IT Leadership in Uncertain Times - Cisco · IT Leadership in Uncertain Times IT Driven Saving &...

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


The Gold Rush


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


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


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


Boom vs. Recession IT Approach

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ILLUSTRATION


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pact IT Leadership in Uncertain Times

Managed Reductions


Vendors: Use not abuse


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


Out-tasking… now more than ever


Managed Reductions: Software costs

Source: E.Colon, Miro Consulting inc; P.DeGroot, Directions in Microsoft; D.Menefee, The Schumacher Group; J.Geisman, Marketshare Inc.


Network Costs


IT Leadership in Uncertain TimesIT Invest to Save

Initi

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IT Spending priorities

Source: Infoworld; IBSG Analysis; IDC; Gartner


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


IT Leadership in Uncertain TimesIT Driven Saving & Boosting Revenue

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IT Drives Business transformation and Innovation

Technology-enabled business trends

Source: McKinsey Analysis, 2009


Network-Empowered Collaboration

Team Contacted Anywhere Any Device

Click to Collaborate

Rich Media Explanations

Rich Collaboration

Alert Automatically Shared

Shared Presence Information


What could collaboration be worth?

+

+

Source: Cisco IBSG Economics analysis, 2008


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


CIO Evolution

IT Leadership in Uncertain Times - Cisco · IT Leadership in Uncertain Times IT Driven Saving &...

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