Benchmarking for the Digital Organization Erik Brynjolfsson, Xiaoquan (Michael) Zhang and Shinkyu Yang Center for eBusiness MIT November 2004

Copyright © 2004 Erik Brynjolfsson 2 Productivity Paradox “We see the computer age everywhere, except in the productivity statistics” -- Bob Solow, 1987

Copyright © 2004 Erik Brynjolfsson 3 Does IT Matter?

Copyright © 2004 Erik Brynjolfsson 4 Digital Productivity SIG Research Areas: –Economy-wide –Company –Individual Information Worker and Tasks

Copyright © 2004 Erik Brynjolfsson 5 Economy-wide Productivity is Soaring

Copyright © 2004 Erik Brynjolfsson 6 Paradox Lost “We now see computers everywhere including the productivity statistics.” -Erik Brynjolfsson

Copyright © 2004 Erik Brynjolfsson 7 A Model of Information Work: Executive Recruiting Case Revenue Compensation Completion Rate Multitasking Duration per Task Database Skill Contacts IT variablesIntermediate Output Final Output Individual Compensation

Copyright © 2004 Erik Brynjolfsson 8 Company Level IT Stock (relative to industry average) Productivity (relative to industry average)

Copyright © 2004 Erik Brynjolfsson 9 Scatter Plot Analysis: Seven Practices of Successful Digital Organizations 1.Move from analog to digital business processes 2.Open information access 3.Empower the employees 4.Link incentives to performance 5.Focus the organization 6.Hire the best people 7.Invest in human capital

Copyright © 2004 Erik Brynjolfsson 10 IT Capital Digital Org. Market value Impact of IT and Digital Organizational Practices

Copyright © 2004 Erik Brynjolfsson 11 Measuring Productivity is Rigorous but not Intuitive

Copyright © 2004 Erik Brynjolfsson 12 Thus the Need to Design an Analytical Tool With the following attributes: Results that are easy to understand Providing actionable advice Accessible from anywhere Accessible via any platform Supported by rigorous data And providing company- and industry-specific analysis

Copyright © 2004 Erik Brynjolfsson 13 Benchmark Data Sources -- MIT survey data: organizational practices 400 large firms Two waves of data from 1996 and 2002 New wave of data gathering underway -- Data from public sources US government sources National Income and Product Account from Bureau of Economic Analysis Productivity Statistics from Bureau of Labor Statistics -- Data from private sources S&P Compustat: firm accounting and market variables Harte-Hanks data: IT capital (~1000 firms) IDC data: IT expenditure (~500 firms)

Copyright © 2004 Erik Brynjolfsson 14 Database Design 1.Benchmark database and scores calculated from our models 2.New data recorded in a survey table 3.Each new survey linked to a user, who is then linked to a company 4.Companies categorized by SIC2 code 5.The complexity arises because the number of companies in each category is not uniform 6.So for each SIC2 code, we create two databases, one for manufacturing firms, one for the other firms 7.…See the next two slides

Copyright © 2004 Erik Brynjolfsson 15 SIC2 Database

Copyright © 2004 Erik Brynjolfsson 16 Survey Database

Copyright © 2004 Erik Brynjolfsson 17 Customizable Information

Copyright © 2004 Erik Brynjolfsson 18 Real Time, Automatic Generation of Analysis

Copyright © 2004 Erik Brynjolfsson 19 Straight-forward Comparison of Data

Copyright © 2004 Erik Brynjolfsson 20 Content Specific Presentation

Copyright © 2004 Erik Brynjolfsson 21 Actionable Advice

Copyright © 2004 Erik Brynjolfsson 22 You Can Use It Take the survey at: See an example already done at:

Copyright © 2004 Erik Brynjolfsson 23 Thank you! Contact Information: David Verrill Executive Director MIT Center for eBusiness Tel: URL

Copyright © 2004 Erik Brynjolfsson 24 Appendix: Details on Digital Organization Practices

Copyright © 2004 Erik Brynjolfsson Build Digital Processes  Convert analog processes to digital processes Embedding standard procedures in technology allows employees (and customers!) to work with less supervision Versatile use of technology supports a richer set of communication channels: using the Web allows customers (and employees) to “self-serve,” reducing costs

Copyright © 2004 Erik Brynjolfsson 26 Example: Web Technologies Impact Customer-service Strategies

Copyright © 2004 Erik Brynjolfsson 27 Example: Everything is “on the Net” at Cisco Source: Woerner, S. “Networked at Cisco” Center for eBusiness Case Study

Copyright © 2004 Erik Brynjolfsson Open Information Access Access to information both vertically and horizontally helps an organization:  Vertical information provides managers with a “dashboard” to keep their finger on the pulse of an organization  Horizontal information allows frontline employees to access more information from outside their department

Copyright © 2004 Erik Brynjolfsson Empower Employees Throughout the organization, encourage free access to internal and external information Use technology to foster lateral communication and coordinate among employees Use technology to foster vertical communication between employees and their managers Do not put restrictions on Internet access for employees

Copyright © 2004 Erik Brynjolfsson 30 Should Employees Think? The 'first law of scientific management' “It is necessary in any activity to have a complete knowledge of what is to be done and to prepare instructions … the laborer has only to follow instructions. He need not stop to think." -- Meyers, 1914

Copyright © 2004 Erik Brynjolfsson 31 Example Preliminary Results WalMart has twice as many network nodes per employee WalMart “empowers” workers with more decision rights Both firms are using more network technology over time Both firms are shifting more decision rights to workers Sites at each firm with more network technology are also more likely to empower workers with decision rights WalMart is maintaining its lead in technology, employee empowerment and, most importantly, performance.

Copyright © 2004 Erik Brynjolfsson Strong Performance- linked Incentives More incentive pay, linked to individual performance Somewhat more likely to use stock options for a broader set of employees

Copyright © 2004 Erik Brynjolfsson Corporate Focus and Communication of Strategic Goals Weed out marginal or non-core products and services Communicate strategic and financial goals throughout organization regularly Actively invest in promoting culture

Copyright © 2004 Erik Brynjolfsson 34 Example

Copyright © 2004 Erik Brynjolfsson Recruiting and Hiring Top-quality Employees More executives involved in recruiting More likely to hire new employees on a variety of criteria including: education, analytical skills, computer skills Somewhat more likely to screen for interpersonal skills and for fit with the corporate culture

Copyright © 2004 Erik Brynjolfsson Investment in “Human Capital” Provide training for a larger percentage of employees once they are hired Do more online training Outsourcing tasks frees up high-skilled workers and boosts productivity