ICT AND INNOVATION - Bruegel · Science Foundation and the MIT Center for Digital Business. ......

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Copyright © 2011 Erik Brynjolfsson 1

ICT AND INNOVATION

Erik Brynjolfsson MIT Center for Digital Business http://digital.mit.edu/erik Bruegel Lecture, Brussels, May 7, 2012

Generous support for this research was provided by the National Science Foundation and the MIT Center for Digital Business. Copyright © Erik Brynjolfsson.

Productivity Growth is Accelerating…

Copyright © 2011 Erik Brynjolfsson and Andrew McAfee

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At least in the U.S.

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Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2007, http://www.ggdc.net.Notes: Labor productivity is defined as real GDP per hour worked. Trend estimates are based on a Hodrick-Prescott filter with a smoothing parameter of 100.

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Real IT Stock Has Surged Real US Corporate IT Stock

0

40

80

120

160

1965 1970 1975 1980 1985 1990 1995 2000 2005

IT St

ock,

norm

alize

d (ye

ar 20

00 =

100)

5 Copyright (c) Erik Brynjolfsson

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IT and Productivity: The Data Speak

IT Stock (relative to industry average)

Productivity (relative to industry average)

Copyright (c) Erik Brynjolfsson (Source: Brynjolfsson and Hitt, 2000)

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High IT and Digital Org.

IT Pays off when it changes how companies work

Mar

ket v

alue

IT Capital

Digital org.

7 Source: Brynjolfsson, Hitt, and Yang 2002

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Experiment

Measure

Share

Replicate

ICT Enables Four Drivers of Innovation

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Measure

New Tools Beget Revolutions

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The Nanodata Revolution

§  Clickstream/Page views/Web transactions §  Web links/Blog references/Facebook §  Google/Bing/Yahoo Searches §  Email messages §  Mobile phone/GPS/Location data §  ERP/CRM/SCM transactions §  RFID (Radio Frequency Identification), Bar Code Scanner Data §  Real-time machinery diagnostics/engines/equipment §  Stock market transactions §  Twitter feeds §  Wikipedia updates §  Etc….

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Data vs. HiPPOs

Wine Chemistry Housing Sales Truck Routing

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Data Driven Decision-makers are Winning

ü Data-‐Driven Decision-‐makers: 4% higher productivity

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ü Data-‐Driven Decision-‐makers:

6% greater profitability and 50%

higher market value from IT

Source: Brynjolfsson, Hitt and Kim, 2011

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Experiment

14 Copyright (c) Erik Brynjolfsson

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Copyright (c) Erik Brynjolfsson 15

Experimentation at Harrah’s

Gary Loveman

•  Zero executive experience

•  Zero background in Casinos

•  But, an MIT PhD who knows how to make numbers talk Results

•  Transformed Harrah’s from second tier to number one gaming company in the world

•  Completed a $30.7 Billion LBO •  Introduced a culture of pervasive field experimentation

•  “There are two ways to get fired from Harrah’s…”

“We have come out on top in the casino wars by mining our customer data deeply, running marketing experiments and using the results to develop and implement finely tuned marketing and services strategies that keep our customers coming back.”

• -- Gary Loveman, CEO, Harrah’s 16 Copyright (c) Erik Brynjolfsson

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Share

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Cisco’s Mac Wiki

- Over 10,000 Macintosh users at Cisco, but no central IS support

-  A few users established a wiki, where users could post tips, tricks, files, links and other content -  Example: tip for using the Linux printers which

were ubiquitous at Cisco

-  Many users all over world got up to speed entirely via Mac Wiki

-  Thousands of small ideas from hundreds of users

Copyright (c) Erik Brynjolfsson

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Scale


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What Does IT Do?

1. Replicate Bits


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Copyright (c) Erik Brynjolfsson 21

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What Does IT Do?

1. Replicate Bits 2. Replicate Processes


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Case Study: CVS

Basic ‘script fulfillment process:

•  27% of scripts encountered a problem

•  16% of customers disappointed at pick-up

Quality

Assurance

INVENTORY

INVENTORY

Drop -off DataEntry Production Quality

Assurance Pick -up

Standardscript path

Data entry

RPh

RPh

Shelves

Dr. call or

Production

ConsultareaDrop -off

Pick-up

Quality

Assurance

INVENTORY

INVENTORY

Drop -off DataEntry Production Quality

Assurance Pick -up

Standardscript path

Data entry

RPh

RPh

Shelves

Dr. call or

Production

ConsultareaDrop -off

Pick-up

1 hour before pick-up 1st step = drug utilization review (DUR)

2nd step = insurance check


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CVS: Scale without Mass

•  Short-‐term results: customer satisfaction scores ú  Wait time satisfaction: 76 à 86 ú  Overall pharmacy satisfaction: 86 à 91

•  New process embedded in Enterprise IT (EIT) ú  100% compliance

•  Rapid roll-‐out to over 4000 retail pharmacies

Drop -offDataEntry

Insurancecheck

Production DUR QA Pick -up

While customer is present

Drop -offDataEntry

Insurancecheck

Production DUR QA Pick -up

While customer is present

New fulfillment process:


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IT Reduces the Costs of Measurement, Experimentation, Sharing and Replication


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Synergies Amplify The Benefits

A new kind of R&D

Measure

Experiment Share

Replicate

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Lessons from the Research

1. Productivity surge since 1995 linked to ICT revolution Ø  IT is enabling business process changes and new ways to work Ø  This can significantly increase the level of productivity

2. ICT enables four drivers of innovation 1.  Measurement 2.  Experimentation 3.  Sharing 4.  Replication

Ø  This can significantly increase the rate of productivity growth

3. These techniques are more powerful when combined: Ø  A new kind of R&D

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Creating value while destroying incomes?

“Computers are now doing many things that used to be the domain of people only. The pace and scale of this encroachment into human skills is relatively recent and has profound economic implications.

Perhaps the most important of these is that while digital progress grows the overall economic pie, it can do so while leaving some people, or even a lot of them, worse off.”

Read the Book: www.RaceAgainstTheMachine.com Read the Papers: digital.mit.edu/erik

ICT AND INNOVATION - Bruegel · Science Foundation and the MIT Center for Digital Business. ......

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