Executive Thought Leadership

Measuring the Impact of Internet Investment

The Internet is transforming nearly every aspect of business, but its measurable impact on the bottom line is the subject of ongoing debate. Although numerous studies have highlighted the presumptive benefits of IT investments, until now, there has been little meaningful information detailing the actual cost savings and revenue increases realized by investments in Internet business solutions (IBS).

In an effort to gain a better understanding of the actual benefits, Cisco sponsored the “Net Impact” study, and surveyed senior decision-makers charged with implementing IBS at their organizations. Hal Varian, Dean of the School of Information and Management Science at the University of California at Berkeley; Robert Litan, Vice President and Director of Economic Studies at the Brookings Institution; and the Momentum Research Group conducted the study.

The scope of “Net Impact” was intended to represent the U.S. economy as a whole. More than 2,000 companies—from small to large and in key industries such as healthcare, manufacturing, financial services, and telecommunications—were surveyed. The study surveyed an additional 600 companies in the United Kingdom, France, and Germany.

Co-author Robert Litan says the findings, as a whole, make for a compelling case for business investment in the Internet: “The Internet continues to lead a 'quiet revolution' in the way America and the world does business. Among other things, the Internet is helping to reduce costs and increase productivity throughout the economy. It is of critical importance to gain some plausible idea of how extensive these impacts may be.”

In the United States

The economic impact of investments in IBS over the last three years has been dramatic. According to the study, the U.S. organizations surveyed indicate that their Internet business solutions helped to increase revenues cumulatively by approximately $444 billion between 1998 and 2001. This spike in revenues was attributed in great part to improvements in customer care—offering greater accessibility to a wider array of services and products—that both attracted new customers and increased loyalty with existing customers.

Once the economic benefits afforded by improved customer care and similar customer- facing applications began to be realized, organizations then tended to implement the back-office Internet solutions that introduce production and distribution efficiencies and reduce both logistical and labor costs. The benefit has been a cumulative cost savings to U.S. companies of $155 billion to organizations deploying IBS over the 3–5 years since they introduced these systems.

In the United States, the study also found that more than half, or 61%, of those companies surveyed have already implemented IBS. As expected, enterprises (5,000+ employees) showed a much higher adoption rate, with 83% of organizations of this size having deployed IBS. Across industries, service providers and telecommunications companies have the highest adoption rate, driven by their need to not only provide Internet technology to their clients but also to leverage technology for their own business processes.

These three countries are the largest economies in Europe, and as such include a broad representation of companies of all sizes and across many industries. Here are the top European findings:

• Increased Revenues: From 1998 to 2001, IBS have helped to increase revenues cumulatively for the study participants by €86 billion (U.S. $79 billion).
• Cost Savings: Companies in these three countries indicated cumulative cost savings of €9 billion (U.S. $8.3 billion).
• Adoption Rate: Across all organizations surveyed in the United Kingdom, France, and Germany, 47% have adopted IBS—14% less than the U.S. findings. In Europe, financial services has the highest IBS adoption rate, followed closely by service providers and telecommunications.

Looking Ahead

The majority of organizations that are currently deploying IBS estimate they will be complete with these implementations by 2010. The projected financial impact of this is staggering. In the United States, the study estimates these companies will realize $528 billion—half a trillion dollars—in cumulative cost savings and $1.55 trillion in revenue gains. In Europe, the estimates are €230 billion (U.S. $202 billion) in revenue increases and €88 billion (U.S. $77 billion) in cost savings.

In fact, Internet solutions could have an even farther-reaching impact on the country as a whole. The Congressional Budget Office estimates that the U.S. productivity growth rate will continue to grow over the next 10 years at an annual rate of 2.1%. Once all current solutions have been fully implemented, the Net Impact of the $528 billion in cumulative cost savings is expected to account for .43 percentage points—or almost half —of the future increase in the annual U.S. productivity growth rate. In Europe, the projected cost savings would account for .11 percentage points—or almost one-third—of the increase in the productivity growth rate of the three European economies combined.

For individual companies, the impact of Internet solutions represents a competitive advantage. Organizations cannot afford to be left behind—especially with the challenges of today’s economic climate. The tremendous costs savings and revenue growth driven through investment in Internet solutions will continue to be a key factor in any company’s survival and growth over the next few years.

*Footnote: For the purpose of the study, researchers defined "Internet business solutions" as any initiative that combines the Internet with networking, software, and computing hardware technologies to enhance or improve existing business processes or create new business opportunities.