This Hal Varian article is MUST READING if you have not seen it yet.
optimizemag.com
Paul
IT's big impact
Generally, using the Internet to increase revenue will increase profitability as well, but may not have a big effect on the aggregate productivity of individual industries or of the national economy. On the other hand, IT advances that reduce costs, particularly the cost of labor, tend to have a big effect on productivity. Their impact on profitability depends on how quickly they are adopted industrywide. Very rapid adoption could lead to big productivity gains even though profits suffer, as in the telecom example.
If The Gap sells a lot more T-shirts because its management correctly guesses that fuchsia is the cool color of the season, its profitability will go up, though industry productivity will not. But investments in information systems to track sales, produce to order, manage the supply chain, and reduce waste will improve aggregate productivity.
None of this means that companies should shy away from adopting cost-cutting IT innovations. If some companies in an industry use IT to become more efficient, others will be forced to adopt their innovations as well, just to stay competitive.
The Net Impact Study provides reason for optimism for the future prospects for the U.S. economy. Much of the investment in the Internet so far has had its biggest impact on revenue growth, improving individual profitability, but netting out across each industry. But the relatively smaller investments on the cost side still appear to have resulted in large productivity growth for the economy as a whole. |
