Scale without mass: business process replication and industry dynamics
AbstractIn the mid-1990s, productivity growth accelerated sharply in the U.S. economy. In this paper, we identify several other changes that have occurred during the same time and argue that they are consistent with an increased use of information technology (IT) in general and enterprise IT in particular. Case studies and econometric evidence demonstrate that IT has enabled firms to more rapidly replicate improved business processes throughout an organization, thereby not only increasing productivity but also market share and market value. We develop a simple model that shows how IT-enabled business process replication will also increase both turbulence and concentration at the industry level. We then document a substantial increase in turbulence starting in the 1990s, as measured by the average intra-industry rank change in sales, enterprise value, and other metrics. In particular, we find that IT-intensive industries account for most of this increase in turbulence, especially after 1996. In addition, we find that IT-intensive industries became more concentrated than non IT-intensive industries after 1996, reversing the previous trend. The combination of increased turbulence and concentration, especially among IT-intensive industries, is consistent with an increasingly Schumpeterian style of competition. We conclude that the improved ability of firms to replicate business innovations is linked not only to productivity increases, but also to changes in the nature of business competition itself.
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Bibliographic InfoArticle provided by Federal Reserve Bank of San Francisco in its journal Proceedings.
Volume (Year): (2007)
Issue (Month): Nov ()
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