Fusion 2007

The Future of IT-Induced Growth

Dean Mike KnetterUW-Madison School of Business

School of Business: A Good Place for CEOs

• Wisconsin Ties Harvard for Educating Most CEOs– September Bloomberg Markets

magazine– UW and Harvard have each

graduated 15 chief executive officers of S&P 500 firms

– Princeton and Stanford tied for third with 12

How important is IT for the economy as a whole?

• Lots of hype about the new economy in the late 1990s

• Lots of disappointment in technology companies since 2000

• Do we see any evidence of a surge in growth in the real GDP data?

Gross Domestic ProductPercent Change by Decade

0%

20%

40%

60%

80%

100%

120%

1963-1973 1973-1983 1983-1993 1993-2003

United States Germany Japan

Where is IT-induced growth in the data?

• Real GDP growth results from more labor, more capital, and greater productivity.

• IT could show up in capital spending or productivity

• Productivity is the best form of growth—it is working smarter, not harder

ProductivityPercent Change by Decade

0%

20%

40%

60%

80%

100%

120%

1964-1974 1974-1984 1984-1994 1994-2004

United States Germany Japan

How does IT raise productivity?

• Do things faster• Do things all the time

(cell phones, PDAs)• Do things differently

– Automation of tasks– Easier communication of decisions,

less need for physical meetings

Which sources are most important?

• Speed helps, but not much. • 24/7 has a clear limit.

This is a one-time gain.• Doing things differently—organizational

change—has continued big upside.– It has been confined mostly to big

firms or startups in the US– Mid-size firms, public sector, other

countries remain

Firm-level benefits of increased productivity

• Firms that boost productivity will reduce costs

• Lower costs mean higher profit margins and/or lower prices and greater market share

• Competition is driving adaptation of IT in most medium and large business—a “do or die” situation– Midwest manufacturing is a great

example

Micro policies required to reap IT benefits

• Organizations must have the will to change. Key ingredients:– External competitive pressure– Bottom line incentives– Internal attitude

• Organizations must have the environmental flexibility to change– Flexible labor market policies– Access to investment capital

How can we expand the reach of IT-induced growth?

• US public sector– Little or no bottom line accountability– Little or no competition– Little or no flexibility in labor market

• US small firms– Attitude– Capital/knowledge access

• Other countries look somewhat like our public sector

How can the UW-System help?

• Executive Education– IT Business Alignment– Technical Leadership Certificate– Business Intelligence– And much more…ask Scott Converse

• Production of IT graduates• Research on the frontier of the new

economy

Conclusions

• IT-led growth is a driving force of US economic resurgence

• More potential for IT-led growth in some US sectors and other countries

• Tapping that potential will likely require changes in incentives and constraints facing decision makers