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Cisco Confidential 1Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Peter Ecsery-MerrensMarch 18th, 2009
IT Leadership in Uncertain TimesCisco Expo - Norway
Cisco Confidential 2Copyright © 2009 Cisco Systems, Inc. All rights reserved.
Cisco Confidential 3Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
The Gold Rush
Cisco Confidential 4Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Recessions create a big opportunity for changes in company leadership
TRS (Total Return to Shareholders)1989-1993
…and the impact of “winning” or “losing” on shareholder value is substantial
Leadership changes in recession*1998 – 2002
Recessions lead to a significant reshuffling of industry leaders…
Source: McKinsey analysis
60% of leaders retained their leadership position
40% of leaders were not leaders prior to recession
Real GDP change(over prior quarter)
And so the cycle goes: recessions happen…and then they come to an end
Only 60% of companies that were top-quartile before the recession retained their leadership position after the recession
TRS gap between “Leaders” and “Laggards” is 2X 2 years post-recession*
More than 15 recessions in U.S. in the last 100 years
40
100
Post-�recession
leaders
Pre-�recession
leaders
LaggardsLeaders
*Before recession ranking based on 1998 and 1999, after recession ranking on 2001 and 2002; evaluating change in position of 1,024 U.S. industrial companies
Cisco Confidential 5Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Lessons from the last recessionPost-recession leaders . . . Post-recession laggards . . .
Improved overall cash conversion cycle1 by 30%, e.g. tightening ARs and inventory by 12% and 29% relative to pre-recession
Improved overall cash conversion cycle1 only by 12%, e.g. tightening ARs and inventory by 5% and 12% relative to pre-recession
Made 4% headcount cuts in the second half of the recession, … minimal and/or temporary changes to cost architecture
Made 4% headcount cuts immediately upon recession hitting AND … made bigger sustainable changes to cost architecture, reorganized work, processes etc
Grew their Sales 1% in actual dollars when sales declined by 3% Reduced their Sales 5% in actual dollars when sales declined by 8%
Continued to retain non-core assets in which they operate throughout the recession
Divested non-core assets earlier in the cycle (on average companies reduced the number of non-core assets)
Capitalized on stronger cash flows by spending more on acquisitions (21% more than laggards) and acquired approximately 100% of their original asset size during the recession.
Did not acquire other companies during the recession due to weak cash positions and sizable acquisitions made prior to the recession
Maintained a leverage level relative to equity stable throughout the recession
Had to increase a leverage level relative to equity by 100%
Invested in transformational initiatives for competitive leadership (incl. business model changes, tech-enablement)
Few transformational initiatives visible
Source: McKinsey analysis
Cisco Confidential 6Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Executives Urge IT to Transform
Current Ideal
Transformative role
Supports differentiatedperformance
Improves business efficiency
Lowest IT cost
Rank of IT capabilities in terms of how important they are for furthering company goalsPercentage of respondents ranking No. 1
Source: McKinsey Quarterly Survey on information and technology strategy, October 2008
Cisco Confidential 7Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Boom vs. Recession IT Approach
Initi
al IT
Bud
get/C
ost
Initi
al IT
Bud
get/C
ost
Rea
lised
bud
get c
ut 1
0%R
ealis
ed b
udge
t cut
10%
Man
aged
Red
uctio
nsM
anag
ed R
educ
tions
Inve
st in
IT to
Sav
eIn
vest
in IT
to S
ave
IT D
riven
Sav
ing
IT D
riven
Sav
ing
Rev
. Boo
stR
ev. B
oost
Ove
rall
impa
ctO
vera
ll im
pact
Initi
al IT
Bud
get/C
ost
Initi
al IT
Bud
get/C
ost
Mul
ti-ye
ar b
enef
itM
ulti-
year
ben
efit
NPV
bas
ed in
vest
men
tN
PV b
ased
inve
stm
ent
IT N
on-p
roje
ct c
osts
con
stan
tIT
Non
-pro
ject
cos
ts c
onst
ant
ILLUSTRATION
Cisco Confidential 8Copyright © 2009 Cisco Systems, Inc. All rights reserved.
Initi
al IT
Bud
get/C
ost
Initi
al IT
Bud
get/C
ost
Rea
lised
bud
get c
ut 1
0%R
ealis
ed b
udge
t cut
10%
Man
aged
Red
uctio
nsM
anag
ed R
educ
tions
Inve
st in
IT to
Sav
eIn
vest
in IT
to S
ave
IT D
riven
Sav
ing
IT D
riven
Sav
ing
Rev
. Boo
stR
ev. B
oost
Ove
rall
impa
ctO
vera
ll im
pact IT Leadership in Uncertain Times
Managed Reductions
Cisco Confidential 9Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Vendors: Use not abuse
Cisco Confidential 10Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Cisco’s Modified Core/Context ModelCore
Any activity that contributes to competitive advantage for the company
ContextAny activity that does not contribute to competitive
advantage for the company
Mission-CriticalAny activity that , if performed poorly, would pose an immediate risk to the
company
Non-Mission-CriticalAny activity that , if performed poorly,
would not pose an immediate risk to the company
Cisco Confidential 11Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Out-tasking… now more than ever
Cisco Confidential 12Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Managed Reductions: Software costs
Source: E.Colon, Miro Consulting inc; P.DeGroot, Directions in Microsoft; D.Menefee, The Schumacher Group; J.Geisman, Marketshare Inc.
Cisco Confidential 13Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Network Costs
Cisco Confidential 14Copyright © 2009 Cisco Systems, Inc. All rights reserved.
IT Leadership in Uncertain TimesIT Invest to Save
Initi
al IT
Bud
get/C
ost
Initi
al IT
Bud
get/C
ost
Rea
lised
bud
get c
ut 1
0%R
ealis
ed b
udge
t cut
10%
Man
aged
Red
uctio
nsM
anag
ed R
educ
tions
Inve
st in
IT to
Sav
eIn
vest
in IT
to S
ave
IT D
riven
Sav
ing
IT D
riven
Sav
ing
Rev
. Boo
stR
ev. B
oost
Ove
rall
impa
ctO
vera
ll im
pact
Cisco Confidential 15Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
IT Spending priorities
Source: Infoworld; IBSG Analysis; IDC; Gartner
Cisco Confidential 16Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Is Cloud Computing useful today?
““Nearly oneNearly one--third of third of companies currently companies currently using cloudusing cloud--based based systems have systems have increased their use of increased their use of cloud computing in cloud computing in today's economy after today's economy after seeing the benefits it seeing the benefits it can bring.can bring.”” IDCIDC
Source: IDC; IBSG
Cisco Confidential 17Copyright © 2009 Cisco Systems, Inc. All rights reserved.
IT Leadership in Uncertain TimesIT Driven Saving & Boosting Revenue
Initi
al IT
Bud
get/C
ost
Initi
al IT
Bud
get/C
ost
Rea
lised
bud
get c
ut 1
0%R
ealis
ed b
udge
t cut
10%
Man
aged
Red
uctio
nsM
anag
ed R
educ
tions
Inve
st in
IT to
Sav
eIn
vest
in IT
to S
ave
IT D
riven
Sav
ing
IT D
riven
Sav
ing
Rev
. Boo
stR
ev. B
oost
Ove
rall
impa
ctO
vera
ll im
pact
Cisco Confidential 18Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
IT Drives Business transformation and Innovation
Technology-enabled business trends
Source: McKinsey Analysis, 2009
Cisco Confidential 19Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Network-Empowered Collaboration
Team Contacted Anywhere Any Device
Click to Collaborate
Rich Media Explanations
Rich Collaboration
Alert Automatically Shared
Shared Presence Information
Cisco Confidential 20Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
What could collaboration be worth?
+
+
Source: Cisco IBSG Economics analysis, 2008
Cisco Confidential 21Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
Cisco Has Already Achieved $300M in Hard Benefits From Collaboration, With >$500M Projected at Full Scale
2One-time benefit, does not recur in future years1TelePresence impact on Cisco sales is under review 3Assumes adoption by 15,000 campus employees
Draft
Cisco Confidential 22Copyright © 2009 Cisco Systems, Inc. All rights reserved. Internet Business Solutions Group
CIO Evolution
Cisco Confidential 23Copyright © 2009 Cisco Systems, Inc. All rights reserved.
Cisco Confidential 24Copyright © 2009 Cisco Systems, Inc. All rights reserved.
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