>Costco is becoming a good on-line player too.
Glenn, we've talked about Costco many times in the past as you well know.
Costco's customers are very loyal. Enough so to pay an annual fee just for the privilege to shop there.
That's what Amazon and Yhoo needs imop.
Btw
Its been a long time since I saw the hype on this thread that Amazon.com was going to destroy Wal-Mart.
>Published: October 16 2001 20:34 | Last Updated: October 17 2001 11:39
Improved management at Wal-Mart probably played a bigger role in America's productivity "miracle" of the late 1990s than all the expensive investment in high-speed computers and fibre-optic cable by businesses, according to a challenging new analysis of US economic performance published on Wednesday.
McKinsey Global Institute, research arm of the management consulting group, says the US did indeed experience a sharp improvement in its underlying economic performance between 1995 and 2000, but says the change can be accounted for by growth in just a handful of business sectors and was not principally the result of the surge in investment in information technology experienced over the same time.
Belief in an information-technology driven transformation of US economic performance has come close to being accepted as economic orthodoxy in the last few years, although the scale of the improvement has been revised down in recent government figures.
No less an authority than Alan Greenspan, chairman of the Federal Reserve, has enthusiastically endorsed the notion of a profound improvement in US performance, led by information technology investment.
"The synergies of key technologies markedly elevated prospective rates of return on high-tech investments, led to a surge in business capital spending, and significantly increased the growth rate of structural productivity," the Fed chairman told congress in July.
Many leading technology companies had claimed the sharp improvement in US productivity - from 1.4 per cent a year between 1972-1995 to 2.5 per cent between 1995-2000 - was the result of a surge in IT investment. Between 1995 and 2000, IT investment increased 20 per cent a year, nearly double the rate from 1987-1995. In the four years from 1995, US businesses doubled their IT capabilities.
But the McKinsey report says in most sectors of the economy large increases in IT investment did not produce any improvement in productivity.
"There was a big jump in capital spending on IT and a big jump in productivity in the economy as a whole at the end of the 90s," says Bill Lewis, director of the McKinsey Global Institute. "But the actual correlation between the two is very weak."
The report is the latest in a number of analyses of the productivity changes in the last few years. Some have suggested the change was widespread, based on the application of new technol ogy, others have been more sceptical, saying the improvement was confined to a small number of IT-producing sectors and was, in any case, largely cyclical.
"This report is somewhere in the middle," says Barry Bosworth, an economist with the Brookings Institution, who acted as an independent adviser to the McKinsey researchers. "There's no doubt technology investment played a role - especially in the IT sectors themselves, but the gains for much of the rest of the economy were much less clear."
McKinsey's researchers initially used official government data from the Bureau of Economic Affairs to determine which sectors had been the principal drivers of productivity growth. They then conducted detailed analyses of what was behind the productivity growth by looking at companies in each sector.
Nearly all the post-1995 jump in productivity was in just six sectors - retail, wholesale, securities, telecoms, semiconductors and industrial machinery and equipment (mainly computers) - representing about 31 per cent of the non-farm private sector economy.
The other 53 sectors, representing 69 per cent of the economy, were mixed, but overall contributed just 0.3 per cent productivity growth. Yet these 53 sectors accounted for 62 per cent of the acceleration in IT spending. Many of them actually experienced productivity deceleration.
In the six sectors that produced almost all the net productivity improvement a number of factors contributed to the improvement - of which information technology was just one.
Retail trade - which accounted for almost a quarter of the improvement - was largely dominated by impressive gains at Wal-Mart, which, with its emphasis on large stores and discount pricing, increased its efficiency and sales and forced other companies to follow best practices.
In securities, the rapid growth of equity investment in the late 1990s produced economies of scale and in telecommunications, regulatory changes helped produce efficiency improvements. In semiconductors much of the increase in output per hour was driven by Intel's business practices - specifically the introduction of shorter product cycles. And computer manufacturers benefited from better products such as enhanced software.
But the report's contention that IT played a limited role in the overall economy was brought into question by its admission that in all the sectors where productivity gains were recorded, it was a contributing factor.
Thus, in retailing it was the introduction of electronic data interchange, bar codes and RF gun screening; in wholesale trade, better inventory management as a result of faster data processing; computer manufacture benefited from the increase in chips, securities trading was transformed by the advent of the internet, and introduction of digital cellular equipment led to a leap in telecoms productivity.
In a host of industries the researchers found an "IT paradox". Companies invested heavily in IT but produced no tangible gains. Growth in total factor productivity (labour productivity not accounted for by growth in the capital stock) actually declined in the 70 per cent of the economy outside the six most productive sectors - by 0.3 per cent, compared with an increase of 0.4 per cent in the previous eight years. Most striking was retail banking, where companies bought an average of two personal computers per employee between 1995 and 1999 but produced no gains in efficiency.
"The remaining sectors of the economy . . . contributed 62 per cent of the acceleration in IT intensity, yet many of these sectors experienced productivity deceleration," the report says.
But, while the study downplays the role of IT, the findings may suggest that information technology has been a necessary but not a sufficient condition for productivity gains. Strikingly only one sector recorded any acceleration in productivity over the period without a big increase in IT investment spending.
In this respect the report challenges but may not fundamentally contradict much of the optimism in the US in recent years about productivity improvements. In an influential report two years ago, Daniel Sichel and Stephen Oliner, two economists at the Federal Reserve, said productivity improvements had been significant and had spread through the economy by widespread use of information technology.
The report's conclusions may make American and overseas businesses question the wisdom of increasing their IT budgets significantly in the future. The report argues that the current trough in IT sales is more than a short-term blip and that investment growth rates are unlikely to return to late-1990s levels. It says growth rates of 5-17 per cent are plausible.
In the wake of the terrorist attacks last month projections about future US economic performance are necessarily provisional. But the group's economists say productivity growth is likely to be somewhere between the 1.4 per cent annual growth of the period 1987-95 and the 2.5 per cent rate of 1995-2000. |
