Evolution of Enterprise Computing

1. Evolution of Enterprise Computing Market Scan: What CIOs are really thinking about… January 2005 W.R. Koss When the rate of change outside exceeds the rate of change inside, the end is in sight. – Jack Welch

2. History of IT on a Slide Competitive Advantage High Superfluous Enabler IT Capability Irrelevant Inhibitor Competitive Disadvantage Low Low IT Dependency High Age of Big Iron Client/Server Internet Era Age of Maturity And Shake Out Renaissance Era • Active management • Self healing services • Auto provisioning • Virtual environment • Commoditization • Less choices • Standards • Improved mgnt • Desire SLAs • Process maturity • Many choices • No standards • Chaos • Low quality • Rampant waste • Complex integration • Islands of apps • Islands of platforms • Best in class tech • Standards • Metrics • Quality • Control • High Utilization Today * Partial Source: Gartner 2002 ** Partial Source: Mike Keller, CIO Nationwide Ins., 2004

3. What CIOs are Thinking About in 2005 "It is dangerous to assume that the death of distance, to borrow Frances Cairncross's description of the effect of new communication technologies, will mean the death of the company. In some cases, the Internet will lead business organizations to shrink by making it more economical to outsource more work. In other cases, it will lead them to expand by making it cheaper to bring more tasks inside.” From In Praise of Walls, MIT Sloan Management Review, Spring 2004 "The trend toward outsourcing key IT systems, and even the processes that run on them, will further accelerate the homogenization trend. As companies look to business-process-outsourcing (BPO) vendors to carry out many IT-intensive processes, from budgeting to logistics to training to customer service, they will neutralize those processes as potential sources of advantage. The processes themselves will begin to become part of the shared infrastructure." From Does IT Matter? Information Technology and the Corrosion of Competitive Advantage, Harvard Business School Press, 2004 "The lesson is clear: Innovate passionately in those places where you can separate yourself from the competition. Where differentiation promises to be elusive or fleeting, be a cold-blooded imitator. " From Mastering Imitation, Strategy & Business, Fall 2004 "When a disruptive new technology arrives, the greatest business opportunities often lie not in creating the disruption but in mending it — in figuring out a way to use an older, established technology as a bridge to carry customers to the benefits of the emerging technology." From Bridging the Breakthrough Gap, Strategy & Business, Winter 2004 "Information technology is best understood as the latest in a series of broadly adopted technologies that have reshaped industry over the past two centuries - from the railroad to the telegraph to the electric generator. For a brief period, as they were being built into the infrastructure of commerce, all these technologies opened opportunities for forward-looking companies to gain real advantages. But as their availability increased and their cost decreased - as they became ubiquitous - they all became commodity inputs. From a strategic standpoint, they became invisible; they no longer mattered. That is exactly what is happening to information technology today, and the implications for corporate IT management are profound." From IT Doesn't Matter, Harvard Business Review, 5/2003 * Slide Source: http://www.nicholasgcarr.com/index.shtml

4. Two phases Each the work of a generation Phase 1: Installation (’71-’01) Building new infrastructure Experiment in its use Economic promise drives financial speculation (i.e. the Bubble ’96-’01) Phase 2: Deployment (’05-?) Identify the applications that work Replicate the existing proofs Speculation becomes common sense The Bubble funded More infrastructure than anyone thought was needed More business experiments than rationality can comprehend Successful experiments Point the way... Towards absorbing the infrastructure Existing proofs become common sense Turning Point extended….? Conventional cost cutting in reaction to the bubble Understand new sources of demand Innovation still required From Before the Bubble to the Future - Turning Point - * See Technological Revolutions and Financial Capital, by Carlota Perez, 2003 See slide #16 for background…

5. Existing Proofs • The Inventors • Customers access applications that drive intelligent transactions • Virtual markets created, destroyed, created [see, Capitalism, Socialism and Democracy, Joseph Schumpter, 1942 p.75] • The Extremists • Customized Killer Apps • Innovative use of IT to redefine business model and create competitive advantage • Ruthless control of market share • The Old Regimes • Banks and Telecoms (i.e. AT&T, MCI, Sprint) • Intense competition and new regulations forcing new deployments of IT infrastructure to remain competitive

6. Limits of Cost Cutting Assumes business practices are fixed Architectures are frozen Outsourcing option Kills competitive innovation Kills competitive responsiveness Dangerous strategic option Puts the company asleep Cost Cutting Contradiction Freezes the enterprise network and infrastructure Real productivity enhancements require: Empowered employees Process innovation Resource sharing/collaboration Real time computing CIOs must be empowered to instill innovation in the IT infrastructure The Turning Point Extended? Question: Is the excess of the Bubble and extreme cost cutting response causing an extension of the Turning Point? The turning point from Installation to Deployment is a crucial crossroads, usually a serious recession, involving a recomposition of the whole system, in particular of the regulatory context that enables the resumption of growth and the full fructification of the technological revolution. - Carlota Perez

7. New Sources of Demand: Enabling Employee Mobility Conference Center Coffee Shop Hotel Home Office Anywhere Vision Train Office Train Station Plane Car Wireless LAN, Cable, FTTx DSL, LRE, Ethernet, CDMA, UMTS, GPRS, GSM Airport Lounge • Cisco Systems IT Stats • 90% of all orders are from web • 58% of orders go directly to the CM without Cisco direct touch • Goal: $1B of rev per employee • No custom computer clients – all IT programs are browser based and supported via VPN • Define business process first – then build internet application around process • Same purchasing process in every country – global virtual firm • Phone call to Chambers by customer automatically triggers “screen pop” full of information, issues, problems, success, failures customized to customer call • Business units pay for their IT decisions, minimal if any IT allocation to the business units • No time spent reconciling data…real time funnel available 24x7 on the click of a mouse * Partial Slide Source: Brad Boston, Cisco Systems CIO 2004

8. New Sources of Demand:Real Convergence • Every device in the world will be addressable • Simplification of the network and the processes supported by the network are required to manage the new complexities • Connectivity accelerates change, volatility and disruption Data Voice IP Network Video Storage • Real Convergence • Transaction systems generate lots of data • Processors get faster, pipes get fatter • Accurateness of information is everything * See It's Alive: The Coming Convergence of Information, Biology, and Business, by Christopher Meyer, Stan Davis, 2003 ** Partial Slide Source: Brad Boston, Cisco Systems CIO 2004

9. Phase II: Elusive Compelling Apps that Matter • Evolution from easy to difficult • Easy: Remote portal point of sale, ATM, phone, browser…done! • Easy: Customer self-service…done! • Difficult: Intelligent transactions in real time • Difficult: Intelligent infrastructure that is adaptive and self-defending • Very Difficult: Carrying transactions across systems and boundaries to include L3CAT and SOA • Very Difficult: Network enabled collaboration • Transforming IT from “push” to “pull” • Collaboration…in real time for design, prioritization and service • Minimal touch…orders to CM without direct touch • Dynamic analytics….SOX compliant with proactive real time price and revenue optimization • The Promise: Radical increases in corporate responsiveness, agility and productivity…significant financial improvements. The companies that harness this ability will be the extremists of the second phase.

10. Strategic Direction of IT Investments • Ford IT Profile • 6000 IT Professionals • 3 Major Development Centers in NA, Europe and India • 7 Data Centers • 180k Desktops • 250k+ Network Elements • 2000+ Terabytes of Storage • Global IT Factoid • By 2005, 35 billion micro controllers • 750 million smart sensors • 1.5 billion mobile information devices • Easy: Extending the infrastructure • Hard: Making the infrastructure transparent • Infrastructure extension is underway • Wireline and wireless broadband deployments are accelerating • Integration of computing and network infrastructures is underway • Creating a transparent, integrated IT infrastructure • IP into the legacy telephony network • Creating a global, shared computing grid? • Applications as services? • Global transparency • Focus on global collaboration • Measure and improve productivity • Automating the financial supply chain • Collaborative product management • Transforming data into useable information • Simplify operations • Adopt and empower a process methodology * Partial Slide Source: Marv Adams, Ford CIO 2004

11. Top IT Priorities • Improved productivity – Easier to do business with… • Enhanced mobility – Everyone has the tools when and where needed • Uncompromising security – Protect customers, IP and the network • Relentless drive for process – Demand continuous improvement • Focus on cost – Find and implement ways to improve bottom line • Evolve from science to technology – Measurable benefits • Evolve from technology to applications – Easy of use • Evolve from islands of implementation to networks – Global grid • Evolve from products to services – On demand! An enterprise whose business processes—integrated end-to-end across the company and with key partners, suppliers and customers—can respond with speed to any customer demand, market opportunity or external threat. - IBM CEO Sam Palmisano * Partial Slide Source: Brad Boston, Cisco Systems CIO 2004

12. …new services, enhanced service delivery, network convergence and business transformation to realize profitability…accelerate service fulfillment, provide superior Quality of Service (QoS), automate resource management, simplify maintenance operations, consolidate functions of multiple network elements, facilitate network convergence, and reduce overall network capacity requirements to support service demands…Service Level Agreement (SLA) penalties, improved asset management, increased employee productivity, and reduction of operational and capital expenditures…drive down network operational and capital expenditures, while adding value to services by enabling service differentiation and improving service operations…delivering a variety of data and TDM services, over a variety of bandwidths and interfaces, with multiple classes of service and at the highest reliability. Automate service provider provisioning, inventory, and operations processes Provide the highest availability to services Enable class of service differentiation Enable architectures that simplify operations and reduce capacity requirements Facilitate network convergence Seamlessly integrate … non-blocking switching in a single rack…a smaller footprint…non-blocking switching in one-half the rack space… flexibility to groom and switch traffic in granularities…scaleable…scale within the current footprints and power requirements, greatly simplifying day-one facility planning...completely interoperable…supporting a fully integrated switching and transport solution. This integration creates 35% equipment and 70% space and power savings due to the elimination of back to back optical interfaces. What really interests our customers…? Network enabled collaboration Continuous improvement Intelligent and adaptive infrastructure Simple, self defending networks A competitive advantage Enhancing their value proposition Self fulfillment (Luxury brand) Insurance against disaster (network failure) Peace of mind – ease their fears (SOX) Differentiate – Globally competitive Breaking our Customer Code My theory is very simple: The reptilian always wins. I don't care what you're going to tell me intellectually. I don't care. Give me the reptilian. Why? Because the reptilian always wins. - Dr. G.Clotaire Rapaille Word and Value References Service(s) 14 Cost/Profits 7 Network 6 Physical Space 5 Convergence 3 Scaleable 2 Value 1 Competitive Advantages 0 Adaptive Network 0 Security 0 Intelligent 0 Enabling collaboration 0 Simple 0 Self defending 0 Provides competitive advantage 0 Enhances value proposition 0 Insurance against failure 0 Peace of mind 0 Luxury 0 http://www.archetypediscoveriesworldwide.com/index1.htm Two recent customer opportunities point the way…

13. “What if…” for Enterprise • Integrated network architectures at the equipment level from China drive the price of networking products to consumer levels. Is this tech’s equivalent of the Japanese auto invasion of the ‘70s? • Integrated network architectures at the chip level (i.e. Infinera). Can innovation still command a margin premium? • Cisco and Microsoft control the enterprise. The telecom service providers defer to their end-users. Result: New entrants are marginalized and locked out of significant future market share in telecoms. • How will the impact of wireless-wireline-cable-consumer overlap affect the future?

14. Breakout: Does it Matter? • What enterprise partners help break the Evil Empire? • How do we break a tactical culture and uncouple product selection from the business decision? • Will innovation matter or will telecom equipment go the way of the VCR? • What innovations can we develop and commercialize that will allow us to utilize an offensive sales strategy in the enterprise market? • What killer apps can we link to our value propositions to create a competitive edge?

15. Background Materials

16. Five Successive Surges TURNING POINT IRRUPTION FRENZY MATURITY SYNERGY Industrial Revolution 1771 - 1780 1793-97 1798 - 1812 1813 - 1829 1780s - 1790s Age of Steam and Railways 1830s 1848-50 1850 - 1857 1857 - 1873 1840s Age of Steel Heavy Industry 1875 - 1884 1895-07 1895 - 1907 1908 - 1918 1884 - 1893 Age of Oil And Auto 1908 - 1920 1929-45 1943 - 1959 1960 - 1974 1920 - 1929 Age of Info and Telecom 1971 - 1987 2001-04 2005 - ? 1987 - 2001 BIG BANG CRASH INSTITUTIONAL RECOMPOSITION * See Technological Revolutions and Financial Capital, by Carlota Perez, 2003

17. Sources of Information Advanced technology not only serves as a repository for all control-related information, it also serves as an excellent mechanism for communicating and enforcing compliance requirements, detecting and escalating issues through resolution, and delivering control information to decision makers. - Eric Keller, CEO of Movaris • The New Age (Web Sites) • The Reading List (Back to Basics) • Intellectuals, Futurists and Revolutionaries http://www-306.ibm.com/e-business/ondemand/us/index.html http://www.sun.com/ http://www.movaris.com/index.htm http://www.cassatt.com/ http://www.systinet.com/ Technological Revolutions and Financial Capital, by Carlota Perez, 2003 It's Alive: The Coming Convergence of Information, Biology and Business, by Christopher Meyer, Stan Davis, 2003 http://www.carlotaperez.org/ http://www.archetypediscoveriesworldwide.com/index1.htm http://www.nicholasgcarr.com/index.shtml http://www.techstrategypartners.com/leadership.htm