Investing in The IT That Makes A Competitive Difference  

Oleh:

McAfee, Andrew ; Brynjolfsson, Erik

Jenis: Article from Bulletin/Magazine - ilmiah internasional
Dalam koleksi: Harvard Business Review bisa di lihat di link (http://web.b.ebscohost.com/ehost/command/detail?sid=f227f0b4-7315-44a4-a7f7-a7cd8cbad80b%40sessionmgr114&vid=12&hid=105&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&jid=HBR) vol. 86 no. 7-8 (Jul. 2008), page 98-107.
Topik: investing; IT; competitive difference

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It’s not just you. It really is getting harder to outpace the other guys. Our recent research finds that since the middle of the 1990 s, which marked the mainstream adoption of the internet and commercial enterprise software, competition within the U. S. economy has accelerated to unprecedented levels. There are a number of possible reasons for this quickening, including M & A activity, the opening up of global markets, and companies’ continuing R & D efforts. However, we found that a central catalyst in this shift is the massive increase in the power of IT investments. To better understand when and where IT confers competitive advantage in today’s economy, we studied all publicly traded U. S. companies in all industries from the 1960s through 2005, looking at relevant performance indicators from each (including sales, earnings, profitability, and market capitalization) and found some striking patterns : Since the mid - 1990 s, a new competitive dynamic has emerged - greater gaps between the leaders and laggards in an industry, more concentrated and winner - take - all markets, and more churn among rivals in a sector. Strikingly, this pattern closely matches the turbulent “creative destruction” mode of capitalism that was first predicted over 60 years ago by economist Joseph Schumpeter. This accelerated competition has coincided with a sharp increase in the quantity and quality of IT investments, as more organizations have moved to bolster (or altogether replace) their existing operating models using the internet and enterprise software. Tellingly, the changes in competitive dynamics are most apparent in precisely those sectors that have spent the most on information technology, even when we controlled for other factors. This pattern is a familiar one in markets for digitized products like computer software and music. Those industries have long been dominated by both a winner - take - all dynamic and high turbulence, as each group of dominant innovators is threatened by succeeding waves of innovation. Consider how quickly Google supplanted Yahoo, which supplanted AltaVista and others that created the search engine market from nothing. Or the relative speed with which new recording artists can dominate sales in a category. Most industries have historically been fairly immune from this kind of Schumpeterian competition. However, our findings show that the internet and enterprise IT are now accelerating competition within traditional industries in the broader U. S. economy. Why ? Not because more products are becoming digital but because more processes are : Just as a digital photo or a web - search algorithm can be endlessly replicated quickly and accurately by copying the underlying bits, a company’s unique business processes can now be propagated with much higher fidelity across the organization by embedding it in enterprise information technology. As a result, an innovator with a better way of doing things can scale up with unprecedented speed to dominate an industry. In response, a rival can roll out further process innovations throughout its product lines and geographic markets to recapture market share. Winners can win big and fast, but not necessarily for very long. CVS, Cisco, and Otis Elevator are among the many companies we’ve observed gaining a market edge by competing on technology - enabled processes - carefully examining their working methods, revamping them in interesting ways, and using readily available enterprise software and networking technologies to spread these process changes to far - flung locations so they’re executed the same way every time. In the following pages, we’ll explore why the link between technology and competition has become much stronger and tighter since the mid - 1990 s, and we’ll clarify the roles that business leaders and enterprise technologies should play in this new environment. Competing at such high speeds isn’t easy, and not everyone will be able to keep up. The senior executives who do may realize not only greatly improved business processes but also higher market share and increased market value. How Technology Has Changed Competition The mid - 1990 s marked a clear discontinuity in competitive dynamics and the start of a period of innovation in corporate IT, when the internet and enterprise software applications - like enterprise resource management (ERP), customer relationship management (CRM), and enterprise content management (ECM) - became practical tools for business. Corporate investments in IT surged during this time - from about $3,500 spent per worker in 1994 to about $8,000 in 2005, according the U. S. Bureau of Economic Analysis (BEA). (See the exhibit “The IT Surge.”) At the same time, annual productivity growth in U. S. companies roughly doubled, after plodding along at about 1.4 % for nearly 20 years. Much attention has been paid to the connection between productivity growth and the increase in IT investment. But hardly any has been directed to the nature of the link between IT and competitiveness. That’s why, with help from Harvard Business School researcher Michael Sorell and Feng Zhu, who’s now an assistant professor at USC, we set out two years ago to compare the increase in IT spending with various measures of competition, focusing on three quantifiable indicators : concentration, turbulence, and performance spread. The IT Surge In a concentrated or winner - take - all industry, just a few companies account for the bulk of the market share. For our study, we focused on the degree to which each industry became more or less concentrated over time. A sector is turbulent if the sales leaders in it are frequently leapfrogging one another in rank order. And finally the performance spread in an industry is large when the leaders and laggards differ greatly on standard performance measures such as return on assets, profit margins, and market capitalization per dollar of revenue - the kinds of numbers that matter a lot to senior managers and investors.

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