“New” vs. “old” economy: insights on competitiveness in the global IT industry
Abstract
To be competitive in today’s “new economy” of the global e-marketplace, an Information Technology (IT) firm cannot go it alone. The successful company must compete within a proactive industry that has focused government support, several established consortia, a selective consumer base, and an innovation strategy that is open to change and has the organizational freedom to collaborate. This paper reviews a currently successful firm and identifies the elements critical to its competitiveness within the IT industry at the national, industry and firm levels. It establishes a model for understanding these relationships and roles, and it addresses various measurements and theories about national competition, innovation phases, market influences, and the challenges associated with innovation in this Internet economy.
Introduction
The world is becoming a global shopping mall in which ideas and products are available everywhere at the same time. This puts the power of choice in the hands of the customers, changing the terms of competition forever. To succeed, companies need abundant stocks of three global assets — concepts, competence and connections — which derive from investments in innovation, education and collaboration (Rosabeth Moss Kanter, World Class).
Productivity is increasing, and requiring connections derived from innovation, education and collaboration — entwined and necessary for competition. But what are the relationships between productivity and innovation that allow competitiveness? Who are the players and how are the results measured?
This paper uses Information Technology (IT), specifically the telecommunications industry and Cisco Systems, Inc., to define and understand concepts related to the development and subsequent use of science and technology in the “new economy”. This is a very broad topic that will be examined in the future in greater detail. This paper lays the groundwork for future studies by making important foundation observations about the interrelationships among competitiveness, profitability and innovation (CPI), and by creating a CPI Model based upon these observations within the industry. It relies heavily on the writings of Michael Porter and others in the field, as well as on current economic, industrial, firm and statistical data.
Section snippets
New economy
According to some, we are in the “Age of Networked Intelligence”, thriving in the “digital”, “knowledge”, “glocal”, “Third Wave”, and “innovation” economy. According to others, nothing is new.
We argue that a new transformation is being made that affects competitiveness. To distinguish this economy from the “old”, 10 principles have been observed (Ten Driving Principles of the New Economy, available at www.business2.com
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Matter — bits are simpler to manipulate than atoms.
- Space — distance is
Telecommunications industry
Technical trade organizations link and focus on national, industrial, and firm interests and promote group synergy through communications. These are crucial to industrial competition. Fig. 2 presents major consortia players in the industry.
The Telecommunications Industry Association (TIA) is a national trade organization, having a membership of over 1000 companies that provide communications and information technology products, materials, systems, distribution services and
Cisco Systems
Cisco Systems (1999 sales $12,154 million) is the global leading producer of internetworking hardware. Cisco operations involve designing, developing, manufacturing, marketing, and technical supporting networking products and services, including routers, LAN and ATM switches, dial-up access servers, and network management software. In 1999, Cisco’s innovation and competitiveness resulted in the addition of 65 new products, the acquisition of 11 companies and the development of over a dozen
Innovation
Every organization needs only one core competence: innovation, and every organization needs a way to record and appraise innovative performance (Drucker, 1995).
Innovation, improvements in technology and in methods or ways of doing things, is often measured in product and process changes, in new approaches to marketing, new forms of distribution, and by new conceptions of scope. Drucker (1985) defines innovation as an economic or social term, as changing the yield of resources and as changing
Productivity
Productivity in the United States rose 5% annually in the last half of 1999. During the 1980s that figure was only 1.6%. Productivity began to increase in part due to personal computers. It accelerated with the Internet. And corporations are beginning to reengineer themselves to take full advantage of all the information technologies. Hold on to your hat! (Business Week, February 21, 2000).
Depression, runaway inflation, or civil war can make a country poor, but only productivity growth can make
Competitiveness
The manifestation of productivity is competitiveness, the keen edge that allows a firm to dominate an industry and industries to compete globally. The competitive environment is a dynamic problem. According to economist Joseph Schumpeter, there is neither safe haven nor equilibrium in competition (Porter, 1990).
There is no generally accepted definition of national competitiveness. It has been measured by comparing exchange rates, interest rates, government deficits, labour costs, taxation,
Linking C, P and I: the model
There are two key observations regarding the reactivity of C, P and I: all areas are intrinsically linked together, both horizontally and vertically, sharing factors and resources such as funding, knowledge and signals, and all areas are at the same time inputs, outputs and measures. The use depends upon the observer’s perspective. The links are shown in Fig. 4.
At the firm level, an improvement (innovation) in process technology may lead to an improvement in productivity (output/employee). This
Input, measure or output?
As can be seen in the CPI Model, each conceptual area may be an input, a measure or an output, depending upon the perspective of the observer. For example, an investor may be interested in the competitiveness of a firm, focusing on the market share, sales, return on investment, return on equity, and so on. These competitiveness measures reflect the results of several other factors, including the industry’s competitiveness and the firm’s productivity. Thus a firm’s competitiveness may be a
Innovation or productivity first?
We have seen that innovation leads to change in the productivity of the firm and the industry. Innovation also affects the buyers, suppliers and competitors. Productivity leads to the ability to compete within the industry and on the global marketplace. This competition places the industry in a position to sense the customer’s needs and desires. This knowledge, along with the profitability resulting from productivity, enables the nation, the industry and the firm to have the ability to
Conclusions
The key determinants to a nation’s ability to compete in the “new economy” are innovation and productivity. There is a correlation between R&D expenditures as a percentage of sales and competitiveness in the telecommunications industry.
Relationships including consortia and universities foster the flows of funding and information from and to the national, industrial and firm levels.
R&D knowledge is rapidly being gained by acquisition in this industry. Cisco leadership often boasts of their large
Elias G. Carayannis, Ph.D., is the Director of Research on Science, Technology, Innovation and Entrepreneurship for the SBPM European Union Center. Dr Carayannis received his Ph.D. in Technology Management and his MBA in Finance from the Rensselaer Polytechnic Institute in Troy, NY and his BS in Electrical Engineering from the National Technical University of Athens, Greece. He has published more than 30 refereed journal articles and several other papers in technology management journals.
