So is this sort of experimentation—and rapid implementation and diffusion of improved processes—widely done?
Right now relatively few companies in the U.S. economy are using this methodology. But when [Caesars CEO] Gary Loveman spoke to my class at MIT, he said that what he did at Harrah’s, he could have done at most of the companies in most other industries. You can see that as more companies do this, they will find better ways to increase customer satisfaction, increase efficiencies, and make supply chains work better. The scientific method brought amazing progress to the sciences. Now it’s being used in management, and I expect similar results.
How do improved revenues for companies like Caesars or Walmart help consumers?
In the short run, companies that use IT see higher profits and stock market appreciation. Over time, as competitors learn how to do that, profits get competed away, and most of the benefits accrue to consumers. Ultimately, productivity growth determines living standards and the wealth of nations.
How close are we to seeing these broader benefits?
It’s fair to say that in most industries 70, 80, 90 percent of the companies aren’t even close to using IT to the potential it could be used. You might have thought that companies were converging as more of them learned best practices. But we looked at the data and found that rather than firms becoming more similar, the leaders were pulling away from the laggards. That suggests to me that rather than this being a mature, stable technology, if anything, there is a new frontier opening up.
What sectors are slow to catch on?
Health care, education, and parts of manufacturing have not been as quick to embrace IT. Health care can learn lessons from other industries. I would put them 20 years behind the rest of American industry. If they can adopt some of the practices we’ve seen in the rest of the economy, we will see dramatically lower health costs.
How should a business get started adopting these ideas?
In my book [Wired for Innovation: How IT Is Reshaping the Economy] I describe seven principles of digital organization. It starts with the digitization of analog business processes but also includes a shift toward decentralized power; broader information sharing; tighter linkage of performance to compensation; more emphasis on high-quality people and screening people who are hired; and more investment in training and education for the workforce once hired.
Right now the scare resource is not data. We’ve got tons of data sitting around. According to [Google CEO] Eric Schmidt, there was more data created in the last two days than in all of history until 2000. The scarce resource is figuring out how to use the data efficiently—not with more computers, but in changing how companies are run.