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Monday, December 06, 2004Technology, Disruption, Business Models and InnovationThe NYTimes has come with an excellent article about Innovation and Disruption. Excerpts (with Edits and my views added):The technology-driven dislocation that has transformed techbusiness is spreading throughout the economy, many economists say, as more businesses discover how to harness new technological tools and fuel a surge in productivity growth. Cable is taking audiences from the television networks. Telephone giants are losing business to the Internet. Wal-Mart has forced Toys "R" Us to consider exiting the toy business. From the goliaths of industry to the smallest of niche firms, American companies seem to be in the grip of unprecedented industrial upheaval. "We've always had a lot of turbulence in technology, but now turbulence is going beyond technology companies," said Adrian Slywotzky, a managing director of Mercer Management consulting. "In the next few years we will see more of that."Indeed, technology is changing what a book is. New digital techniques to layer meta-information onto texts have created Internet-based interactive books, a potentially revolutionary breakthrough for fields like high school education. And the Internet permits many of these tasks to be done cheaply in faraway places. The actual new economy might not look quite like the utopian arrangement envisaged by the stubbled gurus of the dot-com period- where everything brilliant was done online by 22-year-olds. But from the global outsourcing of business processes via the Internet to Wal-Mart's sophisticated logistics management systems (which have been crucial in allowing it to drive down prices and achieve its gargantuan scale), information technology is reshaping businesses and markets. The corporate landscape is littered with ailing former giants struggling to come to terms with the new realities. The gale of innovation and industrial reorganization is a product of two major forces. The computer and its more recent application, the Internet, are seeping into every nook and cranny of the economy, and are being used by companies across the board for an expanding array of purposes. And even as this technological breakthrough has ignited a rush of investment and innovation, deregulation that started some 25 years ago has opened formerly protected sectors like airlines, telephone companies and electric utilities to competition. Together, the effect of these transformations has been a significant lift to productivity, which over the last eight years has grown at an annual rate of over 3 percent, nearly double the pace of the preceding 30 years. Several economists have argued that the productivity burst is a consequence of big investments in information technology since the 1980's, delayed because companies took time to understand and apply the technology they were buying. The footprint left by information technology on the economy is large, however, and it is still growing. Information technology has changed how companies sell everything from books to airline tickets to equities. The increase in computing power is opening up whole new fields of endeavor, like genetic sequencing and biotechnology. Many businesses are just now learning to deploy technology usefully.Perhaps most significant for corporate America, the Internet has enabled a new wave of global outsourcing, allowing once nation-bound companies in the service sector - the biggest part of the American economy- to dispatch parts of their business to cheap labor markets on the other side of the world. CONCERN is arising over the future pace of innovation. Corporate investment in technology collapsed after 2000, and it is doubtful that it can ever again achieve the frantic pace of the 1990's. Mr. Gordon pointed out, for instance, that much of the investment surge in the 1990's was driven by factors that are unlikely to be repeated, like the deregulation of telecommunications. He said companies' investment in technology has suffered from diminishing returns."Today, with a much more competitive and deregulated environment there are very few companies with the kind of financial cushion to take the 10-to-15-year long-term view," said Mr. Slywotzky of Mercer Management. "Those engines of innovation have shut down." | |
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