This document discusses how investments in information technology (IT) have changed the competitive landscape for industries in the US economy since the mid-1990s. It finds that IT-intensive industries have seen rising concentration, increased turbulence as sales leaders frequently change, and a wider performance spread between top and bottom performers. While both low-IT and high-IT industries initially saw increasing concentration, high-IT industries experienced greater changes. The shifts appear to be fundamental changes rather than temporary effects, as IT innovations have enabled improvements to companies' operating models. Successfully adopting enterprise IT requires addressing challenges around fragmentation, autonomy, and managing tensions between global consistency and local needs.

1. Investing in the IT That
Makes a Competitive
Difference
Aashwin Sharma [36BM01]
Abhinav Bansal [36BM03]
Archit Jain [36BM14]
Ratikesh Sharma [36BM43]
Sagar Saxena [36BM47]
Utkrisht Mittal [36BM55]

2. Background
Since the mid-1990s, a new competitive dynamic has emerged—greater gaps between the leaders and laggards in an
industry, more concentrated and winner-take-all markets, and more churn among rivals in a sector.
Markets for digitized products like computer software and music have long been dominated by both a winner-take-all
dynamic and high turbulence.
Most other industries have historically been fairly immune from this kind of winner-take-all competition.
Internet and enterprise IT are now accelerating competition within traditional industries in the broader U.S. economy.
Why? Not because more products are becoming digital but because more processes are.

3. What Has Been Looked At In Past?
 Much attention has been paid to the connection between productivity growth and the increase in IT investment.
What This Study Looks At?
 How does IT spending affect the nature of competition and the relative performance of companies within an industry?

4. How Technology Has Changed Competition
1 Concentration
Focus on the degree of industry concentration over time.
2 Turbulence
Measure the frequency of sales leaders leapfrogging one another.
3 Performance Spread
Assess the difference between the highest and lowest performers in
an industry.

5. Industry Dynamics After IT Surge
Increased Turbulence
Sharp rise in average
turbulence within U.S.
industries post mid-
1990s.
Rising Concentration
Industry concentration
began increasing
around the same time.
Performance Spread
The spread between the
highest and lowest
performers also
increased.

6. Concentration
A few companies account for bulk of market share (Winner-take-all industries).
They focused on the degree to which each industry became more or less concentrated over time.

7. Turbulent
A sector is turbulent if the sales leaders in it are frequently leapfrogging one another in rank order.
Top-selling company one year may not dominate the next.
For example, 10th place company could become 1st placed in industry following year.

8. Performance Spread
Performance spread is large if leaders and laggards differ greatly on standard performance measures such as ROA,
profit margins, and market capitalization per $ of Revenue.

9. IT Intensity and Competitive
Landscape
1 IT Intensive Industries
Changes in dynamics were greatest
in industries that were more IT
intensive.
2 Role of M&A and Globalization
Minor correlations found in the
analysis of the competitive
landscape.
3 Impact of R&D Spending
Considered in relation to the competitive landscape.

10. Concentrated Industries
After decades of decline in both low IT and high IT industries both began to rise in mid 1990’s.
While both grew, high IT industries grew at a faster rate.

11. Turbulent Industries
More turbulence in high IT industries.
Average turbulence within U.S. industries rose sharply starting in the mid-1990s.

12. Industries With Performance Spread
Shows the spread in gross profit margin between the company performing at the 25th percentile in its industry and the
company performing at the 75th percentile.

13. Temporary or Fundamental Change?
Temporary Change Theory
Years since the mid-1990s have seen a
one-time burst of innovation from IT
producers.
Field Research Findings
Businesses entered a new era of
increased competitiveness in the mid-
1990s.
Role of IT Innovations
IT innovations enabled improvements to companies' operating models.

14. Case Study: CVS Pharmacy
1 Process Improvement
Identified a key problem in the prescription fulfillment process.
2 IT Implementation
Embedded process changes in the company's information systems.
3 Performance Impact
Replicated the new process throughout its retail pharmacies nationwide.

15. Enterprise IT Adoption
Adoption of
Enterprise IT
Adoption of enterprise IT
systems in virtually every
industry.
Impact on
Competitive
Landscape
Understanding the impact
of enterprise IT on the
broader competitive
landscape.
Projected Revenue
Worldwide enterprise
software revenue
projected to approach
$190 billion in 2008.

16. Challenges in Enterprise IT Deployment
Fragmentation and
Autonomy
Challenges in deploying
enterprise IT due to
fragmentation and
autonomy.
Centralization vs.
Autonomy
Tensions between global
consistency and local
autonomy in IT deployment.
Lessons from Cisco
Fragmentation
consequences and the
benefits of managing this
tension.

17. Competing in the IT-Driven
Landscape
1 Sharpened Differences
IT has sharpened differences among
companies instead of reducing
them.
2 Role of Line Executives
Highly qualified vendors,
consultants, and IT departments are
necessary, but the real value comes
from process innovations.
3 Continued Competitive Shakeup
Altered competitive dynamics in the IT-intensive U.S. economy.

18. Conclusion
It is not easy for most companies to deploy enterprise IT successfully.
The technologies themselves are complicated to configure and test, and changing people’s behavior and attitudes
toward technology is even more challenging.
Enterprise IT typically changes many jobs in major ways; this is never an easy sell to either employees or line managers.
As the performance spread, concentration, and churn increase, management becomes a distinctly less comfortable
profession —more unforgiving of mistakes, faster to weed out low performers.
Even those executives who are prepared will not necessarily survive the inevitable turbulence.
But those who do can expect outsize rewards—at least until another player comes along and uses IT to propagate a
business innovation that's even better.