Technology’s Effects on the Workforce and the Economy
As computers get more powerful and capable — as they learn to drive cars, beat the best human players at Jeopardy!, accurately diagnose cancer, and so on — how wages, skills, and employment rates be affected? Erik Brynjolfsson and I began to investigate these topics in our ebook Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy,
I coined this phrase in 2006 to describe the business use of emergent social software platforms (ESSPs) – novel technologies that support collaborative work without pre-defining its structure. Structure in this context means workflows, roles and responsibilities, interdependencies, and decision rights. ESSPs like wikis, blogs, social bookmarking and social networking software, Twitter, and prediction markets first became popular on the Internet and came to be labeled “Web 2.0.”
Enterprise 2.0 refers to the use of these same tools by organizations in pursuit of their goals. Organizations have a long history of using technology to try to facilitate collaboration, but a generally poor track record with these tools. I hypothesize that this is because the technologies they deployed, such as groupware and knowledge management systems, imposed too much structure; they pre-defined how people were going to work together.
ESSPs, in contrast, do not pre-define how collaboration will happen. Instead, they let people begin working together as equals and accept all types of contribution. This sounds like a recipe for chaos, but it is not. A fundamental and powerful property of all ESSPs is that they allow structure to emerge over time based on people’s interactions, even though they’re not pre-defined.
My work on Enterprise 2.0, which has consisted of field research and case studies, indicates that the new technologies of collaboration can solve longstanding and vexing challenges around knowledge capture and sharing, locating expertise, opening up innovation processes, and harnessing the ‘wisdom of crowds.’
My book on Enterprise 2.0 will be published in the fall of 2009 by Harvard Business Publishing. I’ll also have an article on the topic in the November issue of Harvard Business Review. Two previous articles on Enterprise 2.0 have appeared in Sloan Management Review. I also blog frequently about this subject.
The competitive impact of information technology
It’s pretty clear that IT in general improves a company’s productivity, but what are its other effects on the world of business? In particular, how does it affect competition? Does technology allow some companies to get ahead and stay ahead of their rivals in an industry, or does it benefit all competitors equally?
My colleagues Erik Brynjolfsson, Feng Zhu, Michael Sorell and I have documented two very interesting patterns. First, competition in US industries accelerated substantially beginning in the middle of the 1990s, just as important new technologies like the Web and commercial enterprise software became available to corporations. High performing companies pulled farther away from low performers in measures like profit margin and ROA, turbulence increased, and concentration began to increase after many years of decline.
The second interesting pattern is that all of these changes have been more pronounced in industries that spend more on IT. In both the manufacturing and service sector the trend is clear: greater technology spending is associated with more intense competition at the industry level.
While the data cannot ‘prove’ that IT is responsible for the changes in competition we observe, I believe that the patterns we observe are not coincidences, and that IT is in fact increasing the pace of business competition. It is doing so in two broad ways. First, tools for analytics, open innovation, crowdsourcing, and so on are increasing the number of good business ideas. Second, communication and workflow technologies are impact or leverage of many of these ideas; thanks to IT, innovations that were formerly local can now be spread globally throughout a company.
My research in this area has been a mix of field work and analysis of publicly available data. My collaborators and I have published articles from this work in the Wall Street Journal and Harvard Business Review, and have a working paper describing our results available for download from SSRN. I’ve also blogged about this research.
I am at work on a book about IT’s competitive importance.
What makes a company good at IT?
My colleagues and I are in the early stages of a research effort to understand what makes some companies better able to exploit IT than their rivals. We are conducting a survey on this topic, which we will combine with publicly available data and case studies.