by: George Kadifa
In the last few years, we have seen it all: terrorism, natural disasters, stock market meltdowns, bankruptcies, scandals, and corporate lay-offs. And, in the background, worries running high that costly oil could disrupt the global economy. Today\u2019s CEOs are navigating in rough water and must turn new external realities into opportunities for their organization.
Information Technology (IT), the growth engine and productivity producer of the
1990s, is at the center of the change we face. A set of enabling and constraining
drivers will guide CEOs and CIOs as they focus IT investments on building
competitive differentiation, rather than maintaining existing systems. A new
organizational construct, the On Demand Business, is emerging to help us address
this change. Characteristics of the On Demand Business include abilities to:
This paper, despite the global uncertainties, comes at a time of growing optimism.
The United States continues to lead other developed countries in economic growth,
technological innovation, productivity, research and development, and the ability to
cultivate human talent. Despite serious problems such as swelling trade and fiscal
deficits, illegal immigration, inadequate health care, major income disparities and a
deeply divided electorate, the U.S. economy is healthy. Last year, the U.S. GNP
grew an estimated 4.4 percent, and this year the growth rate is expected to be 3.5
percent. Indicators seem to point towards economic stability and recovery. It is
essential to understand what has happened over the last few years, what we have
learned, what the new drivers of economic prosperity will be, and how best to
structure an enterprise for maximum performance.
The past few years, we have seen it all: huge stock market fluctuations, costly oil,
bankruptcies, scandals, prosecutions, layoffs, terrorism in our homeland and abroad,
wars, natural disasters and nuclear rogue states. Such events were totally
unexpected. \u201cEven before the hurricane hit, rising energy prices were having a
dampening effect on the economy\u201d said Nariman Behravesh, chief economist of
In the early 1990s, we entered an era with tremendous expectations for global
growth. Market economies won. And freedom won. The Soviet Union
and communism collapsed, and the threat of global nuclear holocaust disappeared
overnight. Instead, people were celebrating on the fractured Berlin Wall and dancing
to the music of Pink Floyd. Yes, there were some crises to face: Saddam\u2019s adventure
in Kuwait Noriega\u2019s revolt in Panama, Ceausescu\u2019s misrule in Romania and
Milosovich\u2019s massacres in Yugoslavia. But these crises were handled in a fast and
effective manner. A \u2018New World Order\u2019 was created. The United States ensured
world peace as the only super power.
Economically, Germany and Japan were in full expansion and ignited the world's
economy with growth prospects. The U.S. was coming back from a short recession
to lead the world in an unprecedented 10-year expansion. Other nations abandoned
\u201ccommand and control\u201d economic policies and adopted market-based economies as
the sole solution for growth and prosperity. Wealth creation was driven by IT.
Massive investments were made in this area, especially after Alan Greenspan
announced the unequivocal relationship between higher IT spending and higher
corporate productivity growth.
New technologies proliferated, changing the IT landscape permanently. Just a few
include: client-server computing, COTS, ERP, CRM, SCM, PLM, HTTP, HTML, XML,
Java, LAN, Ethernet, the Internet, and SOAP. Moore's Law kept producing more
computing power at less cost, and the multiplicative wealth of Metcalff's Law drove
the bandwidth investments in copper and fiber. The Y2K phenomenon caused even
more investments, and \u201cebusiness or out of business\u201d became an axiom. A \u201ctechie\u201d
from Seattle became the richest man on the planet and another \u201ctechie\u201d from Illinois
emerged to challenge him by leveraging a new technology called the Internet. And
corporations were spending close to 50 percent of their capital investments solely on
information technology. The new economy emerged, but the new economy did not
we face the threat of terrorism from an unconventional foe hiding in caves and
entrenched in major cities in Western and Third-World countries. Such a foe is not
easily identifiable, has extremism and fanaticism as allies, and executes with
asymmetric threat methods. Although the war in Iraq was swiftly won, we are still
facing continued challenges in Iraq, and such challenges will continue for the
foreseeable future. North Korea\u2019s nuclear weapons program is progressing in a
region of the world where several powers intersect in influence and
presence. America has embarked on a global war on terror, but several of our allies are not supporting us and openly disagree with our strategy. Instead of the threat of a global nuclear holocaust, we are faced with a constant, continuous, and invisible threat to our daily lives. In 2005, we proceed at alert code Orange.
the capital markets was followed by major scandals, significantly affecting the
integrity of our markets. The demise of Arthur Andersen, Enron, Tyco, and
WorldCom as well as the issues raised at Putnam, NYSE, and Parmalat have shaken
our confidence. While the Sarbanes-Oxley Act of 2002 is a necessary step to restore
our faith in corporate governance, much more still needs to be done.
years, and Germany's engine has stalled. The U.S. economy is growing again, but its
engine of growth remains the U.S. consumer. And this engine is threatened by huge
and growing deficits and an anemic growth in U.S. employment. Our fiscal budget
and trade deficits are at record highs and will have major long-term impacts. In the
short term, the U.S. dollar is at its lowest level compared to the Euro. Over the last
four years, we have lost more than three million jobs. So far, we have been slow to
rebound from these losses. Worse, there is concern that the current off-shoring trend
will cause many more job losses and create an even greater need for worker re-
training. This time, we are exporting white collar, high tech jobs, and we do not have
an attractive sector with significant labor needs to absorb these losses.
We are all looking for the next Japan and the next Germany, and the focus now is on
China and India. China has shown tremendous potential and growth performance.
Forbes this month indicates that China exports are expected to grow 26 percent and
imports to add 14 percent on a yearly basis. In the first half of 2005, China exports
grew 32.7 percent. Third quarter 2005, China\u2019s GDP growth is estimated to reach
9.3 percent, a lower rate than the first half of the year. One of the main problems
being excessive production capacity. In 2004, it has surpassed France and Japan to
become the world\u2019s third largest export trading nation after the U.S, and Germany.
But the realized growth numbers are not very large in absolute terms, especially
relative to the larger economies of the G7 countries. In 2004, the GDP of China was
$7.2 trillion, second only to the U.S. Although in per capita terms, the country is still
poor. Similarly, India\u2019s GDP is about $650 billion, which is less than 70% of the GDP
of Spain. Although China and India are growing at faster rates than the G7 countries,
their immediate impact on the world economy can only be realized in the long term.
In the short term, their internal markets will have limited capability to rejuvenate the
investments in IT enabled organizations and corporations to fly at the equivalent of
Mach 2. However, getting to such a level of performance also requires massive
organizational changes, new and re-engineered business processes, new market
creation, major shifts in existing markets, and employees receptive to changing their
skills, job functions, incentives, and responsibilities. All of that did not happen for
obvious reasons. Hence, the technology sector has seen massive rationalization and
downsizing. Large built-up capacity remains unused as witnessed by the glut in
telecommunications, applications software, and data center infrastructure. The
withdrawals of Sprint and Cable & Wireless from the web hosting business are just
the latest examples of the rationalization that is still being undertaken in IT. Worse,
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