Marketing Technology Letter
While many IT products
and services have become
commodities, it is still possible
for most industries to differen-
tiate and win through technol-
ogy-driven innovations that
enable substantial productivity
gains.
The virtuous cycle of the
real new economy
U.S. GDP
68%
32% all other
sectors
The six sectors where
the productivity gains are
concentrated account for
only 32% of the US GDP
but they contributed 76%
of the country’s gains.
24%
76%
U.S. Net productivity gains
Change is inevitable,
except from a vending
machine
CONTACT US : IC3 Limited
October 2003 – NO.
The new “new economy” ...
... and its consequences for IT suppliers
During the bubble growth of the late 1990s, many gurus were claiming that the
Internet was going to ‘change everything’. Today it is ‘fashionable’ to declare that IT
and the web have not had much impact; last May, the Harvard Business Review
(HBR) even published an article provocatively called “IT doesn’t matter”.
As reasonable people would expect, the “truth lies somewhere in between” as stated
in a new HBR article called “The Real New Economy”, published this month. The HBR
article presents the results of a two-year study conducted by McKinsey across 20
industries in US, German and French corporations.
This study shows that a new economy did indeed start in the 1990s but that it was
spurred on by increasing competition and innovation rather than by the Internet.
Actual productivity measurements show little correlation between productivity and IT
investments except in six sectors where IT was an essential means to enable and
support innovation in response to increasing competition.
In these six industries - securities brokerage, retailing, wholesaling, semiconductors,
computer assembly, and telecommunications - IT was a
key catalyst in the virtuous cycle (sketched on the left)
of competition, innovation and productivity growth.
In these sectors, IT proved to be an effective tool in three areas: l) development of
new products and of new business processes; ll) industry-wide diffusion of innova-
tions (double-edged sword!); lll) increasing economies of scale with increasing vol-
umes of transactions, output per customer and industry consolidation.
The study also identifies three winning practices for IT buyers and their implications
for IT vendors:
Winning practices Implications for IT vendors
[1] Concentrate IT resources where Focus on specific industry sectors, gain
the productivity gains really in-depth knowledge, and master the im-
matter plementation details.
[2] Get their sequencing and timing Help customers find value in current and
right future IT investments
[3] Adapt the organisation to techno- Become more than technology-driven
logical innovations that must be and work with customers to identify and
in ‘sync’ with managerial innova- execute the necessary business changes.
tions. Get a business manager to Partner with complementary third parties
lead IT implementation projects. when necessary and appropriate.
In summary, because each industry is different, successful IT vendors in the years
to come will have specialised in specific industry sectors, learned their economics,
and established partnerships to master both technological advances and change
management.
Large IT vendors have already understood the importance of specialised consulting
services (e.g. this month, IBM Global Services celebrated the anniversary of their
purchase of PriceWaterhouseCoopers’ consulting unit and Hewlett-Packard revived
an interest in bidding for Cap Gemini Ernst & Young).
So. If you are a smaller supplier of IT products and services, the recipe for success is
to focus (and differentiate) not only on your core competences but also on a limited
number of industry sectors, or even segments. In addition, you should probably ex-
pect the winning practices to spread into companies of all sizes and you should verti-
cally integrate with the right partners as soon as possible.
For many of you this is common sense and a confirmation of what you have already
experienced in the marketplace. But it is reassuring to have measured evidence from
a prestigious firm such as McKinsey, isn’t it?
www.IC3marketing.com tel : +44 (0) 20 8339 0709 e-mail : Henri@IC3marketing.com
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