MANAGING TECHNOLOGY FINANCE & ACCOUNTING HUMAN RESOURCES ORGANIZATION & CULTURE FINANCE & AC
& CULTURE FINANCE & ACCOUNTING MARKETING MANAGING TECHNOLOGY FINANCE & ACCOUNTING HUMAN RES
COUNTING HUMAN RESOURCES ORGANIZATION & CULTURE FINANCE & ACCOUNTING MARKETING MANAGING TE
TECHNOLOGY FINANCE & ACCOUNTING HUMAN RESOURCES ORGANIZATION & CULTURE FINANCE & ACCOUNTING
HUMAN RESOURCES MARKETING MANAGING TECHNOLOGY FINANCE & ACCOUNTING HUMAN RESOURCES ORGA
MAN RESOURCES ORGANIZATION & CULTURE FINANCE & ACCOUNTING MARKETING MANAGING TECHNOLOGY FIN

Joel Lardner

Investing in the IT

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& ACCOUNTING MARKETING MANAGING TECHNOLOGY FINANCE & ACCOUNTING HUMAN RESOURCES ORGANIZATION
RESOURCES ORGANIZATION & CULTURE HUMAN RESOURCES MARKETING MANAGING TECHNOLOGY FINANCE & ACG TECHNOLOGY HUMAN RESOURCES ORGANIZATION & CULTURE FINANCE & ACCOUNTING MARKETING MANAGING
ING MARKETING MANAGING TECHNOLOGY FINANCE & ACCOUNTING HUMAN RESOURCES ORGANIZATION & CULTURE
RGANIZATION & CULTURE HUMAN RESOURCES MARKETING MANAGING TECHNOLOGY FINANCE & ACCOUNTING HUHoning Your Competitive Edge
Y FINANCE & ACCOUNTING MARKETING ORGANIZATION & CULTURE HUMAN RESOURCES

That Makes a

Competitive
Difference
Studies of corporate performance reveal a growing link between certain kinds of technology investments and intensifying competitiveness. by Andrew McAfee and Erik Brynjolfsson

I

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 1990s, 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

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MANAGING TECHNOLOGY

much stronger and tighter since the mid-1990s, and we’ll clar(including sales, earnings, profitability, and market capitalizaify the roles that business leaders and enterprise technologies tion) and found some striking patterns: Since the mid-1990s, should play in this new environment. Competing at such high a new competitive dynamic has emerged – greater gaps bespeeds isn’t easy, and not everyone will be able to keep up. tween the leaders and laggards in an industry, more concenThe senior executives who do may realize not only greatly trated and winner-take-all markets, and more churn among improved business processes but also higher market share and rivals in a sector. Strikingly, this pattern closely matches the increased market value. 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
How Technology Has Changed Competition increase in the quantity and quality of IT investments, as more
The mid-1990s marked a clear discontinuity in competitive dyorganizations have moved to bolster (or altogether replace) namics and the start of a period of innovation in corporate IT, their existing operating models using the internet and enterwhen the internet and enterprise software applications – like prise software. Tellingly, the changes in competitive dynamics enterprise resource management (ERP), customer relationare most apparent in precisely those sectors that have spent ship management (CRM), and enterprise content managethe