Broadband and growth will go hand in hand in Latin America

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:

1. 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.

2. 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:

1. enables greater access to internal employees and relevant external users,

2. are more reliable, having less than nine hours of unplanned network downtime annually,

3. 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,

4. 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.

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