While the first day of the SAS Global Forum Executive Conference focused on the business application of analytics, the second day was dedicated to analytics and IT management. One of the keynote presenters was Erik Brynjolfsson, the Schussel Family Professor at the MIT Sloan School of Management. Erik’s research and teaching focuses on how businesses can effectively use information technology (IT) in general and the Internet in particular.
As he kicks off his presentation, Professor Brynjolfsson reminds us that “the best way to understand how technology transforms business is not to lock ourselves behind doors, but go out and have conversations in the field. The fundamental changes in business today driven by advances in IT and analytics,” and that “the future is here – it’s just not equally distributed yet.”
Today’s “economic environment is tough. It’s the worst downturn since great depression and a tough time for business: The Great Recession. However,” he says, “I am more optimistic – in five years people will look back and call it the Great Restructuring. We’re taking opportunities to change the way that we’re doing business. We’re putting in place changes that we should have done years ago – changing the ways that we interact with our customers, partners, and suppliers. We need to think deeply about what we’re doing differently. All this restructuring can lead to better business performance.”
A great benefit of this transformation is increased productivity, but he notes that we don’t account very well for the “intangibles” in our economic or financial metrics. “We have found that the news on productivity is much better than what we’re seeing with unemployment and overall economic growth. Productivity is what determines living standards and competitive advantage and wealth of nations. It’s been increasing steadily over the past 20 years – while productivity usually falls during a recession, we’re growing it.” So what’s driving this productivity? The way companies are leveraging technology. Professor Brynjolfsson references a scatter chart that illustrates IT intensity versus productivity. He notes that there is a loose correlation: Technology alone is not a determinate. What differentiates high and low performers is organizational capital assets: process, culture and people.
For researchers and business managers, the job is to understand the specific ways that companies use technology differently. Successful companies figure out what those optimal processes are. He asks the audience: “Are the leaders pulling away from the laggards? Are the spreads increasing between the (high and low performing) companies, or are companies becoming more similar?” The answer: High intensity IT companies are pulling away. The corporate performance spread for gross profit margin is diverging.
MIT recently completed a “digital advantage” survey to identify if companies utilizing data-driven decision making practices are more productive. Specifically, they were looking to see if these companies outcompeted their rivals in profitability and other performance metrics. According to the research, data driven organizations had 4 percent higher productivity and top line sales, evidence that technology for decision-making is a driver of success. These companies also had better competitive advantage – 60 percent greater profitability and higher total market value.
Professor Brynjolfsson identifies four drivers of innovation – the ability to measure, experiment, share, and replicate. While technology drives productivity, but true innovation comes through the successful application of these four drivers: measure, experiment, share and replicate. Any one of these categories would be a big deal for managers to implement, but for organizations with capabilities in all four, it’s a “game-changer.” You can read more about his four drivers for innovation in an earlier blog post on sascom voces.
So what are the implications for businessestoday?
- Recognize the heightened value of innovation: adjust recruiting, incentives, retention. Innovations can be big or small, but we must change the culture.
- Invest in technologies and platforms that collect, aggregate, codify , share and/or propagate data and innovations.
- Apply the four step process: Measure, experiment, share and replicate.