: Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson Flashcards
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
INTRODUCTION and aim of paper:
- competitive dynamic are most apparent in sectors that have spent most on information technology (eg markets for digitised products like computer software and music)
- internet & enterprise IT are now accelerating competition as innovators with better ways of doing technology-enabled processes can scale up with speed to dominate industry
-> winners can win big and fast but not necessarily for long due to highly competitive & dynamic - aim of paper: explore link between technology & competition and why it has become much stronger since mid-1990s
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
HOW DID TECHNOLOGY CHANGE COMPETITION ?
- mid 1990s mark discontinuity in competitive dynamics: start of period in innovation in corporate IT investiments in IT surged + annual productivity growth in US companies doubled
- much attention on connection between productivity growth & increase in IT investment, too little focus on nature of link between IT & competitiveness
- paper compares increase in IT spending with measures of competition (= quantifiable indicators concentration, turbulence and performance speed
average turbulence rose + concentration began increasing + spread between highest and lowest performers increased all starting mid 1990 = coincided with surge in IT investment & productivity rise – suggesting fundamental change inn underlying economics of competition
* changes in dynamics were greatest in more IT intense industries
* M&A activities, globalisation and R&D spending showed some minor correlations with competitive dynamics as well but not strong to override link between competitiveness & IT (current study)
* nowadays almost firms have option to deploy technology to improve their processes -> firm with best processes win in most or all markets but competitors can strike back much more quickly by introducing further IT-based innovations instead of just copying + then propagate them widely
result: performance spread rises, concentration increases (losers fall aside), turbulence intensifies as remaining rivals use changes in IT models to leapfrog one another
-> conclusion: rivalry in industry will continue to become more fast-paced, intense and dynamic than it was prior to the advent of enterprise technology
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
What does Concentrated/winner-take-all industry mean?
industry in which a few companies account for the bulk of the market share
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
What does Turbulent sector mean?
sector in which sales leaders in it are frequently leapfrogging one another in rank order
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
What does Performance spread mean?
: difference on standard performance measures (ROA, profit margins, market cap) between leaders and laggards in an industry
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
MAIN POINTS ABOUT COMPETING ON DIGITAL PROCESSES ?
- to survive in competitive environment, CEO mantra must be: ‘deploy, innovate, propagate’
-> conclusion: enterprise IT will not have one best way to execute processes but rather involve experimentation as firms need to understand who has most relevant knowledge to make decision
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
COMPETING ON DIGITAL PROCESSES : DEPLOYMENT: THE MANAGEMENT CHALLENGE ?
deploying a consistent technology platform
* manager extra responsibility: determining which aspects of companies’ operating models should be globally (min widely) consistent, then using technology to replicate them (fragmentation + autonomy)
* oftentimes very time-consuming & expensive to form systems so that all can use common data and enforce standardised processes often do not remain standardised for long as software is deployed in many other ways than intended
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
COMPETING ON DIGITAL PROCESSES : INNOVATION: IT-ENABLED OPPORTUNITIES ?
- separating from competitors by coming up with better ways of working
- data analytics drawn from enterprise IT applications & web 2.0 technologies aid in propagating & integrating technologies = thus forming own/better ways of working (business innovations
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
COMPETING ON DIGITAL PROCESSES : PROPAGATION: TOP DOWN & BOTTOM UP ?
- use problem to propagate business innovations widely and reliably
- opportunity for management to standardise best practices and eliminate chaos of inconsistent home-grown practices
- tools for propagation: ERP system; web 2.0 applications that help process changes emerge from lower levels in orga (wikis on which ideas are shared about specific innovations)
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
COMPETING ON DIGITAL PROCESSES : THE ROLE OF DECISION RIGHTS
- many choices about business processes are taken out of business-unit managers & regional managers and appear to lead to more centralised-decision making but line managers and employees often end up with more discretion within the processes to serve customers’ needs & to apply tacit, idiosyncratic or relationship-specific information only they have
- example: Zara has common processing of ordering by filling in digital form at same periods of time but managers at each location determine what clothes they order in which quantity
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
MAXIMISING RETURN ON TALENT HOW?
- over time value of simply carrying out rote instructions will fall while value of inventing better methods will rise may lead to superstar effect
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
MAXIMISING RETURN ON TALENT: What is Superstar effect?
disproportionate rewards accrue to very best knowledge workers; HR policies & corporate culture will support this worker (HR training, performance & compensation linking)
Investing in the IT that Makes a Competitive Difference – McAfee & Brynjolfsson
What are the 3 conclusions?
1) IT has sharpened differences among companies instead of reducing them
2) line executives matter: real value comes not from people that implement them in first place but from process innovations that can be delivered on platforms
3) competitive shake-up brought on by IT is not complete
