The conditions for accelerated
and sustained economic growth in Latin America over the next few years
are in place, and success will depend on the intelligent cooperation
of governments, the business community, labor, academia and the
citizenry at large. The economic security and wellbeing of the region
will rise rapidly over the next decade as governments maintain
macroeconomic stability, and pursue deregulation and global
integration, while removing barriers to productivity.
We at Cisco System want to
provide our contribution to enrich the debate about the strategies
that will make this growth possible, and for that reason we
commissioned in 2005, Net Impact Latin America, a wide-ranging
study of connectivity in the region made by Momentum Research and
presented in coordination with the Institute for Connectivity in the
Americas, ICA.
The study provided valuable
information and insights about the current state of technology and
connectivity of businesses in the region. It analyzed their
investments in the area, and examined what they expect to gain from
increased connectivity. The study also sheds light on urgent course
corrections needed to improve connectivity in the region.
Net Impact Latin America
is especially useful because it provides the first side-by-side
comparison of connectivity for businesses in Latin America, the United
States and Europe.
Among the many significant
findings in the report, there are two in particular which have caught
my attention:
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The most frequently cited driver of technology
investment (by 52 percent of respondents) was the desire to improve
customer or citizen satisfaction. The second, (by 46 percent) was
the desire to be more competitive. Taken together, these numbers
clearly demonstrate that the Latin American business community
realizes that technology offers the key to new markets and greater
competitiveness and productivity.
-
Latin America needs more broadband. Latin
American businesses lag behind their U.S. counterparts when it comes
to investing in bandwidth to handle increased data flows. More
broadband is essential for Latin American businesses to fully
exploit the latest technologies and increase their productivity.
It is
no secret that investments in Information Technology have been
partially responsible for increases in productivity—defined as the
amount of production per unit of labor, equipment and capital—in the
U.S. economy over the last decade. Companies with higher-than-normal
investments in IT have reported productivity increases of up to four
times those of companies with below-average investments in this area
(Economic Report to the President, January 2001).
In
Latin America, IT investments lag far behind those in the United
States and other parts of the world. While they represent 5.25 percent
of Gross National Product in the U.S, 3.50 percent in Europe, and 2.40
percent in Asia, in Latin America they represent a mere 1.38 percent
of GNP. This hobbles the region’s growth.
If
both businesses and governments of Latin America were to invest in
Information Technology at an accelerated rate, they would be able to
impact their business by quickly automating their processes,
decentralizing their structure, improving their teams, and increasing
their productivity while generating growth. This would inevitably
improve the quality of life for millions of people.
This
improvement in productivity would have a direct impact on Latin
America’s overall standard of living. According to the US Bureau of
Economic Analysis (BEA) and the US Bureau of Labor Statistics (BLS),
an annual increase in productivity of 1 percent would cause a given
country’s standard of living to double every 77 years. If productivity
increased 3 percent each year, the standard of living would increase
with every generation. If productivity increased 5 percent annually,
the standard of living would double every 14 years.
I am
convinced that an improved communications infrastructure and increased
broadband can be the great enablers for improving the quality of life
in Latin America while driving its economic growth.
At Cisco we see Latin America as
a region of rapid growth over the next few years, and we are committed
to continue investing there. As we do so, we will continue to sponsor
studies such as this one, to better understand the impact of
technology investments on the productivity and growth of our
businesses and countries.
Executive Summary
Environmental and internal
forces are forcing organizations around the world to find ways to be
more productive and competitive with their operations. But with
limited time, budgets and resources where should organizations focus
their efforts to get the greatest productivity return?
For the last seven years the
Net Impact series of studies has focused on answering questions
like this by identifying technology and business practices that are
leading to enhanced operating improvements in organizations. Research
in this series since 2002 has repeatedly validated the Net Impact
hypothesis: that organizations that align their investments in
network infrastructure, network-based applications, business processes
and organizational behavior experience greater increases in operating
outcomes than organizations that disproportionately focus on one or
more of these elements.
Due to the increasing
importance of the Latin American economies, and the resulting pressure
put on the firms in those countries, it was decided that this wave of
Net Impact research focus on this rapidly changing region.
Despite being focused on
different industries, and different business functions, past Net
Impact studies conducted in North America and Europe identified a
set of consistent, overarching best practices. Rather than replicate
these findings again in a new geography, Net Impact 2005
departs from previous methodologies to focus on identifying the
current adoption of these fundamental best practices in organizations
across Latin America.
In the end, Net Impact 2005
interviewed more than 1,200 technology decision-makers in six
countries – Argentina, Brazil, Chile, Columbia, Costa Rica and Mexico.
This senior technologist was interviewed on the organizations current
technology investments, broader organizational behavior and basic
organizational outcomes such as revenue growth and cost avoidance.
Participants came from a variety of organizational sizes and
industries including:
§
Manufacturing
§
Retail/wholesale
§
Financial Services
§
Public Sector (Government and Healthcare)
Consistent Best Practice Themes
Past Net Impact studies
have demonstrated that there are unique combinations of technology and
business best practices for enhancing operating outcomes within the
business functions studied. For example, the set of best practices for
reducing operating costs has been shown to vary significantly from the
practices most likely to improve customer satisfaction with an
organization.
While there is significant
variability in the best practices identified between operating
outcomes, countries and industries, there are five themes that have
been consistently identified as beneficial to technology-fueled
productivity improvements.
1.
Investing in network sophistication beyond the minimum
necessary to implement network-based applications across the
organization – Organizations with the most significant
improvements in operating outcomes across North America and Europe are
not only deploying networked business applications, they have a
network infrastructure that:
-
enables
greater access to internal employees and relevant external users,
-
are more
reliable, having less than nine hours of unplanned network downtime
annually,
-
use more
sophisticated network-based technologies such as Storage Area
Networks (SAN), Virtual Private Networks (VPN) and remote disaster
recovery to add capabilities and extend organizational functionality,
-
provides
adequate bandwidth to all organizational sites to optimize the use
and flow of networked applications and data.
Latin American organizations
perform well on many of these practices when compared to past studies.
In fact, Latin American organizations are currently on par with their
U.S. counterparts studied in 2003 on many of these network practices
with the notable exception of providing network access to external
entities like authorized suppliers, and the generally lower average
bandwidth available to the organization. Despite a two year difference
between the studies only 23 percent of Latin American organizations
currently have average connections of E1 or greater bandwidth compared
to 53 percent of organizations in the United States in 2003.
2.
Re-engineering business processes to leverage new technology
capabilities – The most effective organizations change their
business processes to take advantage of technology’s capacity
streamline their workflow through automation or placing information at
the fingertips of front-line workers.
In addition, study after study has shown that the timing of the
process reengineering can significantly influence the final results.
Organizations in both North America and Europe that re-engineered
before the implementation of new technology experienced greater
improvements in cost containment outcomes than organizations that
waited to re-engineer until after the technology was already deployed.
This best practices theme could
lead to substantial near-term improvements in cost containment in
Latin America since 30 percent on average do not re-engineer their
processes with a technology deployment, and another 33% re-engineer
after the technology is already in place.
3.
Automating processes through network applications, and
integrating the resulting data across the enterprise – Previous
Net Impact studies found that network applications play a
foundational role in enhancing organizational productivity by enabling
the automation and integration of business processes.
The automation of business
processes not only increases the speed at which the organization
operates, but also helps reduce data-reentry errors, and facilitates
the transmission of data to complementary processes.
Although Net Impact 2005 did
not focus on the business processes being adopted by Latin American
organizations, it did show that these organizations have deployed
strong application infrastructures to support the automation of these
processes.
Similar to the U.S. and Europe,
Latin American organizations have deployed applications in “waves”
typically starting with back-office applications like Finance and
Accounting before moving deploying more externally-facing applications
such as Customer Relationship Management. One area that Latin American
organizations have made significant progress on is the deployment of
web-based applications which can facilitate broader access to data and
functionality by internal and external users. Approximately two-thirds
of all deployed applications in Latin American organizations use web-based
technology – a substantially greater percentage than what was reported
by U.S. organizations in 2003.
4.
Orienting organizational culture toward service delivery
– The “people” aspects of technology including an organization’s
culture and behavioral norms also play a role in predicting increased
operational efficiency.
One of the more important
cultural aspects observed in past Net Impact studies was the
communication and change management efforts undertaken with technology
initiatives. For example, regular communication surrounding the
strategy for developing and delivering services through technology,
benchmarking of internal performance against peers or published
standards, and the consistent alignment of business and technology
investments were best practices that were consistently identified in
North American and European organizations.
One organizational practice
that has not been shown to be a significant predictor of enhanced
productivity is designating a single individual as the “technology
champion” responsible for implementing technology and aligning
business practices with those investments. This suggests that the
responsibility for leveraging technology in the pursuit of
productivity should be shared and distributed throughout the
organization.
5.
Measuring operational outcomes – Time and again
organizations have been told that “you can’t manage what you don’t
measure.” Net Impact data supports this old adage by repeatedly
showing that the deployment of a formal measurement system to track
operational performance is in itself correlated with improved
operational improvements. Results varied across studies and metrics,
but in many cases organizations with formal measurement systems
reported 5-15 percent greater improvements than they peers without
metrics in place.
Developing measurement systems
could be a quick means for increasing productivity in Latin America
where 23 percent of the organizations report not having any
measurement systems in place to track the impact of technology on
their operations.
While these trends have been common across Net Impact studies,
we must remember that productivity is affected by a broad range of
environmental factors -- in many ways, the combinations of investments,
actions and environmental factors are unique to each organization.
However, these five best practice themes have been identified by
distilling the unique experiences of more than 1,500 organizations in
North America and Europe. It is hoped that Latin American
organizations can learn from these.
The Net Impact hypothesis (Applications + Network
Infrastructure + Business Process + Organizational Culture/behavior
= Increased Productivity) has been supported by the
identification of best practices in each country and industry
studied.
This does not mean,
however, that the deployment of a new technology or business
practice is a productivity guarantee. In addition, there have
been operational outcomes for which no best practices were
identified. This does not mean that best practices do not exist
for these outcomes, it just means that current practices do not
differentiate themselves from one another.
In this sense, it is
important to remember that the intent of the Net Impact series is
to provide organizations with examples and a roadmap for how their
peers have achieved greater productivity through technology and
process investments. Organizations that want to exceed on a
particular outcome should first consider the practices that have
been tried and proven like the five fundamental themes identified
here.
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Twelve Key Findings
Latin America Shows ‘Waves’ of Application Adoption:
Connected Organizations in Latin America tend to focus first on
introducing back-office applications such as finance and accounting,
human resources and inventory management tools before shifting to
“front office” or customer-facing applications. Across industries,
Latin American Connected Organizations have adopted network-enabled
applications at relatively consistent levels.
Applications in Latin
America are generally Web-Enabled:
Approximately two-thirds of network applications in Connected
Organizations in Latin America are web-enabled. This figure does not
include web portals which by definition use Internet technology.
Primary Technology Focus is
Internal:
The majority of organizations (62 percent) are focusing their
technology investments to provide or automate services within
the organization. One possible explanation for the low number of
organizations automating services outside their firewall is that the
technology infrastructure and business/consumer attitude toward
technology may not yet have the critical mass to justify efforts in
that area.
Majority Provide External Network Access to Employees:
Sixty percent of Latin American Connected Organizations report that
they provide external network access to internal users such as off-site
employees and staff members.
Employee Access Lower in Latin America compared with US:
Financial services organizations provide the highest level of access
(68 percent), to their employees when compared with other sectors.
Public sector organizations provide access to fewer employees (52
percent), but are still somewhat ahead of Connected Organizations in
manufacturing (42 percent) and retail (46 percent) which probably have
more employees who do not require daily access to a computer, or
organizational data.
Latin America organizations
lag behind U.S. companies in bandwidth:
The majority (62 percent) of Latin American Connected Organizations
report an average connection speed of 128-768 kbps. Latin America
organizations lag behind U.S. companies in the bandwidth investment
needed to handle a greater flow of data. From an industry perspective,
Latin America financial services organizations are the most likely to
have true broadband connections with approximately 26 percent having
E1 or greater average bandwidth.
Security Technology Important
in Latin-America But Not Ubiquitous:
The networking technologies adopted most by Latin American Connected
Organizations are focused on network security, 81 percent report they
have server-based virus protection and 72 percent report using network
firewalls. While these are healthy numbers, they also suggest that 20
to 30 percent of Latin American organizations have no basic network
security infrastructure in place.
Voice over IP is accessible in
Latin America:
Adoption of Voice over IP technology among Latin American Connected
Organizations (32 percent) is well ahead of where U.S. companies were
two years ago (18 percent adoption), suggesting that several of these
technologies have become more mainstream and more accessible at a
reasonable cost
Increasing
Satisfaction the Leading Driver of Technology Investment:
The desire to improve customer or citizen satisfaction was the most
frequently cited driver of technology investments (52 percent),
followed by the desire
to
be more competitive (46%). Unlike the U.S. and European studies, there
is no dramatic drop-off in the frequency between the top five drivers
identified by Latin American Connected Organizations. This suggests
that the need for achieving competitive advantage by accelerating
organizational speed, improving customer satisfaction or lowering
costs is more universally felt in the Latin American market.
Customer satisfaction is the
first goal for technology to achieve in the next 12-month:
Improving customer or citizen satisfaction is the most frequently
identified technology goal, with 58 percent of all Connected
Organizations reporting it as a goal for the next 12 months, followed
by reduction of operating costs (50 percent).
Lack of Worker
Training Is Leading Perceived Obstacle:
Like
their U.S. counterparts, 44 percent of Latin American Connected
Organizations rank the lack of employee training as the most frequent
obstacle to implementing new technology. The lack of worker training
was most frequently cited by Latin American manufacturing
organizations (48 percent) and least frequently mentioned by financial
services (33 percent) companies. This variation undoubtedly reflects
the different skills required in the two areas.
Majority of Organizations Report Improvements in Last 12 Months:
Overall, most organizations feel that technology has had a positive
impact on their operations in the last 12 months. Seventy percent of
organizations report technology has helped improve customer or citizen
satisfaction, and a smaller, but still sizable number of organizations
have seen an improvement in financial metrics – on average 45 percent
have seen a reduction in operating costs and 32 percent have seen an
increase in revenue.
Carlos Carnevali
Vice president Latin America
Cisco Systems
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