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The real new economy.

Diana Farrell1

  • 1McKinsey Global Institute, San Francisco, USA.

Harvard Business Review
|October 3, 2003
PubMed
Summary

Competition and innovation, not just information technology (IT), drove business productivity gains in the 1990s. IT was a powerful tool that facilitated innovation and productivity growth in competitive industries.

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Area of Science:

  • Business and Economics
  • Information Technology
  • Innovation Studies

Background:

  • The late 1990s saw widespread belief in information technology (IT) as the primary driver of business transformation.
  • A McKinsey Global Institute study examined the relationship between IT spending, productivity, and industry changes during the 1990s.

Purpose of the Study:

  • To investigate the true drivers of the productivity surge in the 1990s, moving beyond the focus on IT.
  • To understand the interplay between competition, innovation, and IT in shaping industry and company performance.

Main Methods:

  • Extensive study of productivity linked to corporate IT spending and usage in the 1990s.
  • Analysis of competitive intensity, innovation strategies, and their impact on productivity across various industries.

Main Results:

  • Information technology was found to be important but not the central factor in industry and company success.
  • Increased competition forced managers to innovate, leading to productivity gains through new products, practices, and technologies.
  • A virtuous cycle of competition, innovation, and productivity growth characterized the 'real new economy'.

Conclusions:

  • Competition and innovation were the primary catalysts for productivity growth in the 1990s.
  • Information technology served as a critical enabler for innovation, diffusion, and scaling of business improvements.
  • Managers can leverage IT as a powerful tool to enhance innovation and productivity within competitive environments.

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