Scale Without Mass: Business Process Replication and Industry Dynamics
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Harvard University - Harvard Business School
September 30, 2008
Harvard Business School Technology & Operations Mgt. Unit Research Paper No. 07-016
In the mid-1990s, productivity growth accelerated sharply in the U.S. economy. In this paper, we identify several other industry-level changes that have occurred during the same time and argue that they are consistent with an increased use of information technology (IT). We use case studies to illustrate how IT has enabled firms to more rapidly replicate improved business processes throughout an organization, thereby not only increasing productivity but also market share and market value. We then empirically document a substantial increase in turbulence starting in the 1990s, as measured by the average intra-industry rank change in sales, earnings before interest, taxes, depreciation and amortization (EBITDA), and other metrics. In particular, we find that IT-intensive industries account for most of this increase in turbulence, especially after 1995. In addition, we find that IT-intensive industries became more concentrated than non IT-intensive industries after 1995, reversing the previous trend. The combination of increased turbulence and concentration, especially among IT-intensive industries, is consistent with recent theories of hypercompetition as well as Schumpeterian creative destruction. We conclude that the improved ability of firms to replicate business innovations has changed the nature of business competition.
Number of Pages in PDF File: 47
Keywords: Business Process Replication, Hypercompetition, Creative Destruction, Information Technology, Turbulence, Concentration
JEL Classification: O51, E32, L11, L23, M11
Date posted: April 16, 2007 ; Last revised: October 7, 2008
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