CIO Agenda: Churchill Club

Dave Margulius: When you think about your customers both internal and external, how fast are their demands changing? You know, if I'd asked you it last year, "What do they want?" Is it significantly different from now and what's the impact on IT? And then kind of corollary to that is, several of you mentioned global, and that's obviously a big part of what the revenue overseas is a global technology boom or global economic boom going on, how does that impact with what you need to provide to your customers? Anybody jump in.

Doug Schwinn: I think that there's a quite a bit of change in the demand... When we create new products, people want to feel like they're investing in those products. So, there's a change where technology is being pulled in to the product development process to connect the consumer with the developer and that's happened only in the last few years and it's much more aggressive than I think it's ever been and I think going to even permeate further into the product development cycle and I used an example that most of you I think can resonate with, I should do another survey but I won't [audience laughing].

You know, I'm assuming most you have grown up a little bit and played Monopoly, well, that's one of our products. And recently we launched over the last couple of years a new product called Monopoly Here and Now. Monopoly is about 75 years old and we said: "Well, if you're going to develop Monopoly Here and Now, how would you do it? What would the tokens be? What would the places be? What would you be buying? What would you be selling? Would you be using credit cards, debit cards, cash?" So, we went out to consumers and asked that question and interestingly enough, after a spot on The Today's Show and a couple of other things, we set up websites to say: "What places should be on the Monopoly board? Should there be railroads? Which is what it was initially. Should the tokens be a little car, a little dog or whatever?" And we had three million votes in the first hour. We had mayors of cities actually holding rallies to have people sign up to our websites and say: "Hey, let's get Phoenix in here." [audience laughing] "Let's get some place else in here."

And we've done that around the world now. We have versions in the UK, throughout Europe, we have versions here in the United States in different Monopoly here and now and people feel invested and we believe that's the way the product development cycles are going to occur on an ongoing basis.

Douglas Merrill: I'll take up on that theme as well. So, just slightly over half of our Google's revenue comes from the United States, said more interestingly slightly less than half comes from not the United States and I think most us spend all of our time thinking that all web users look and act and think just like us and that turns out not to be true.

So, one of the things that we're spending a lot of our time doing is, as we introduce new products, understanding is if that products internationalizable to start with and so then in which case it's a localization exercise which is relatively straight forward. Or to Doug's point: "Is that actually slightly the wrong product? Is there a product which is slightly different in this market that we should build?" And so, we spent a lot of our time as a company trying to understand when is the right answer to localize this particular products. So for example Search, which is available in over 90 languages, it's clearly a fairly general product. But then there are special cases such we have a social networking product such Orkut which appears in quite different forms in different markets because the nature of how people use technology to interact is very different.

And the second thing which changes for us very rapidly is our monetization strategies. In the United States, a great deal of our revenue comes through online businesses that pay us with credit cards. It turns out in Germany, credits cards are a very unpopular form of payment. Direct debit, from your bank account, is a much more popular form. So we have different monetization options in different countries, which seems like a pretty trivial, little "Oh, nothing exercise" and actually turns out to drive a tremendous amount of strategic change.

Randall Spratt: We're in a little bit different world because health care in the main is not yet subject to the whims of consumer preference. Most of us are a little less concerned about the Monopoly game and its structure than they are about their next heart surgery. So, the gating factor in the technology shifts that we go through is more driven by the willingness of the health care industry to adopt change, not by the consumers' willingness to see change.

For example the first CT scanner, the first device that was capable of imaging inside of our body in more than a single plane, was first available about 20 years ago. And today, two thirds of the hospitals in America have one.

The bar code scanner that would guarantee that you received the drug that was prescribed to you, was spread through every grocery store in America on every consumer product you can buy in the span of 10 years. Today, less than 20% of hospitals use bar code scanning to guarantee that you get the medication that you were prescribed. As a result, we kill 97,000 people a year due to medication errors.

This is not a lack of technology. It's not a lack of the ability for the industry to solve it. It's fundamentally related to an extremely complex reimbursement model, and a very very very cautious approach to technology shifts in anything that affects lives.

On the plus side, we're now in a perfect storm. We suddenly have affordable technology. We can distribute the information that comes from that technology, whether it's a 3D image of your heart, or whether it's your children's tetanus examination. Tetanus...

Douglas Merrill: Record.

Randall Spratt: Thank you. We can distribute that anywhere in the world. We can move prescriptions. We can move any health care information we want. The government is suddenly interested in the fifty cents out of every dollar that goes to administration to do all that stuff on paper, and on film.

The health care industry on the payer's side, is waking up to the fact that this will fundamentally reduce health costs. And the physicians are lining up showing that it will fundamentally improve health care quality.

You're going to see a gigantic "C" change in the next 10 years where the ability to capture your health care records, to move them around from physician, to retail pharmacist, to hospital, to emergency room, to your children's education facilities is as easy today as it is to move a financial record around from Microsoft Money, to your bank, to your tax records.

Dave Margulius: So, you guys are talking a lot about a lot of business stuff. I don't hear you talking about "Network Outages," and that kind of thing. In terms of you're team and what's changing. I mean, I know that IT has talked about getting closer to the business. Is that really happening, or do most of your folks sit around talking about network outages? Or do you want them spending most of their effort talking about the way this monopoly game, what the hospitals are doing, what the consumers are doing? What jeans are getting purchased type thing?

David Bergen: We want them engaged. So when you think about the innovation, if we don't innovate we'll be out of business in a relatively short period of time....If you think about the amount of competition that we have around the world.

We do a majority of our business today, outside the U.S. and inside the U.S., specifically in markets that we've never done business with before India, China, Russia, Brazil. So what we're trying to do from an IT lens, is to look at the businesses in a different way.

So, we are trying to intercept the business from I would call it a "Innovation Lens," to really help the business. I hate to say it, because I know SAP is a sponsor and we're spending a lot of money on SAP today, but that's a transactional side.

That's not going to... Looking at the pair of jeans over in the corner here, I'm not sure if those are Levi's or not, but that's not going to drive somebody to walk into a store, and want to buy a pair of Levi's or Dockers.

What we have to do is help the business understand, whether it is a design, it's whether it's a price point. It's how do we actually create value back to the business that they need, so they can design and deliver a product to the store at the right time, at the right price.

Dave Margulius: all right, so I think it's time to hand out the paddles for our "Whitening Round." This is modeled after the "Jim Cramer Mad Money," just rapid fire. We don't have the sound effects tonight. But I'm going to give you the paddles, one per CIO.

Here's how this works I am going to rapid fire style read through they're foam. We got the foam ones this year, so I couldn't get hurt.

Doug Schwinn: So, we wouldn't hurt our self? [laughter]

Dave Margulius: So, you won't hurt me.

[laughter]

Dave Margulius: all right. So, we just read through a bunch and what I want is green or red, up or down, based on how much you care about it, how high a priority it is for you. As we go we can have some fun talking about them. We'll spend 30 seconds in each one, so...

Doug Schwinn: Does it have to be business content, or can they be personal as well? [laughter]

Dave Margulius: You can get as personal as you want, but we are recording this.

[laughter]

Dave Margulius: Which we'll make available, if you want to post it on your MySpace page later on. [laughter]

Douglas Merrill: OK. Orkut page. Come on, come on, Orkut page. [laughs]

Dave Margulius: So, iPhone: thumbs up or thumbs down?

David Bergen: For what? What's the question?

Douglas Merrill: Right, what's the question?

[laughter]

Randall Spratt: Spoken like a true Cisco rep.

Doug Schwinn: You've all hit right into that personal or business category. [laughs]

Dave Margulius: Fundamentally, do you like it? Do you think it's a good thing? Do you care about it? Is it important to you?

David Bergen: Important for personal use?

Dave Margulius: No, for in your role of CIO.

David Bergen: Oh...

David Bergen: Role of CIO?

[laughter]

Dave Margulius: Yeah, OK. [laughs]

David Bergen: For personal use, absolutely.

Douglas Merrill: See, that's why the question matters.

Dave Margulius: Right. So, as a follow on, when your VPs come to you and say they want one and will you support it, what do you tell them?

Doug Schwinn: Are they R and D, or are they business use? R and D gets this, business use gets this. [laughs]

[laughter]

David Bergen: We said no.

Douglas Merrill: Google has a choice versus control IT strategy, so if people come to me every day and say, "Can I have an iPhone, " my answer is, "Yes, if you'll give me back your Blackberry." And if you're willing to make that trade, done. If that's the use case that you feel, so be it. I, for example, just gave Mike my iPhone.

David Bergen: We said no. We said we are not willing to invest in the infrastructure to support it yet. We're not Google; we have a very strong standard on devices.

Doug Schwinn: Right. And I guess we fall in the same category. We brought in iPhones for R and D, because we're going to deliver content through the iPhone. But we've made a strong statement that said Blackberry and RIM is our choice at this point in time, and it fits the business, so we have a little bit of this and a little bit of that.

David Bergen: OK. That being said, we know it's only a matter of time.

Dave Margulius: It's coming. It's good because it's sparking innovation, right? We'll be able to get our X rays on that...

Doug Schwinn: Absolutely, it fits right in that innovation track.

Randall Spratt: You remember, I said we're trying to run IT as business, and business creates choice, so we have a catalog of the services in IT that we offer to the company. We have 20 different cell phones in the catalog. You can go in and order the one that you're allowed to have or that your manager approves. iPhones will likely wind up in the catalog, but other than being used as a phone, they are the farthest thing from mainstream IT, for a corporate Blackberry carrier, that you could ever imagine.

Dave Margulius: OK. Microsoft Vista: red or green?

David Bergen: What's the question?

[laughter]

Dave Margulius: Is it a worthwhile upgrade? Are you excited about it? [laughs]

[laughter]

Douglas Merrill: Strangely enough, none of us want to answer this one.

[laughter]

Dave Margulius: All right, so we'll just move through a couple. I have a few Web 2.0s, so we're just going to go through these boom, boom, boom, and you can give them all red. Virtual worlds, like Second Life. Do you care? Is it relevant to your enterprise in the next year?

Randall Spratt: Virtual what?

Dave Margulius: Virtual worlds.

Douglas Merrill: Virtual worlds, Second Life.

Randall Spratt: Oh.

David Bergen: I'd say, one year, no; five years, yes.

Douglas Merrill: Yeah, that seems right.

David Bergen: Absolutely.

Dave Margulius: OK.

Doug Schwinn: Yeah, absolutely.

Dave Margulius: Blogs. Ah, interesting. Why?

Doug Schwinn: I think it's an important component of that collaborative nature that we talk about as being critical for our business.

Dave Margulius: For internal or external customers..?

Doug Schwinn: Both. We have blogs today for our hardcore gamers. We don't for children, because there is some restrictions there, and we're using them internally. Will that evolve to be a more pervasive component? I think it will.

Dave Margulius: OK.

Randall Spratt: I think our communications strategies have to change as the consumer preferences the, the employee preferences of how to receive information changes.

Dave Margulius: OK. RSS and content syndication.

Doug Schwinn: I think it will go.

Dave Margulius: Hmm, we've got green on that one. Enterprise video.

Doug Schwinn: Describe that.

Randall Spratt: Streaming?

Dave Margulius: However you like it. all right, we've got green on that too. Services oriented architectures.

Douglas Merrill: Will you define it?

[laughter]

Dave Margulius: We'll Google it later, I don't know.

[laughter]

David Bergen: So what are you asking, what's the question?

[laughter]

Dave Margulius: Well you just finished telling me how you're going to be all SAP all the time for the next however many years you like that, but here's all these little software companies starting to provide Software as a Service.

David Bergen: That's right.

Dave Margulius: Service as tools you can use to build internally to mix and match, it's kind of a different model than what we've been talking about, so I guess I'm wondering if that was buzz from two years ago, SOA, or is it really important now?

Doug Schwinn: I think the model is evolving to a service oriented model, where you can acquire services. Are we there yet? No. And is SAP there yet? No, but their next layers, their next deliveries, really open up more to that, buy a service here, buy a service there, connect it in through NetWeaver.

Randall Spratt: I would tend to agree, I think this is an infrastructure investment that needs to be supported by the vendors and the smaller companies that are trying to surround and play of the vendors. And I think it is far more of an issue for the direction that the providers want to take, than it is the companies.

We are going to consume what they deliver, we'd love to have the promises behind SOA, It's not up to us to drive it.

Douglas Merrill: I think at the level of detail that you just described we're a big producer of things that are service architecture and a big consumer, both internally and in our products. But the label isn't particularly useful, I think what Randy just said is a really good description that is useful, i.e. producing, consuming difference services.

The particular mechanics of that buzzword I don't find it particularly useful.

Dave Margulius: David, do you agree?

David Bergen: Yeah, I would agree with Randy. I would even say that SAP or Oracle type environments, nobody is going to be a hundred percent of anything, so the challenge that I think most of us have is how you integrate these non SAP type things into it, because at the end of the day it's the integration that's going to drive the value.

And I think Randy said it really well, over time as the vendor community and the maturity of the tools, and the environment becomes better, I think it will be easier to make that integration, but I don't think it's there today.

Dave Margulius: OK, moving to the next things, RFID, we don't hear much about this anymore, is it dead, or is it just marginal, red or green?

[laughter]

Dave Margulius: You're a green.

David Bergen: Were you saying to RFID or to you?

Dave Margulius: Are you saying I'm dead or marginal?

[laughter]

David Bergen: It is fundamental to our strategy going forward, we have been one of the first retailers to do an item level RFID production environment in Mexico, which we did probably three years ago, we use it with both Wal Mart and Target, we're using it in South Africa, it Is fundamental to the productivities that it gives us, and the level of information that we can get to manage our business from end to end is huge with RFID, It's not dead.

Dave Margulius: I saw you nodding as well down there.

Randall Spratt: Yeah, RFID is a critical strategy to the safety of the pharmaceutical supply chain, and many states begin to enact pedigree laws requiring you to track the authenticity of a drug from manufacture to consumer.

And if you think about that, that's a pretty tall order. We've been successful in getting rid of the state laws and putting together a set of national legislature around this, but what it means is that every single consumable package of pills will be RFID tagged, and the complete supply chain history of that, including potential returns will be tracked and auditable for the life of the drug.

The only way to guarantee that we aren't consuming counterfeit Viagra.

[laughter]

Randall Spratt: Not that you'd notice.

[laughter]

Doug Schwinn: Did you say... I don't know that I want to follow that one.

Douglas Merrill: There's no upside to that conversation.

Dave Margulius: So let's have a big round of applause for our panelists.

[applause]