Home EuropeEurope II 2002 The Impact of Broadband Services on Productivity and Growth

The Impact of Broadband Services on Productivity and Growth

by david.nunes
Paolo CampoliIssue:Europe II 2002
Article no.:10
Topic:The Impact of Broadband Services on Productivity and Growth
Author:Paolo Campoli
Title:Senior Manager
Organisation:Cisco Systems – EMEA
PDF size:36KB

About author

Not available

Article abstract

True, widespread, broadband availability can have an important impact upon the productivity and growth of both business organizations and national economies. Studies show a direct connection between network availability and use and national Gross Domestic Product in knowledge-based societies. Seemingly small incremental gains multiply substantially with time. Researchers claim that GPD growth can be accelerated by as much as 30% through converged voice, video and data broadband networks that provide cost savings and for the rapid implementation of new business models.

Full Article

In today’s challenging economy, decisions about networking investment are part of the strategic planning process, both of companies and, on a much larger scale, of nations. The market has contracted and capital expenditure in telecommunication and information technology has been carefully scrutinized during the last 24 months. Examination of the return-on-investment provides evidence that networks – both private and those provided by public carriers – are absolutely relevant and necessary to business processes and to the economies of nations. There is a direct connection between network availability and use and the Gross Domestic Product (GDP) of a nation. The growth of GDP is normally a few percentage points per year. The quantities may seem small but the effect of a small increase or decrease of the GDP per capita during a decade can be dramatic: a 1% growth rate will double the wealth of a country in 72 years; 3% GPD growth will double it in 24 years; and at 5% the country’s wealth will double in 14 years. GDP growth can be stimulated by enhancing productivity and efficiency using, among others, such concepts as “Networked Virtual Organization.” Improving efficiency is the key to accelerating a country’s economic growth and improving the lives of its citizens. The leading edge is learning fast Most of today’s economies are “knowledge-based” or at least in transition from industrial to knowledge-based economies. Knowledge based economies are those where the key asset, the key to economic competition, is no longer access to land and labour, as it is in agricultural economies, nor is it access to capital and labour, as it is in industrial economies, rather, it is access to intellect and capital. The Internet gives the productive population immediate access to any sort of information. The efficient use of this tool has given many large organizations a competitive edge and there has been a sudden shift during the last 2 to 4 years from the need to access information rapidly to the need to learn and absorb information rapidly. Competitiveness of a company – large, medium or small – is seen as directly dependent on its ability to define and implement competitive business models. In today’s economy many companies with valid and solid business models have failed and stumbled, primarily when the models did not provide a competitive edge sufficient to outpace the competition. Also, since business models can be simply observed and replicated by competitors whatever edge they initially provide can soon vanish. There is another way of looking at the implications of the knowledge-based economy: the key to success of a company is not only solidity of its business model but the ability to communicate a new business model to employees and quickly turn it into an effective, continually updated, operational model. What sort of internal transformation must companies go through to work within this new reality and how can it be achieved? Turning New Operating Models into Reality: the Networked Virtual Organization The “Networked Virtual Organization” depends upon its communications network to implement new operating models and to achieve substantial gains. The methodology used to quantify these gains focuses only on efficiencies gained from transforming process activities: cost avoidance and time efficiencies. There are a large number of processes that can be put on line and enabled by the Network; we will call these Internet Business Solutions (IBS) and focus our attention on a few key examples to assess the cost savings generated: · Workforce optimisation: many human resources administrative functions can be processed on-line: vacation approval, performance reviews, and definition of fiscal year MBO’s and action plans, among others. Many software updates and technical ICT issues can be also addressed on-line. It has been shown that Workforce optimisation can save up to 90% of managerial transaction costs and reduce the number of hours spent on resolution of internal support issues. Booking travel and generating expenses reports on-line can save up to 50% of travel costs. . Customer Care: This is not just dispatching customer calls and operating a good call centre. It is interacting directly with customers to download new software on-line or walking the customer through a product catalogue and taking most of his orders on-line. When orders and technical support are predominantly on-line we can virtualise routine processes and shift resources to value added activities · E-learning: This is the pillar of the ” learning faster” paradigm to gain a competitive edge · Supply chain management: This, perhaps, has the most radical impact upon the way manufacturing companies have traditionally worked for decades. Raw material when bought on-line, cuts transaction costs and helps optimise shipping and on-time inventory control. Manufacturing can be outsourced and responsibility for on-time stocking handed over to the supplier and full control of the complete cycle, from assembling to shipment, maintained. These are just few IBS processes, which are part of the Networked Virtual Organization; other processes could be described, but just these – for a company like Cisco Systems – generated cumulative benefits, including increased productivity and costs savings, in excess of $1,9 Billions in fiscal year 2002. Lack of true broadband stalls productivity Measuring impact of Internet Business Solutions on a company’s productivity requires understanding the “learning curve”. This is typically an S-curve, whose shape depends heavily upon the ability of the company to accelerate the integration of e-processes business solutions throughout the company. Speed of adoption of course depends also on the readiness, flexibility, of the network and applications to support e-business processes. Return-on-Investment in IBS is non-linear and above normal returns can only be achieved if a critical mass of employees is enabled to use a critical mass of applications (see graph). The key parameter to control is the product of employees using on-line processes multiplied by the number of processes, or IBSs, available on-line. It seems evident that a key requirement to entering the non-linear region of the curve is the availability of enough broadband and infrastructure to allow these applications to reach the critical mass and work in a networked environment. Applications are bandwidth intensive. Most of the processes outlined above require partners, suppliers, manufacturers, distributors and customers to be part of the same Virtual Private Network or Extranet. Extending the LAN outside of company boundaries is essential for productivity and to implement new operational models. Multiple applications are used, over the VPN, by many employees at the same time: broadband extends the LAN over the geographical boundaries and enables maximum interactivity. Lack of true broadband stalls the productivity of companies and economies. On The Government Agenda The Net Impact Study [Jan 2002 – Hal Varian, Robert Litan, Andrew Elder available at http://www.netimpactstudy.com] outlines how 634 companies in the UK, France, and Germany fared in terms of cost reduction and increased levels of productivity by adopting Internet Business Solutions. The study, which covered companies in government, retail and distribution, manufacturing, financial services and telecommunications operators, found that: · 47% of the companies have adopted Internet Business Solutions requiring broadband networks (e-commerce, e-supply chain management, e-Customer Relationship Management, workforce optimization) · Deployment of Internet Business Solutions resulted in € 9 billion in savings for the companies that adopted them. · It has been estimated that the companies in the study that implemented Internet Business Solutions had revenue increases totaling 86,4 billion euros · It is estimated that companies in UK, France and Germany deciding to implement Internet Business Solutions will reduce costs by 88 billion euros and increase revenues by 230 billion euros between 2002 and 2010. Cumulatively, this will contribute 0.11 percentage points to the GDP (Gross Domestic Product) growth of the three listed countries or 30% of projected total growth. Examining the benefits and increased productivity that broadband brings, leads to the conclusion that, by investing in this technology, countries can increase their GDP growth by as much as 30% over current projections. Consequently, the growth of broadband access is considered to be a critical ingredient in economic growth by governments around the world. There is a direct correlation between penetration of broadband services and GDP growth in modern economies. While the discussion so far has focused on productivity in large organizations, the model is applicable to the lower end of the market and, with an even more dramatic effect, to the residential market. The correlation was clearly shown by Gartner Group in a recent study (June 2002), which simulates effects on GDP of broadband penetration at 30% vs. penetration at 50% through the year 2010 as shown in the following graph. Network Convergence Using IP is Happening Now The rapid convergence of networks and platforms over IP in business networks unavoidably translates into increasing demand for converged IP-based access and switching between customers and carriers. A quick analysis of the savings achieved by converging voice and data onto the same IP switching and transport platform, for a medium to large size organization, leads to the following conclusions: · Converging voice, video and data network substantially reduces a wide variety of infrastructure and maintenance costs throughout the network. · A converged voice, data and video network reduces the number of external lines, reduces network carrier costs and all international and domestic inter-office charges as all traffic is transported over IP · A converged network reduces network administration, maintenance and support, network design, project management and implementation costs and raises network support staff productivity by 10 to 40% · Converged networks lower support costs and enhances the productivity of mobile workers. IP Telephony extension mobility enables shared workspace environments, increasing the number of employees per office thereby reducing real estate and facilities costs – typically by 30 to 50%. Ubiquitous network access and converged applications provides the increasingly mobile worker easy access anywhere, anytime Cost savings achieved with Data and Voice convergence over IP, alongside increased productivity enabled by Internet Business Solutions, will determine which private organizations and which carriers will survive the economic downturn and will be ready for the next recovery. Does This Require a New Definition of Public Broadband? Despite the exuberant fiber backbone build-out of the last 4 years, and the growing demand for bandwidth for business and residential use, there is still a problem connecting the last mile. ADSL itself does not provide the bandwidth, simplicity and price competition to make high-speed broadband services widely available. The decreasing price of Gigabit Ethernet technology over fiber, and its ability to deliver bandwidth and IP-based services less complexly, provide a unique opportunity for Telco’s, service providers and utilities to efficiently deliver broadband services to all segments of the market. Public networks will have to provide enough bandwidth to support convergence and bundling of services if the network to enable and not stop productivity. To support converged applications broadband networks must handle high-speed IP traffic to and from users, following specific guidelines: 1. Individual users must have 6 Mbit/s or higher access to enable the development of productivity, education and entertainment application solutions and be scalable to higher speeds in the future 2. The connections must be affordable and cost-effective 3. User access should be easy to operate and manage Operators will look for technology that provides 1. Enable quick time to market 2. Full scalability and evolution towards higher speeds 3. A clear cost structure Network will become an essential to ensuring that convergent applications are supported by differentiated services coming from a variety of providers within the network. This implies that the networks will evolve towards distributed IP intelligence and content at the edge of the network. This will result in more efficient switching of IP traffic, Quality Of Service (QoS) and incoming and outgoing traffic control. Conclusion Service Providers will be looking for network strategies that provide for the de-fragmentation of services. They need IP broadband networks that can fully support both retail and wholesale models. The networks should permit flexible billing for different levels of QoS and usage without terminating the transported protocols and without violating security and privacy of the transported traffic.

Related Articles

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More