Looking Behind the Myth of IT Productivity

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Looking Behind the Myth of IT Productivity

• Harvard Management Update
• T. Michael Nevens

2
Productivity Growth in the 1995-1999

• 2.5/Year
• Caused by innovation, not IT investment
• Retail/Wholesale--IT a supporting role
• Security trading--Supporting role along with
  regulatory changes
• Technology--innovation, not IT
• 62 Economic sectors--Relationship between IT
  spending and Productivity Growth Not strong

3
IT Spending in the Late 1990s

• Enterprises invested 350 billion above average
  for IT investments
• Was this investment in additional IT capacity a
  waste?
• Authors suggestion Identify innovative uses of
  IT that help differentiate your company from the
  competition

4
Example Firms

• Wal-Mart gave customers big box stores with
  massive inventory, low prices, and minimal
  service
• Charles Schwab gave customers low-cost security
  trading with no advice
• Dell Computers gave customers built-to-order
  computers via phone and web

5
Suggestions

• Give customers new and better value
  propositions--Entrepreneurial thinkers took the
  risk that radically different approaches would
  work and, they were correct

6

• Seek overwhelming competitive advantage through
  focused IT investment--Example enterprises took
  integrated approaches to developing new customer
  value propositions they implemented all the
  changes in concert rather than piece-meal.
  Competitors had a hard time catching up.

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• Take a broadax to costs--Wal-mart, labor
  savings, inventory control, and economics of
  scale--Dell, saved 10-15 in inventory--Used
  advantages for low prices and promotion, quality
  improvements, training

8

• Start with interaction costs--Cost reduction
  through searching, monitoring, coordinating, and
  communicating within the enterprise and with
  suppliers and customers.--Such costs represent
  40-60 of typical firms costs

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Conclusion

• IT is not a panacea standard applications and
  solutions are at best a starting point
• To get the most value form IT, reduce interaction
  costs and then rethink businesses, searching for
  novel ways of plowing the IT generated savings
  into customer-satisfying activities