweden, Norway, Hong Kong, IcelandWhich 5 countries have the lowest international phone costs?US, Israel, Norway, Netherlands, FranceWhich 5 countries have the greatest labor productivity (GDP per employee hour)?Luxembourg, Belgium, US, Italy, IrelandGlobal QuestionsWhat is the motivation for a new economy index --- the Global New e-Economy Index?


U.S. National QuestionsWhich states have the largest on-line populations?Alaska, Colorado, Maryland, Utah, New HampshireWhich states have the most high tech job density?New Hampshire, Colorado, Massachusetts, California, VermontWhich states have the highest degree of workforce educational attainment?Colorado, Alaska, Utah, Washington, CaliforniaWhich states have the most job dependent upon exports?Alaska, Washington, Connecticut, Texas, MassachusettsWhich states have the highest percentage of workforce employed by foreign companies?Hawaii, South Carolina, North Carolina, MassachusettsWhich states have the highest number of patents per capita?Delaware, Connecticut, Vermont, Massachusetts, New Jersey

Viewing the Digital Divide

US, Japan, Germany, France, FinlandSouth Africa, Venezuela, Slovenia, ThailandStart of primary digital divideStart of 2nd drop off on the digital divide continental shelfFirst drop off

What is the relevance of this information?National leaders, business leaders, strategists, technology leadership, and the new breed of knowledge worker need a new basis for decision making to answer key questionswhere are the new markets?where should I be locating my physical facilities?where are the new sources of labor?what is the cybergeography of the planet? how fast is it all changing?

Who are the leaders?Technical Innovation CapacityJapanUSGermanyRussia (39 overall)China (37 overall)

Economic Dynamism and CompetitionFinlandNetherlandsTaiwanUSASwedenKnowledge JobsPhilippines (26 overall)USGermanyRussiaChina

GlobalizationUSUKGermanyFranceJapan

Position

Holding:Finland, France, Germany, UK

Gainers:Austria, Denmark, Ireland, The Netherlands,Sweden, Switzerland

Losing position:Belgium, Italy, Luxembourg,Norway, Portugal, Spain

Top 5: USA, Japan, Germany, France, FinlandLast 5: Slovenia, Russia, South Africa, Indonesia, Venezuela

The New Economy company is a e-community and competes with other e-communities. An e-community is characterized by identity, shared values, a global business perspective, relationship growth, the ability to rapidly accumulate and share individual experiences to create organizational capital, the cultivation of an intelligent society, and a focus on grasping opportunities and turning the future into an asset.The Cybergeography of Business

Business Network Mapping is a technique that allows the visualization of these relationshipsExample: FORD topology unscaled

Example: FORD Scaled viewInterpreting a Business Network Map

Examples: Media sector as viewed from e-space

Examples: Amazon.com

Examples: IBM

Merrill as viewed from business e-space

Insurance competitors

What does the competitive landscape look like?Follower / LeaderDegree of ChangeRiding the WavesAnticipationCatching the WavesAdjustmentSwamped by WavesTurnaroundRevolutionaryEvolutionaryReactiveProactiveMaking the WavesRedefinition

What does the competitive landscape look like?Follower / LeaderDegree of ChangeRiding the WavesAnticipationCatching the WavesAdjustmentSwamped by WavesTurnaroundRevolutionaryEvolutionaryReactiveProactiveMaking the WavesRedefinitionDefendAttackSurviveSell Arms to Both Sides

Financial Services: BrokerageAttackersAmeritradeSchwabE*tradeTD WaterhouseDefendersMerrill LynchPaine Webber

Financial Services: BankingAttackersWingspanCompubankE*Trade/telebankDefendersB of AChaseCitiEtc.

Financial Services:InsuranceAttackersAnswer FinancialQuotesmithAnnuity.netDefendersAIGAllstateHartfordProgressive

Financial Services:Who are the arms dealersAOLYahoo!MicrosoftAnswer FinancialQuotesmithCFNRewards Plus

What we are hearing about 21st century IT:The challenges you are facingThe essential focus areas for the high performance 21st century IT organization Value creationCost managementInvestment managementRisk managementGlobal technology managementHuman capital managementPerformance management and communication

The critical business-IT transformationsFrom cost center to value centerFrom constraining to agileFrom reactive to proactive

What should you be doing in IT to meet these challenges?The IT Business, Business Models, and Metrics

What we are hearing about 21st century IT:Responses to the challengesMeeting the challengesAdopt an investment mindset and disciplinesIntroduce a new funding model for IT as an investment portfolioEnact a new management model which is consistent with the value generation focused needs of the enterpriseMETA Technology Leaders IndexMETA Index Dow Jones S&P 500In the majority of sectors we track, the technology leaders outperform their peers and generate exceptional shareholder value

What we are hearing about 21st century IT:IT readiness to meet the challenge is lowA profile of IT organizations in F1000 companies todayAbout 30% are "frozen in the past" IT managed as a cost; still mainframe based; long development lead times; not flexibleAbout 55% are "in the abyss" spending growing but not managed as an investment; distributed computing is growing with uncontrolled complexity; strategic work content is lowAbout 10% are "competitive". Spending is under control; the portfolio is being managed; development is effective and strategic content is highAbout 5% are "leading". Spending managed as an investment; package-based solutions play a key leveraged role; sourcing is also leveraged; a "market ready" mindset.

To evolve and transform you must know where you are today! Do you?

Value Transformation Step 1a:From Cost Center to Value CenterView IT as a business of products and servicesTreat the IT investment as a portfolio of assetsSet the stage for business/IT fusion not fission

Changing to a Value CenterTransformation requires the adoption of a new operating model for IT and a new form of business IT partnershipBusinessPerceptionofDependency

Business Perception of IT CredibilityHighLowHighLowInvestmentCostEffectivenessEfficiencyCollaboration70%25%5%RespectTrustMETA Group Credibility/Dependency Matrix

Value Transformation Step 1b:From factory to strategicBusinessPerceptionofDependencyonInformation

Business Perception of IT CredibilityHighLowHighLowInvestmentCostEffectivenessEfficiencySupporting the BusinessStrategic PartnerPreferred PartnerThe transformation of ITs role in the enterprise is critical

Value Transformation Step 2:Move IT to a True Business ModelAdopt a business discipline philosophy, beginning by clearly understanding the fully allocated costs of IT products and servicesManage and balance the IT portfolio to drive higher levels of value and lower levels of riskBenchmark current IT product/service offerings to begin identifying an IT regime capable of supporting ongoing business innovationEight Basic Tenets of Running IT Like a BusinessCosts are known and auditableBudgets are developed using clear models Critical business information is available in real-time.The work backlog is managed from a value perspective Performance is visible internally and to the customerThe organization is market ready.There is a focus on cost reduction, quality improvement, and customer facing performance IT performance is judged on day to day performance, application delivery, and the ability to Run IT Like a Business

Value Transformation Step 3:Look at IT as an investment portfolio

Expresses activities in business termsContinuously manage the investment yield from a risk return vantage pointPosition the CIO as a Fund ManagerPosition IT as portfolio and product managersLink all through an investment management disciplineNon-Discretionary CostsIT Investment Portfolio

Value Transformation Step 4:Revamp the IT funding model

Adopt a fluid IT budget model which considers all projects to be business projectsTreat every quarter as a yearForget the idea of an IT budget; Fund and squeeze the baseline, but fund everything else based on merit/business valueManage the whole portfolio.. Old and new from a value viewpoint

Define ProjectsDetermine Project Size, Cost, Priority, Benefits, and Feasibility Execute ProjectsManage and Grow the IT Asset BaseContinuousBusiness Flux/Needs:Requests, Initiatives, Projects, Ideas, Needs,etc.Continuous Assessment of Value focused performanceCompletedProjectsWork Program ConsensusStatement of Work

Value Transformation Step 5a:Make performance visible

Is the enterprise efficient in managing its technology investment in comparison with its peers? doing things rightAre our businesses effective in generating value from their technology investments? doing the right thingsAdvisory BusinessThe Businesses of ITSoftware BusinessUtility Business

EffectivenessValueThe Assessment LandscapeThe Key Executive QuestionsEfficiency

Value Transformation Step 5b:Use measures that link to key questions

Is IT managing investments efficiently and effectively?Is IT efficient across the entire portfolio of services, products, and labor it procures and operates; Are resources being utilized at effective and expected levels?Is the backlog building or declining or steady?Is Technology managing the business' IT investments in alignment with the business' needs?Are Technology customers satisfied... is IT a "true provider of choice?What is our cost of quality for IT?

Is IT generating value at a level consistent with business goals?Are we attaining expected benefits from our technology investments?Are we investing in IT futures appropriately?

How does IT compareAgainst competitors/peers?Against the best in class performers across sectors and geographies?

Value Transformation Step 5c:Use the 7 indicators of high performance IT

The Businesses of ITEffectiveness Assessment IndicatorsAdvisory BusinessSoftware Business

Utility Business

Investment DistributionCost ManagementWork VolumeSatisfactionPerformance & QualityValue AttainmentFuture Investment

IT needs to focus on new measures of performance

Application and Systems Integration Services

Infrastructure Operation and Services

Consulting and advisory services

PerformanceValueInvestmentCostWorkflowCust/Emp.QualityRisk/AssetFuturesManagementManagementManagementManagementManagementManagementManagementMarket Basket CostResource UtilizationCSATscoreCSATscoreCSATscoreInvestment Balance Indicator

Investment Balance Indicator

Investment Balance Indicator

Cost ofQualityCost ofQualityCost ofQualityMarket Basket CostResource UtilizationMarket Basket CostResource UtilizationRatio of $ ValueOf Backlog toWork ProcessedRatio of $ ValueOf Backlog toWork ProcessedRatio of $ ValueOf Backlog toWork ProcessedInvestment Balance for Competitive Weaponry

Investment Balance for Competitive Weaponry

Investment Balance for Competitive Weaponry

Benefits Achievement (Customer View)



Measures put a focus on the 7 basic indicators of highly effective IT organizations. Each of the 7 is interpreted/stated in the context of each IT business area.IT BusinessesPanel is in your supplement!Benchmark yourself in the www.metricnet.com clinic

Value Transformation Step 5d:Map performance onto your business model

Changing to a Value Center: The Business Network Map*Create the Business Network Map for the EnterpriseOverlay the IT cost structure side by side with key business indicatorsOverlay the value structure of ITShow me the money; Show me the value; Show me the leverage

Value Transformation Step 6: Move to high performance and high impact Understand your IT value net in the context of the businessUnderstand the key drivers for IT performance today and tomorrowContinuously evolve to higher levels of value and impactIT and Business ImpactIT Impact on Business Structure1970 1980 1990 2000 2010 2020ERA IV: IT Reshaping Business ModelsERA III: Value Creation and Business EffectivenessInternet / Network ComputingERA II: Productivity and End-User EmpowermentAutomation, Cost Control, and EfficiencyLowHIGHClient/Server ComputingUbiquitous ComputingMainframe/Midrange ComputingERA I:

Final comments

SynthesisWith the turn of the century past us, it is increasingly clear that technology, business, society, security, and the very well-being of nations are now fused together.

On a global scale, technology, information, and knowledge are key determinants of the success and competitiveness of a nation. The landscape of competitiveness has gone through a major transformation into what is called the current information age and this transformation will continue and accelerate into the emerging "network age."

SynthesisHowever, it is equally clear that new models and metrics are needed.

It is even clearer that much work remains to be done

Synthesis:The Agenda for ITMove from being a cost center to value centerMove IT to a true business modelLook at IT as a global investment portfolioRevamp the IT funding modelMake global performance visible and meaningfulMake the shift to high performance and high impactAdopt and embrace what we know about cybergeography, leverage national and global technology economics in business and IT

It is not the strongest of the species that survives, nor the most intelligent, but the one that is most responsive to changeCharles Darwinwww.metricnet.com

The Globalization of the Internet:CYBERGEOGRAPHY and its BUSINESS IMPLICATIONSDr Howard A. RubinEVP, META [email protected]

Go to this slide when I saySo summarizingGo to this slide when I sayDynamics of New EconomyGo to this slide when I say A new basisThe above diagram represents the cost/investment of an IT asset over time. As an IT asset is used, its value grows over time, increasing its cost to sustain with a corresponding value at risk if the asset class is not maintained. Traditional IT managers know this cost as O&M (operations and maintenance) of a legacy system. If IT does not budget O&M for a legacy system, then when it catastrophically fails, there is an associated cost to replace or, as labeled in the diagram, cost to imitate. IT assets follow general accounting principles, used by all executives, that an asset has a minimum investment and a maintenance price for a total value to sustain and leverage.Best IT trust practices for IT departments that are low on credibility and low on the businesss perception of its dependence on the IT department: 1) create service-level agreements (SLAs); 2) be cost efficient; 3) establish a friendly and effective help desk (call center later); 4) measure; 5) benchmark; 6) initiate process; 7) start reporting effectiveness; 8) launch project management; and 9) master the basics.A new IT business model must be adoptedThe current IT business models have taken us to where we are today but are now beyond their engineered limits. The need for the new vision and operating model for IT in the 21st century is being driven by: The new model of company growth through the acquisition of, and the merger with, traditional and new-economy companies Rapid change in terms of distribution channel expansion, digital convergence, and e-business Increased technical complexity and technology change rate itselfThe changing competitive and collaboration landscapeThese drivers stress the current model of IT and todays information technology infrastructure and application system adaptability. They point the way to a new vision of IT that focuses on:Enabling the enterprise to be M&A ready in that it can minimize the time to merge or time to divest by being able to dock and undock systems and business with the IT mother shipBeing truly cost competitive vs. peers and the marketplace in generalGenerating business value by managing technology as an investment in real timeSeeking opportunity through rapid innovation and venture management with a focus on time to value and not simply time to marketA demographic profile of US IT organizations:About 30% are "frozen in the past" IT is managed as a cost; still mainframe based; long development lead times; not flexibleAbout 55% are "in the abyss" Spending is growing but is not managed as an investment; distributed computing is growing with uncontrolled complexity; strategic work content is lowAbout 10% are "competitive". Spending is under control; the portfolio is being managed; development is effective, and strategic content is highAbout 5% are "leading". Spending managed as an investment; package-based solutions play a key leveraged role; sourcing is also leveraged; a "market ready" mindsetAn IT organization plays three primary roles in its varied relationships with the business:Supporting the business is viewed as doing what is known faster and cheaperA preferred partner determines what products and services are best sourced internally, sourcing them appropriately and acting as the general contractor for anything sourced externallyA strategic partner acts as the business and is so tightly integrated with the business that there is no distinguishable difference between IT operations and business operations, and between business strategy and technology strategyExamples of those acting as the business: Enron, Gap, CiscoActing as the business does not imply a dot-comIf the perception of IT role is:Supporting, then real value is cost, and perceived value is efficiencyPreferred, then the real value is contribution to business goal, and the perceived value is enabling changeStrategic, then the real value is the market value of the business, and the perceived value is in driving business opportunities, or innovationMarket ValueShareholders Equity Intellectual Capital Human CapitalStructural CapitalCustomer CapitalOrganizational CapitalInnovation CapitalProcess CapitalAs IT becomes further integrated into the business and in fact is the business, it is critical an enterprises IT assets be in fluid alignment with business needs and actively managed from an investment perspective risk, yield benefits, etc. The concept of an annual IT budget must be rethought, particularly as IT spending becomes embedded in functional budgets and therefore is no longer clearly visible. By locking the organization into an IT spending cap, the organization itself is preventing itself from being entrepreneurial and opportunistic.Governance includes people, policy, and process.Costs are known and accounted for in a manner that is consistent with business practices and is comparable across portfolios and products . . . at the portfolio, product, and unit cost level from a technology and business viewpointBudgets are developed using models that are clear and offer visibility into their underpinningsCritical business data and information are available in real timeAccountability is clearThe work backlog is managed; the work backlog is realPerformance is visible internally and to the customer using measures with business meaningThe organization is market ready . . . will people know what this means? Benchmarking is used to assess competitiveness within the industry and positioning against best in class external providersWork requests and the work queue is managed from the perspective of the generation of business valueEverything can be connected . . . costs to resources to projects to the business to the financial planThere is a focus on cost reduction, quality improvement, and customer-facing performance all can be quantifiedIT performance will be judged on day-to-day performance, application delivery, and the ability to run IT as a businessCosts are known and accounted for in a manner that is consistent with business practices and is comparable across portfolios and products . . . at the portfolio, product, and unit cost level from a technology and business viewpointBudgets are developed using models that are clear and offer visibility into their underpinningsCritical business data and information are available in real timeAccountability is clearThe work backlog is managed; the work backlog is realPerformance is visible internally and to the customer using measures with business meaningThe organization is market ready . . . will people know what this means? Benchmarking is used to assess competitiveness within the industry and positioning against best in class external providersWork requests and the work queue is managed from the perspective of the generation of business valueEverything can be connected . . . costs to resources to projects to the business to the financial planThere is a focus on cost reduction, quality improvement, and customer-facing performance all can be quantifiedIT performance will be judged on day-to-day performance, application delivery, and the ability to run IT as a businessCosts are known and accounted for in a manner that is consistent with business practices and is comparable across portfolios and products . . . at the portfolio, product, and unit cost level from a technology and business viewpointBudgets are developed using models that are clear and offer visibility into their underpinningsCritical business data and information are available in real timeAccountability is clearThe work backlog is managed; the work backlog is realPerformance is visible internally and to the customer using measures with business meaningThe organization is market ready . . . will people know what this means? Benchmarking is used to assess competitiveness within the industry and positioning against best in class external providersWork requests and the work queue is managed from the perspective of the generation of business valueEverything can be connected . . . costs to resources to projects to the business to the financial planThere is a focus on cost reduction, quality improvement, and customer-facing performance all can be quantifiedIT performance will be judged on day-to-day performance, application delivery, and the ability to run IT as a businessAs IT becomes further integrated into the business and in fact is the business, it is critical an enterprises IT assets be in fluid alignment with business needs and actively managed from an investment perspective risk, yield benefits, etc. The concept of an annual IT budget must be rethought, particularly as IT spending becomes embedded in functional budgets and therefore is no longer clearly visible. By locking the organization into an IT spending cap, the organization itself is preventing itself from being entrepreneurial and opportunistic.Governance includes people, policy, and process.

the new economy, business performance and the current economy :

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