Driving Toward Digital Prosperity

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Driving Toward Digital Prosperity
Presentation at the Gateway to Innovation
Conference April 30, 2008

• Dr. Robert Atkinson
• President
• Information Technology and Innovation Foundation

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Todays Presentation

• The Power of the IT Revolution
• IT and the Productivity Turnaround
• Five Big Trends
• Why IT is Important and What Regions Can Do To
  Support It

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New General Purpose Technologies Drive Change

• Most innovations comes in incremental
  improvements, with modest changes in products and
  processes.
• But approximately every half century a new
  technology system emerges that impacts virtually
  everything
• what we produce,
• how we produce it,
• how we organize and manage production,
• the location of productive activity,
• the infrastructure needed,
• the laws required concerning issues as property
  rights and permitted forms of business
  organisation.
• Since the mid-1990s IT has been the engine of
  change and growth.

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General Purpose Technologies Go Through Phases

• When the GPT begins life, it is usually in a
  crude form that is only slowly improved and
  adapted.
• Later in its evolution, when it is becoming well
  developed, its efficiency rises quickly and its
  use rapidly and broadly proliferates.
• Eventually physical limits are approached,
  causing gains in efficiency to slow and adoption
  rates to slow as all available applications are
  used.

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We went from this

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To this.

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We Went From This.
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GPTs Have 3 Main Characteristics 1. They
undergo rapid price declines and
performance improvements.
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Moores Law Has Not Slowed Down (Transistor
Growth in Intel Computer Processor Chips)
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Moores Law Means that Computing Power is Almost
Free
Microsofts free Windows Live Hotmail email
service provides 5 GB of storage for subscribers.
It would cost Microsoft almost 100 million for
each subscriber if they used 1975 storage
technology.
(Intel processing costs in per MIPS)
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GPTs Have 3 Main Characteristics 1. They
undergo rapid price declines and performance
improvements.
2. They are pervasive.
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Computing Used To Be Scarce
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Now IT is Everywhere(70 of computer chips dont
go into computers)
The new John Deere Cotton Harvester John Deere
Co. CEO Bob Lane says he doesnt make tractors
but rather sophisticated mobile information
factories.

• GPS to show where it is.
• Microwave sensors to measure the flow of the
  cotton.
• RFID tag inserted into each bundle to let
  processors know precise origin of the bundle.
• Wireless data communications.
• The computing power of 8 PCs.

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IT Is a Growing Share of Capital Investment
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But Sectors Differ in Their IT Investment
Source Information Week, October 27, 2007
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GPTs Have 3 Main Characteristics 1. They
undergo rapid price declines and
performance improvements.
2. They are pervasive.
3. They make it easy to invent and produce new
products, processes and business models.
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IT Underpins Innovation

• Business models Wal-Marts supply chain
  Amazons long tail iTunes and the decline bricks
  and mortar music stores etc.

• Processes self-service mass customization
• supply-chain integration collaborative
  design etc.

• Products/Services hybrid cars transportation
• telematics human genome etc.

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IT Drives Growth
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Better ToolsDrive Economic Growth
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Better IT ToolsDrive Todays Economic Growth
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IT Drives Productivity Growth(U.S. annual labor
productivity growth)
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Productivity Turnaround Has Been Powered by IT

• Oliner and Sichel found that the use and
  production of computers were responsible for 0.92
  percentage points of the 0.89 percentage point
  increase in labor productivity growth rates
  between 96-2001 and 91-95.
• The OECD found that IT (production and use) was
  responsible for 109 percent of the growth in
  labor productivity from 1996 to 2002.
• Similar effects in nations like Australia,
  Canada, Finland, France, Finland, Germany, Korea,
  Japan, the Netherlands and Switzerland.

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IT Does MatterIT is Correlated with Higher
Productivity and Profits

• On average, for every dollar invested in IT,
  market valuation of a firm rises by over 10
  (Brynjolfsson, Hitt, and Yang, 2002).

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But Its Not Just What You Invest, Its How You
Invest and What You Do With IT

• U.S. firms in the UK get 3 times more
  productivity benefit from IT than do similar UK
  firms. And over 80 percent of this advantage is
  related to better use of IT.
• U.S. firms had more flexible HR policies.
• U.S. firms devolved more IT authority to lower
  levels.

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The IT-Engine Is Not Likely to Run Out of Gas
Anytime Soon

• The core technologies (memory, processors,
  storage, sensors, displays, and communication)
  continue to get better, faster, cheaper, and
  easier to use, enabling new applications to be
  introduced on a regular basis.
• Many sectors, including manufacturing have not
  fully tapped the potential of e-transformation.
• Application use is growing, by business and
  consumers and has not matured.

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5 Trends
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1) Everything That Can Be Digitized Will Be

• IT improvements voice recognition, visual
  recognition, SOA.
• Adoption Broadband, ubiquitous computing, e-gov,
  e-commerce.
• Sectors adoption (e.g., health care)
• Atoms to bits E-tickets E-cash E-forms
  E-music, movies, books E-banking.

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Film Cameras vs. Digital Cameras

• (Source Canadian Imaging Trade Association
  (2006). Industry Data, http//www.citacanada.ca/
  News/industry.htm.)

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2) The Rise of the Internet of Things

• Location services will be a next big thing (GPS
  enabled cell phones to grow from 153 million
  today to 590 million in 2011.)
• Powered by IPV6 Enough to give multiple IP
  addresses to every grain of sand on the planet

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3) Mass Customization is Replacing Mass Production

• IT enables much of the economy to be more
  customized
• Dells "build-to-order" model.
• Architectural Skylight Company uses CAD to
  automate the production of windows to architects'
  specifications.
• Pandora lets users create their own web-radio
  station.

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4) Innovation Is Becoming More Collaborative

• Firms are shifting from a model in which they
  operated as silos separated from each other to
  networked firms linked to suppliers, customers,
  other organizations like universities, and even
  competitors.
• New and cheaper information and telecommunication
  tools (grid computing IM telepresence desktop
  collaboration tools) make collaboration easier.
• IBMs Online Innovation Jam That Attracted More
  Than 37,000 Posts.
• Innocentives Online Portal In Which Problems
  Posed By Business Are Outsourced To The General
  Community For A Reward.
• Boeing Designed Its Dreamliner In a Real Time
  Global Collaborative Effort.

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IT Transformation Challenges

• Industry resistance.
• Lack of universal facilitators (smart cards,
  digital signatures).
• Digital divide and slow adopters.
• Lagging sectors (e.g., health care,
  transportation, government, education).
• Slow high speed broadband roll out.
• Lack of standards (e.g. manufacturing, health
  care).

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Growing the IT Economy
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Job Change in Technology vs. Manufacturing,
2004-2007
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Total Job Change in IT s. Manufacturing, 2004-2007
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Cities with a higher share of IT jobs grow faster
Drivers of the New Economy
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Cities with More A greater Share of IT Jobs See
Faster Growth In Income
Drivers of the New Economy
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Drivers of the New Economy
Wage Growth Increases with Digital Economy
1
Austin, TX
.8
.6
Wage Growth 1990-2000 (PMSA)
Grand Rapids, MI
San Diego, CA
.4
Rochester, NY
.2
5
-5
0
Presence of Digital Economy Factors
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IT and Tech Provide Higher Wage Jobs

• Nationally, the tech/IT industry paid an annual
  average wage of 79,500, 87 more than the
  average private sector wage of 42,400.
• In the St. Louis metro area, computer-based
  occupations paid an average of 65,290 per year,
  compared with 38,930 for all occupations, and
  32,850 for production occupations.

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High-Tech Jobs

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Information Technology Jobs

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What Can Regions Do?
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Spur IT Use By Citizens

• Work to expand digital literacy.
• Support broadband rollout (cities should
  facilitate access to rights of way minimize
  taxation of broadband, limit regulation of
  broadband services, such as VOIP).

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Spur IT Use By Organizations

• Expand IT skills. Firms adopting higher levels
  of IT use more skilled labor,
• Drive e-government innovation to become a
  leading-edge region in the use of IT in all
  sectors (government, transportation, health care,
  education, etc.)
• Support organizations (public, private and
  non-profit) learning from one another on IT
  useage.
• Foster venture, seed and angel capital for
  IT-based startups.

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Spur IT Industry Development

• Support university IT and computer science
  programs.
• Facilitate inter-firm learning in part by
  supporting IT cluster initiatives (e.g., Atlanta,
  Seattle, Washington, DC)
• Dont do the wrong things (like Marylands tax of
  computer services).

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Rob Atkinson ratkinson_at_itif.org www.itif.org