Productivity Paradox

-Stephen Roach

- Robert Solow

Massive increase in investment in IT led to NO evidence of an increase in worker productivity - Economist, Stephen Roach (1989)

We see computers everywhere except in the productivity statistics - Robert Solow

- was never viewed as a paradox, as economies continued to pour $ into IT

1. Productivity - allows a company to make either MORE/BETTER/FASTER output from the same input

accounting firm buys tax software to prepare taxes quickly

2. Structure of Competition - changes the way corporations compete --> making products stand out 

accounting firm buys tax software, competition has to lower price, buy software, provide more service

3. Benefits to Customers - consumers get cheaper and better goods and service

accounting firm buys software, customer gets lower prices, faster service

1. increasing EFFICIENCY = "doing things right"

business process can be done more quickly and/or with fewer resources

2. increasing EFFECTIVENESS = "doing the right things"

company offers new and/or improved goods and services that customer values

- effectiveness & efficiency = looking at business process

- Porter's Value Chains is made of business processes, and describes how organizations create value (margin) in products

- Value Chain = network of value-creating activities

Primary Activites

Support Activities

Primary - adding value directly to product

Support -adding value indirectly to benefit the customer (eg. you don't go to costco because they have a good payroll system) (eg. Accounting, Marketing, HR actions)

Organization Strategy

what? how is it influenced?

- maps out how company will meet goals and objectives

- companies strategy is influenced by competitive structure of the industry

Porter's 5 Competitive Forces

ex. tablet computers

1. Bargaining power of customer - customer can easily switch brands

customer preference drives industry, customer has HIGH power

2. Threat of substitution - switch products 

      companies need to launch competiting products quickly

3. Bargaining power of suppliers - contracts w/ big companies are lucrative for suppliers (therefore doesn't impact)

4. Threat of new entrants - new entrants will have a hard time if distrubution network is huge --> threat - low 

5. Rivalry amoung existing firms - firms pay huge $ in marketing to ensure brand awareness (not prices) 

*nature of competitive forces in industry determines competitive structure 

Competitive Strategy 

IT strategy 

competitive strategy - set of plans and initiatives that outline how an organization chooses to respond to particular industry structure

IT strategy - support the organization's competitive strategy 

1. Cost leadership across industry (ie lowest cost for rental cars) 

2. Cost leadership focused on particular industry segment (ie lowest cost for business travellers)

3. Differentiation across industry (ie high quality cars or reservation system) 

4. Differentiation focused on particular industry segment (ie high quality cars or reservation system for business travellers) 

* Porter says goals, objectives, culture, and

activities must be consistent with strategy!

1. Sustaining --> changes in technology that maintain the rate of improvement in customer value ( eg. wireless mouse vs. wired mouse) 

2. Disruptive --> introduce a very new set of experiences, take out the OLDER (sustaining) method ( eg. iPhone, Internet vs. Doing Research)  **can change industry structure 

- how quickly an innovation is accepted by an individual 

1. Knowledge of Innovation - awareness know about iphone

2. Persuasion - ease of use, relative advantage of innovation play with friends iPhone

3. Decision - weigh out pros/cons to adopt innovation decide whether or not to buy 

4. Implementation - makes use of innovation buy 

5. Confirmation - realization of innovation feedback 

companies innovate in order to achieve competitive advantage... implement change via PRODUCTS or BUSINESS PROCESS

Product Implementation 

1. Create a new product or service 

2. Enhance products or services

3. Differentiate products or services

System Implementations

4. Locking in customers - high switching cost (via mass availability like microsoft) 

5. Lock in Suppliers - making it easy to connect to and work with organizations 

6. Creating entry barriers - making it expensive for new competition to enter market 

7. Establish alliances - establish standars, promote product awareness (i.e chapters and indigo did not allow Amazon to enter canada) 

8. Reduce Cost - increase profitability 

- IT can provide some competitive advantage in the SHORT RUn, but in the LONG RUN other companies buy IT to replicate them 

--> Nicolas Carr "IT doesn't matter" - the more ubiquitous --existing everywhere-- IT becomes, the less competitive advantage it provides

- Long term advantage is provided by PEOPLE learning how to incorporate new technology into company procedures 

--> IS MATTERS