Today’s Wall Street Journal contains their Business Insight section, which is a collaboration between the Journal and MIT Sloan Management Review. this section features research of interest to WSJ subscribers, and its articles are written by scholars rather than journalists.

Today’s Business Insight contains an article (also available here on the Sloan site) written by me and MIT’s Erik Brynjolfsson, who I continue to embarrass by describing (accurately) as the pre-eminent economist studying IT’s impact. For a while now, we’ve been collecting data and conducting analyses to address a fundamental question for our discipline: is there systematic evidence that IT matters in competitive battles? 

There are three broad schools of thought about information technology’s impact on competition.  The first, ably articulated and defended by Nick Carr, is simply that IT Doesn’t Matter for competition —  that competitive dynamics remain unchanged as firms make their individual IT investments. IT brings productivity and performance benefits, but it brings them to all competitors equally. As a result, according to Carr, IT is "a cost of doing business that must be paid by all, but provides distinction to none."

A second hypothesis is that IT has a leveling or homogenizing effect on competition —  that it makes firms in an industry more similar. After all, this argument goes, firms are increasingly buying commercial software (from vendors like SAP, Oracle, Microsoft, Business Objects, etc.) rather than writing it themselves. Consequently, everyone’s business processes should  become more similar and undifferentiated, since they’re encoded in the same software. IT doesn’t separate winners from losers, in other words —  it brings them closer together, and makes it less likely that anyone’s going to stand out.

The third view, of course, is that IT does matter; that its main effect is to differentiate competitors within an industry and separate winners from losers. Those of us who have been advocating this view have to date relied primarily on case studies to illustrate this effect. However, case studies of runaway IT-based successes can be dismissed as outliers —  extreme examples that are not representative of any general trend.  

So Erik and I, along with our colleagues Feng Zhu (a doctoral student in HBS’s IT Management program) and Michael Sorell (an HBS researcher) set out to determine the general trend. We reasoned that since IT spending increased substantially beginning in the mid 1990s, and since not all industries spend equally on technology, one good way to assess IT’s competitive impact would be to see if there was a difference in differences: if industries that spent a lot on IT (’high IT’ industries) experienced different competitive dynamics after the mid 1990s than they did before, and if there was a difference in this respect between high and low IT industries. If both these differences existed, it would be a strong indication that IT mattered —  that it was a driving force behind the observed changes in competition.

But how to measure competition?  One common metric is concentration: the extent to which market share is held by a few big firms, rather than many small ones. We also looked at turbulence, or the extent to which firms in an industry jump around in rank order from year to year (If the #5 firm in sales one year is #10 the following year, this is a pretty turbulent industry).

The results of our analyses were clear. High IT industries experienced significantly greater turbulence and concentration growth after the mid 1990s than they did before, and these differences were not as pronounced in low IT industries. The Business Insight article contains graphs that show these differences, and I’ll post and discuss more results here later .  For now I just want to point readers to the article (a paper written for an academic audience that discusses the research design and results in more formal terms is available here) and solicit their reactions. 

What do you think? Do you buy that the competitive landscape is changing, and that IT is partly responsible for these changes?  If not, why not?  What other evidence would be more convincing?  If so, here’s the really important question: what are you going to do about it? I’m very confident that the right prescription is not to start spending on IT like a drunken sailor.  But what is the right response within an industry that’s being transformed by IT? How should a company and it’s leaders seize the day? Let us know your opinion, and stay tuned.  There will be more discussion of these topics here.

One of the biggest differences I’ve noticed between MBA and executive education students at HBS is that the former are much more likely to advocate using incentives as tool to increase performance, change behaviors, or effect organizational change. It sometimes seems as if they treat incentive alignment not as a first principle of management, but as the first principle. It happens occasionally that we faculty ask students questions for which they’re clearly not prepared, and a common strategy in this situation is to start talking while hoping that an idea will occur. A frequent opener to one of these playing-for-time comments is something like "Obviously, incentives are misaligned here, and this problem we’re talking about now comes from the misalignment. So we have to fix the incentives. I’d…"

Executive education participants are much less likely to reach for the hammer of incentive alignment, in part because they don’t see the nails of severe misalignment everywhere in their organizations. But their reluctance to tinker with incentives also comes, I believe, from bitter experience; they’ve seen the resentments and unintended consequences that come with changes to incentive schemes. They’ve seen, in other words, the truth of what my colleague Brian Hall in our finance department says: that incentives are a powerful tool, but a blunt one. MBAs see incentives as a sculptor’s mallet; executives see them as something closer to a jackhammer.

I told my students on the first day of class that my mission for the semester, which ended yesterday, was to convince them that IT is the single best tool they’ll have throughout their careers as business leaders. Cases and modules showed them (I hoped) that IT lets them define and impose new ways of working, and that they can also use information technology to essentially get out of the way and see what new ways of working emerge. In addition, technology lets them monitor and analyze phenomena of interest. In short, I told them in the wrap-up class yesterday, modern IT gives them an unprecedented ability to stay on top of and shape companies, and to overcome the problems of growth and decentralization summarized by the Chinese proverb that "The mountains are high, and the emperor is far away."

I wondered if they bought what I’d been selling, and so decided to do an on-the-fly poll in the wrap-up class. Each seat in our classroom has four buttons in front of it labeled A through D, and the instructor has a console that tallies the buttons everyone’s pressed. After telling my students that I wouldn’t reveal any individual’s choice, I said:

"Imagine you’ve just assumed responsibility for whatever type of company you’d most like to run. You have two hypothetical options. Option A is that you can make as many changes as you’d like to the incentives of as many people as you’d like, but you have to leave the IT infrastructure unchanged. Option B is that you can make as many changes as you’d like to the IT infrastructure, but you have to leave everyone’s incentives unchanged. Options C and D don’t exist. Please make your choice now."

The final tally was 19 votes for option A (wielding the tool of incentives) and 53 votes for option B (wielding the tool of IT).

How should we interpret this result? First of all, I don’t think my students were voting against their true beliefs. They rarely say things they don’t mean in an attempt to curry favor with their instructors, so I very much doubt that their votes represented a last-ditch effort to nudge their grades up.

Still, it’s important not to read too much into this single vote. It’s true that the students in my course were, on average, bigger technophiles than HBSers as a group, so it could be that this group was skewed from the start toward favoring IT over incentives. I wish I had thought to ask the same question at the start of the semester so I could assess whether the course in fact changed people’s opinions. It would also be interesting to ask the same question to a ‘control’ group of HBS MBAs who didn’t take Managing in the Information Age.

So this vote is a data point, not anything like a piece of research. But I find it a very interesting data point. It gives me some confidence that what I was trying to communicate over the semester actually sunk in a bit — that my incessant proselytizing about the power of IT, and my attempts to convey this power via case studies, class guests, in-class discussions, the course wiki, and the rest of our pedagogic bag of tricks had some success.

I don’t think the vote would have been the same at the start of the semester, and I don’t think a random cross-section of our MBAs (or anyone else’s) would vote almost 3 to 1 in favor of IT over incentives as a tool for improving organizations. What this vote indicates, I believe, is that when presented with enough information — the right mix of factual and conceptual material — about the impact of IT, sharp business people will come to (what I think is) the right conclusion. They’ll conclude that IT’s impact is both broad and deep, and that information technology is a tool they should reach for early and often as they work to make their organizations stand out.

We’ve spent the past couple weeks in my MBA class discussing E2.0 technologies (including blogs, wikis, and prediction markets), approaches, and initiatives. One of the most interesting things for me about these classes has been how often students bring up one specific concern: that people who use the new tools heavily —  who post frequently to an internal blog, edit the corporate wiki a lot, or trade heavily in the internal prediction market —  will be perceived as not spending enough time on their ‘real’ jobs.

This is almost the inverse of the concern that Nick Carr brought up soon after the initial E2.0 article came out —  that busy knowledge workers wouldn’t have time for the new technologies. My students felt that knowledge workers who used the technologies a lot would be seen as not busy enough.

The first time one of them voiced this worry I was quite surprised. I felt like I was hearing a 1960s-era Theory X view of corporate life being espoused by one of the young people being trained to lead the organizations of the new millennium. And it seemed strange to me that this would be their philosophy after almost two years of an education designed to shape their perspectives as enlightened business leaders. As this concern came up in class after class, though, I began to suspect that what I was hearing was a reflection not of their philosophies, but of the realities they’d experienced.

Virtually all our MBA students have a few years of work experience before coming to campus, and they work, in large part, in the industries you’d expect — banking, consulting, venture capital and private equity, etc. Companies in these sectors usually have results-oriented corporate cultures, but they also prize effort as well as results. They value hard work, long hours, and the appearance of progress toward bottom-line improvements. This tendency is probably particularly strong in consultancies, given their focus on billable hours.

MBA students who come from these cultures may or may not have adopted for themselves a narrow definition of what constitutes ‘productive’ work, but they certainly had their eyes open in their jobs. They saw who became perceived as a star, and who rose quickly through the ranks. They also saw how the leaders in these organizations perceived and talked about what kinds of contributions were valuable, and what kinds weren’t. 

So I should have been less surprised when my students talked about the negative perceptions associated with E2.0 contributions. They were likely just relating how these contributions would have been seen in their former companies. In environments that value ‘busyness’ enterprise 2.0 enthusiasts can be seen as laggards, goof-offs, and people who don’t have either enough to do or enough initiative to find more real work to do.

Companies that are full of knowledge workers and that have built cultures that value busyness face a potentially sharp dilemma when it comes to E2.0. These companies stand to benefit a great deal if they can build emergent platforms for collaboration, information sharing, and knowledge creation. But they may be in a particularly bad position to build such platforms not because potential contributors are too busy, but because they don’t want to be seen as not busy enough.

And even if the leaders in such companies sincerely want to exploit the new tools and harness the collective intelligence of their people, they might have a tough time convincing the workforce that busyness is no longer the ne plus ultra. Corporate cultures move slowly and with difficulty, and it will take a lot more than a few memos, speeches, and company retreats to convince people that it’s a smart career idea, rather than a poor one, to contribute regularly and earnestly to E2.0 platforms. 

I often look to high-tech companies to observe state-of-the-art work practices. Something about the intensity of both the competition and the war for talent in their industries makes them laboratories for workplace innovations. And even though technology producers face time pressures that are as intense as anyone’s, many of them have not developed cultures of busyness. In fact, some have tried hard to build in the opposite mentality in their employees. Google, for example, gives their engineers ‘20% time‘ – the equivalent of a day a week ‘to pursue projects they’re passionate about.’ According to Google, 20% time has resulted in Google News, Google Suggest, AdSense for Content, Orkut, and the company’s internal prediction market.  From everything I’ve seen and read, Google’s engineers work hard, put in a lot of hours, and are busy, but they aren’t obsessed with busyness —  the need to always appear to be working hard at one’s ‘real’ job. 

I’ll close this post by highlighting the dangers of a busyness obsession via an anecdote about Henry Ford, a corporate leader not often associated with freewheeling approaches and tolerance for inefficiency.

I’ll be participating in the Enterprise 2.0 Rave, which is being held May 21-22 in New York City.  The event will  "bring together leading thinkers in the areas of collaboration, knowledge management, e-learning, and social media with practitioners from a variety of industries – your peers – for an intense 24 -hour brainstorming session on the challenges and opportunities related to Enterprise 2.0 deployments."

I’m speaking after dinner on the 21st, then leading the discussion session on deployments and business processes on the 22nd. Other sessions that day will be devoted to adoption issues, and to getting started and measuring success. The organizers are thinking about some interesting variations to the standard conference agenda of keynotes, panels, discussion groups, etc.

The event will not be huge, and will be limited to practitioners, so it should be an excellent opportunity to swap ideas, understand the current state of E2.0, and meet people who are interested in the new tools and approaches. If it sounds interesting, please show up and come ready to listen and talk.

Rich Hoeg just emailed to let me know that Honeywell is about to go live with its behind-the-firewall tagging capability (which is supplied by ConnectBeam). This will allow Honeywell employees to securely tag both Intranet and Internet content, to have relevant tags returned with (Google-powered) search results, and to see other users’ tag collections. Rich’s blog post provides more information and screen shots.

I’m really encouraged by this experiment for a couple reasons. First, it’s an attempt to use collective intelligence and network effects to make the Intranet more interconnected. The link structure of the Internet goes a long way toward accomplishing these goals, but as I’ve written before, most Intranet content isn’t very heavily interlinked, and the links that do exist are usually created by a few people – the people responsible for Intranet content – rather than by a broad, diverse population. Tags are potentially a way to deal with this problem, and to add after-the-fact emergent structure to Intranets.

Second, it’s an effort by a classic large, mainstream, ‘old economy’ company to embrace Enterprise 2.0 technologies and approaches. Honeywell is about as far away from Avenue A | Razorfish as possible —  the former is a huge old manufacturing conglomerate, the latter is a Network Era interactive agency. Yet both have now embraced tagging as a way to let their employees help each other find relevant content (a group-level goal) while simultaneously organizing their online environments  (an individual-level goal).

I’m very interested to learn how internal tagging progresses at Honeywell, and to hear of other similar initiatives.  If you have good examples, please share them by leaving a comment.