Global Strategy - blog

How big a deal is IT? Is it really a ‘game changer’ for business? And if it is, does it change the game in a way that leaves the players looking more similar, or more differentiated from each other? 

Andrew McAfee, Associate professor at Harvard Business School, summarizes (clever way of promoting) his and Erik Brynjolfsson's article, "Investing in the IT That Makes a Competitive Difference", in his blog post "Technology Beats a Full House". As many Glostra members are also dealing with competitive dynamics (and also usually with a quantitative approach), the article may present some interesting points worth examining. 

In the blog post, McAfee describes how they initially 'tested' their hypothesis of IT's impact on competition within industries with the cunning use of baseball statistics, seeking an answer to the seemingly eternal debate about why there aren't any more 0.400 hitters anymore. The answer, according to McAfee lies in the discovery of Steven Jay Gould, stating that “Complex systems improve when the best performers play by the same rules over extended periods of time.  As systems improve, they equilibrate and variation decreases.” McAfee goes on to explain how the variation decrease in baseball player skill levels accounts for why 0.400 hitters haven't appeared recently. 

 Early in baseball history a .400 hitter wasn’t that far away from the average performance, when ‘far away’ is measured in terms of the standard deviation of that time. Over time, though, that standard deviation shrank— in other words, players’ batting averages tended to cluster more tightly around the average. And so hitting .400 meant being even farther away from average, again when ‘far away’ is expressed in terms of the number of standard deviations (which is the smart way to do such measurements). 

So what has this got to do with the level of IT investments and competitive dynamics? Well...

 If the combination of the Web and commercial enterprise IT really was a ‘game changer’ for the competitive game of business, then the introduction of these technologies should be accompanied not by a decrease in variation in performance, but instead by the opposite—an increase in performance spread among competitors. It would be as if the rules of baseball suddenly changed hugely: if players had to hop on one leg the whole time, or play with a frisbee instead of a ball, or have a hot dog eating contest before each inning. Rule changes this big would upset the game’s equilibrium, and increase the variation in performance among hitters.  

If this assumption was valid for the general business environment, one could naturally assume that the spread between the losers and winners would be biggest in the industries with the highest levels of IT investments. Furthermore, one should be able to notice an increase in the gap, starting in the mid 1990's, as novel corporate technologies began transforming the business environment.

Interestingly, this seems to be the case, at least in the US. According to McAfee's and Brynjolfsson's research, the spreads have indeed increased in practically all industries. 

 For virtually all the ratios we considered, variation in high-IT industries started to increase in the mid 1990s and stayed high after that, with some exceptions during the post-2000 economic slump. The less IT an industry had, the less pronounced this trend was.

Is this the kind of research that could really put IT in the focus of all managers in all industries? Is there a similar trend visible in the Finnish corporate "ecosystem"? How about the the impact of web technologies – are they giving the phenomenon an added boost or levelling the playing field?

Jumping to a totally different subject, I'd like to recommend an extremely easy-to-use application called Evernote, that I've personally been using for some time now. "Evernote allows you to easily capture information in any environment using whatever device or platform you find most convenient, and makes this information accessible and searchable at any time, from anywhere." Perfect when doing research on the web. It's a second memory! 

For a short introduction video on Evernote and all that you can do with it, see the video below, or click here for the YouTube version.