Cisco CEO Stresses Productivity Potential

ByJohn Sheridan Although admitting that "a lack of confidence in corporate America" has clouded the short-term picture, John Chambers has few doubts about the long-haul prospects for the information technology sector. And he offers a simple rationale: The productivity potential is too compelling to dismiss. "I'm an optimist on the information technology industry," the president and CEO of San Jose, Calif.-based Cisco Systems Inc. told a Cleveland City Club audience July 10, "because of its role in [accelerating] productivity." Not surprisingly, he pointed specifically at Internet-related systems as the primary engine now driving productivity growth. As an example, he cited a study by researchers at the University of California -- Berkeley, the Brookings Institution, Washington, D.C., and Momentum Research Group, Austin, Texas, which projected that 48% of the U.S. productivity growth rate from 1995 through 2010 would occur as a result of companies employing "Web-based applications." If that projection holds, it will mark a dramatic change from the past. Despite steady increases in capital investment in IT systems from 1965 to 1994, Chambers noted, the accompanying productivity gains were marginal. "As a result," he said, "many people considered information technology as just another expense. It was only when we got into Web-based applications -- coupled with changes in business processes -- that productivity really began to accelerate." Within Cisco, increasing use of Web-based applications for supply-chain management has generated escalating levels of cost savings -- from $12 million in savings in the 1994-96 period to $74 million in 1997-2000, and an anticipated $254 million in savings from 2001 to 2004, according to Chambers. Cisco's information infrastructure, Chambers asserted, is one of the key reasons the company earned $800 million in the last quarter while its industry sector, as a whole, was absorbing $1.3 billion in losses. The firm's current "customer-driven" strategy is to support the creation of "the networked virtual organization," he explained. "The implication of this for companies is to get productivity growing faster than 5% a year -- and perhaps even more than 10% a year."