Wired for Innovation

Wired for Innovation: How Information Technology Is Reshaping the Economy

Erik Brynjolfsson
Adam Saunders
Copyright Date: 2010
Published by: MIT Press
Pages: 176
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  • Book Info
    Wired for Innovation
    Book Description:

    A wave of business innovation is driving the productivity resurgence in the U.S. economy. In Wired for Innovation, Erik Brynjolfsson and Adam Saunders describe how information technology directly or indirectly created this productivity explosion, reversing decades of slow growth. They argue that the companies with the highest level of returns to their technology investment are doing more than just buying technology; they are inventing new forms of organizational capital to become digital organizations. These innovations include a cluster of organizational and business-process changes, including broader sharing of information, decentralized decision-making, linking pay and promotions to performance, pruning of non-core products and processes, and greater investments in training and education.Innovation continues through booms and busts. This book provides an essential guide for policy makers and economists who need to understand how information technology is transforming the economy and how it will create value in the coming decade.

    eISBN: 978-0-262-25866-1
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Acknowledgments
    (pp. vii-viii)
  4. Introduction
    (pp. ix-xx)

    The fundamentals of the world economy point to continued innovation in technology through the booms and busts of the financial markets and of business investment. Gordon Moore predicted in 1965 that the number of transistors that could be placed on a microchip would double every year. (Later he revised his prediction to every two years.) That prediction, which became known as Moore’s Law, has held for four decades. Furthermore, businesses have not even exploited the full potential of existing technologies. We contend that even if all technological progress were to stop tomorrow, businesses could create decades’ worth of IT-enabled organizational...

  5. 1 Technology, Innovation, and Productivity in the Information Age
    (pp. 1-14)

    In 1913, $403 was the average income per person in the United States, amounting to a little less than $35 a month.¹ To be sure, $403 went a lot further back then than it does today. A pack of cigarettes cost 15 cents, a bottle of Coca-Cola 5 cents, and a dozen eggs 50 cents. If you wanted to mail a letter, the stamp cost you only 2 cents. You could buy a motorcycle for $200. If you were wealthy, you could buy a new Reo automobile for $1,095, nearly three times the average person’s annual income. The Dow Jones...

  6. 2 Measuring the Information Economy
    (pp. 15-40)

    The United States is now predominantly a service-based economy. For every dollar of goods produced by the economy in 2008, about $3.61 of services was generated.¹ But this transformation of the economy did not happen suddenly. The economy has steadily moved away from producing goods and toward producing services for at least the last half-century.² Table 2.1 demonstrates that even in 1950 a greater share of gross domestic product was accounted for by services than by goods. For every dollar of goods produced in 1950, there was $1.19 of value produced in the service sector.

    Interestingly, in 2008, what the...

  7. 3 ITʹs Contributions to Productivity and Economic Growth
    (pp. 41-60)

    For decades, companies bought computers on the promise that the “computer age” would revolutionize business. As early as 1970, hardware, software, and other technical equipment accounted for about one-fourth of all business investment in equipment. But then researchers looked at the effect of these investments. A number of studies in the 1980s and the 1990s failed to find any evidence for the contribution of IT to productivity (Roach 1987; Loveman 1994; Berndt and Morrison 1995). In the 1980s and the early 1990s, the “productivity paradox” was debated. (For a summary and a discussion, see Brynjolfsson 1993 and Brynjolfsson and Yang...

  8. 4 Business Practices That Enhance Productivity
    (pp. 61-76)

    According to the Council of Economic Advisers (2006, p. 37), there is growing evidence that countries with “more flexible, less heavily regulated product and labor markets” are “better able to translate technological advances into productivity gains.” Although this may help explain why the United States has recently enjoyed productivity gains not experienced elsewhere, it doesn’t explain the large variation in the success of large-scale IT investments at thefirmlevel. For example, what explains where firms end up in figure 3.2 above? Or consider table 3.1, which demonstrates the importance of non-IT factors in productivity after 2000.

    We begin this...

  9. 5 Organizational Capital
    (pp. 77-90)

    While the studies in chapter 4 document the complementarities between technology and workplace practices, we believe the next step is to conceptualize these practices as an asset, which we call organizational capital. We like to think of a firm’s organizational capital as its stock of nontradable intangible assets, which conceptually have some similarities to physical assets. The intangible stock of assets takes time to develop, because, by definition, it cannot be bought on the market. Dierickx and Cool (1989, p. 1510) defined these kinds of assets as “nontradeable, nonimitable, and nonsubstitutable.” A successful company may have taken years to build...

  10. 6 Incentives for Innovation in the Information Economy
    (pp. 91-108)

    Debate about copyright laws, patents, and intellectual property has escalated in recent years because of the improved ability to replicate and distribute digital information. Lower distribution costs greatly increase the potential rewards to successful innovation and yet may also adversely affect the incentives to innovate because of rapid imitation or even piracy. Before we look at the factors affecting the incentive to innovate, let us look at the difficulties of even measuring this knowledge input and output in the first place.

    Anyone can visit one of the thousands of Starbucks locations in the United States and find out the price...

  11. 7 Consumer Surplus
    (pp. 109-116)

    At the beginning of 1913, there were 7,456,074 telephones in operation in the United States, less than one for every 13 people.¹ About 10 percent of roads were surfaced,² and only one person in 80 owned a registered motor vehicle.³ Telephones and cars were too expensive for all but the exceptionally wealthy. (Remember, a Reo cost $1,095 in 1913, about 3 times the average person’s income.) Today, of course, nearly every household in the United States has a telephone (and/or a mobile phone). There are more than 243 million privately registered motor vehicles in the country—about one for every...

  12. 8 Frontier Research Opportunities
    (pp. 117-128)

    As the economy evolves, research opportunities emerge, alternative measurement strategies gain traction, and we find better methods of identifying, measuring, and understanding how value is created. In this chapter we highlight some promising areas for future research:

    the use of task-level data (including social network analysis)

    new goods and consumer surplus measurement

    understanding organizational capital and other intangibles

    incentives for innovation in information goods and open source economics.

    Research in these areas will aid managers, policy makers, and scholars in understanding how information technology, new business practices, intangible organizational investments, and innovation can lead to higher profits, economic growth, and...

  13. Notes
    (pp. 129-134)
  14. Bibliography
    (pp. 135-148)
  15. Index
    (pp. 149-154)