Volume XV, January 2015
"Rethinking Networks: Exploring Strategies For Making Users More Valuable
Research Fellow, MIT Initiative on the Digital Economy
Understanding The Impact And Influence
Of ‘Network Effects’ Is Essential To
Understanding Value Creation In Digital
Volume XIV, November 2012
"Seven Principles for Fast-changing Industries:
Lessons from the CIME Sectors
Postdoctoral Associate, MIT Center for Digital Business
George Westerman, Research Scientist, MIT Center for Digital Business
The dizzying pace of innovation – from well-funded firms as well as dorm rooms and garages – continues to reshape industry after industry. Emergent players rise to prominence while long-established firms face seemingly insurmountable challenges to their business models. How can executives in fast-changing industries make sense of the complexity?
"The Digital Advantage: How Digital Leaders Outperform Their Peers in Every Industry"
George Westerman, Research Scientist, MIT Center for Digital Business
Andrew McAfee, Associate Director, MIT Center for Digital Business
New digital technologies like social media, mobile and analytics are advancing rapidly on the economic landscape. These innovations are used widely by consumers and employees alike. Facebook alone has more than one billion users, and there are more than six billion mobile phones. What do traditional businesses do when employees have better digital solutions at home than they do at work, and customers are more technology savvy than the people trying to sell to them?
Volume XIII, May 2012
"Designing Business Process Innovation Units That Deliver"
George Westerman, Research Scientist, MIT Center for Digital Business
In trying to make your company more innovative, are you looking in the wrong places? By framing innovation in terms of breakthrough products and customer experiences, you may be asking for more than your organization is ready to handle. Business process innovation can deliver breakthrough improvements in cost and service quality faster and at lower risk than product innovation activities. Business process innovators can deliver value now and, by engaging key employees in their experiments, can change the innovation culture of the enterprise.
"Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy"
Erik Brynjolfsson, Director, MIT Center for Digital Business
Andrew McAfee, Associate Director, MIT Center for Digital Business
Of all the grim statistics and stories
accompanying the recent Great Recession
and subsequent recovery, those related to
employment were the worst. Recessions
always increase joblessness, of course, but
between May 2007 and October 2009
unemployment jumped by more than 5.7
percentage points, the largest increase in
the postwar period. The grim
unemployment statistics puzzled many
because other measures of business health
rebounded pretty quickly after the Great
Recession officially ended in June 2009.
And by 2010, investment in equipment and
software returned to 95% of its historical
peak, the fastest recovery of equipment
investment in a generation. Economic
history teaches that when companies grow,
earn profits, and buy equipment, they also
typically hire workers. But American
companies didnʼt resume hiring after the
Great Recession ended. The volume of
layoffs quickly returned to pre-recession
levels, so companies stopped shedding
workers. But the number of new hires
remained severely depressed. Companies
brought new machines in, but not new
"What Every CEO Needs to Know About the Cloud"
Andrew McAfee, Associate Director, MIT Center for Digital Business
A 2010 IBM survey of more than 1,500 CEOs suggested that the largest leadership challenge in some time was the gap between the growing complexity of the environment and the CEO’s belief that his/her own company were equipped well enough to deal with it. Information technology infrastructure is at the core of driving complexity in organizations. Technology environments actually impede management’s ability to sense and respond quickly. While there is no simple fix, “cloud computing” offers a new suite of digital tools and approaches to deal with information complexity.
Volume XII, June 2010
"Managing and Valuing a Corporate IT Portfolio Using Dynamic Modeling of Software Development and Maintenance Processes"
Daniel Goldsmith, Research Scientist, MIT Sloan School of Management
Dr. Michael Siegel, Principal Research Scientist Sloan School of Management
The goal of this research is to enable performance improvements in IT portfolio management. Through investigation of software practices at a Fortune 500 company, we were able to demonstrate how simulation analysis can improve the valuation of software applications and overcome difficulties in reducing software maintenance costs. Our analysis used the System Dynamics Modeling (SDM) methodology to develop and simulate quantitative models that linked software dynamics, key actors, and management systems to estimate the costs and benefits of various management approaches. We also utilized complementary research techniques - including onsite interviews with multiple constituencies - to develop a holistic view of the software maintenance/development cycle. You can read the results of this paper by linking to:
Volume XI, January 2009
"A Theory of Services in Product Industries"
Michael Cusumano, MIT Sloan School,
Steve Kahl, University of Chicago Graduate School of Business and
Fernando F. Suarez, Boston University School of Managementhis.
Even though services have become increasingly important for firms in many product industries, there lacks theory to explain under what conditions services should be important to product firms. We propose that services embody the product and market-related knowledge that transfer between the producer and customer in activities associated with selling, financing, using, maintaining, and repairing products. Building on the knowledge management and innovation literatures, we propose that the level and type of services provided within a product industry are associated with uncertainty, complexity, and competitive dynamics. Finally, we explore the implications for research in resource capabilities, industry verticalization, and technological change.
"Improving Hospital Operations Using Hospital Information Systems and System Dynamics Modeling Techniques"
Dr. Masanori Akiyama, Koshio Atsushi, Daniel Goldsmith, and Dr. Michael Siegel
This research examines the challenges of implementation, management, and improvement of hospital operations during the introduction of new technologies. Specifically we examine the use of a Point-Of-Act-System (POAS) in a large Japanese hospital. After the initial set-up, system performance – measured in patient safety – remained robust, yet operational performance began to decline. Two specific staff behaviors driving performance declines were uncovered and modeled in simulation environments using the system dynamics modeling (SDM) methodology. Based upon presentation of our analytical results, financial performance of the hospital improved through modification of staff routines. The efficacy of the intervention was tested by comparing material utilization before and after the intervention. Measurement of this effect was enabled by the real-time capture system in POAS. The SDM technique employed in this study, combined with emerging rich health information system (HIS) data sets, can assist other institutions seeking to improve operations.
Volume X, January 2008
"Performance and Creativy Indicators within Communication Patterns of the Open Source Community".
Peter A. Gloor and Yared Kidane
This research brief reports on the communication patterns of online communities of developers and users of the open source Eclipse Java development environment. The research involved measuring the productivity of each community and identifying correlations that exist between group communication characteristic and productivity attributes. The TeCFlow (Temporal Communication Flow) visualizer tool was used to create “movie maps” of the knowledge flow by analyzing the publicly accessible Eclipse developer mailing lists as an approximation of the social networks of developers and users. Thirty-three different Eclipse communities discussing development and use of components of Eclipse such as the Java Development Tools, the different platform components, the C/C++ Development Tools and the AspectJ extension were analyzed over a period of six months. The evolution of social network variables such as “betweenness centrality”, “density”, “contribution index”, and “degree” have been computed and plotted. Productivity of each development group is measured in terms of two indices – performance and creativity. The results indicate that there is a correlation between attributes of social networks such as density and betweenness centrality and group productivity measures in an open source development community.
"Measuring the Impact of Electronic Data Management on Information Worker Productivity"
Sumit Bhansali and Erik Brynjolfsson
In this project, we studied the effects of digitizing work on information workers’ time-use and performance at a large insurance firm. We were able to determine of direction of causality between technology and performance by exploiting a quasi-experiment: the phased introduction of Electronic Document Management (EDM) across multiple offices at different dates. Our analysis used a “difference-in-differences” methodology to econometrically measure changes in a suite of performance metrics. This allowed us to derive unbiased estimates of the main effects. In addition, the study used three complementary research techniques to support the econometric findings: extensive onsite interviews before, during and after implementation; detailed time use diaries and observation; and a series of surveys. In addition to large changes in time-use and performance, we found that digitization leads to a decline in the routine labor input and an increase in complementary non-routine cognitive labor input. To interpret our results, we describe below a new micro-level mechanism, “IT-enabled slack”, that explains how exactly IT can lead to payoff in terms of information worker productivity.
Volume IX, June 2007
"Improving Hospital Operations Using Bar-Code Capture Data and System Dynamics Modeling Techniques".
Masanori Akiyama, Daniel Goldsmith, and Michael Siegel
The need for information technology (IT) implementation in hospital environments has been well documented, yet the challenges to successful implementation as demonstrated by numerous high-profile failed attempts, have similarly been recorded. To date, the majority of proposed solutions to Healthcare Information Systems (HIS) have focused on solving technology, integration, and operational issues. While important, these approaches fail to take advantage of the new opportunities provided by data collections systems. For example, the emerging HIS environment at a number of Japanese hospitals includes operational bar-code systems, providing increased patient safety with regard to injections. In the process of providing increased safety, the system collects information on every interaction between order, drug, nurse, and patient. Improved data collection systems give us the means to quantify system-wide behavior and can point us in new directions for improving hospital operations.
"Information, Technology and Information Worker Productivity: Task Level Evidence".
Sinan Aral, Erik Brynjolfsson, and Marshall Van Alstyne
Information workers now account for as much as 70% of the U.S. labor force and contribute over 60% of the total valued added in the U.S. economy (Apte & Nath 2004). Ironically, as more and more workers focus on processing information, researchers have less and less information about how these workers create value, and managers have greater difficulty measuring, managing and optimizing work. Unlike bushels of wheat or tons of steel, the real output of most information workers is difficult to measure. Counting meetings attended or memos filed is not closely linked to the value these activities create. But, as the information content of work increases, the role of information becomes increasingly central to our understanding of the performance of individuals, groups and organizations. This research explores the relationship between information, technology and information worker productivity, using detailed empirical evidence to examine how IT use and information seeking habits affect individual level output. Our findings not only uncover relationships among IT use and skill, communication behaviors, social networks, and productivity, but they also shed light on the underlying mechanisms that drive performance.
"Curing Spam: Rights, Signals & Screens - Forthcoming in the Economists' Voice ".
Marshall Van Alstyne
Not all email is created equal. Is there a way to separate unsolicited but valuable communication from the nuisance of worthless spam? The right answer would solve a $50 billion problem , but the two most common approaches – technology and law – have had little effect [5, 7, 11]. Of technology: Until computers comprehend language and metaphor, the arms race in filter patching versus filter penetration is not winnable; spammers simply convert their messages to new formats only humans recognize. Of law: criminalization requires a clear definition of the crime and an ability to catch the criminal. Neither is possible with spam. Laws lose efficacy on an anonymous borderless Internet. Taxes curb waste as well as welcome messages . Even if it were possible to ban or tax specific content, recipients themselves do not agree on what constitutes “spam.” . Different people have different views on advertising, friends, and family, as well as on religion, politics, pornography, and philanthropy.
Volume VIII, March 2006
Volume VII, September 2005
The Evolution of RFID Networks: The Potential for Disruptive Innovation
Charlie Fine, Natalie Klym, Dirk Trossen, and Milind Tavshikar
In some cases by design, but mostly by accident, numerous advances in technology have been highly disruptive. The personal computer
and the Internet are instructive examples that empower new and smaller players to innovate and challenge the entrenched economic and technological interests.
RFID offers the possibility of an explosion of nodes at the edge of the network with billions of devices added each year. But the
question is still open as to whether RFID will join the personal computer and the Internet in the disruption hall of fame. The
recent rise of RFID seems carefully choreographed for improving supply chain management through the efforts of EPCglobal. Wal-Mart,
the United States Department of Defense (DoD), and other big players treat RFID as a technology that will sustain their market power
through incremental innovation. However, the scope and style of RFID extends far beyond this key initiative. This brief report
examines the latest phase in RFID’s history, including the EPCglobal initiative and several other recent trends in tagging
technology that together, are expanding the RFID roadmap beyond the EPC thrust and may lead to more disruptive scenarios.
House of Security: Stakeholder Perceptions of Security Assessment and Importance, Executive Summary
Stuart Madnick, Michael Siegel
Security is crucial for the success of any organization. Unauthorized users frequently steal information while hackers constantly
disrupt flows of information. In response, organizations have adopted new security policies. It is clear that many of these
security policies are valuable, however, an organization may be limited in how much of its resources it can devote to protecting
its flows of information. Security costs can be incurred monetarily (e.g., the price of a new firewall) or non-monetarily (e.g.,
requiring employees to use convoluted passwords or confusing software-protection programs). An organization’s goal
should be to develop the most appropriate approach to security (i.e., a balance between cost and effectiveness). This is
further complicated by the fact that there are likely to be different priorities for the various stakeholders in the organization.
Furthermore, as organizations evolve towards becoming extended enterprises - including close ties with suppliers, customers,
and other partners - there will be a significant increase in the number of stakeholders and thus a wider range of security
Volume VI, January 2005
"The Cross-Channel Impact of Marketing Communications".
Jeffrey Hu, Erik Brynjolfsson, Duncan Simester, and Eric Anderson
The cross-channel impact of marketing actions has long been a topic of interest. However, in recent years, the introduction
of the Internet and the difficulty of identifying the source of orders placed over this channel has made this issue even
more important for retailers. In this paper we report the findings from a large-scale field test that investigates how mailing
catalogs affects both Internet demand and demand through traditional catalog channels (telephone and mail orders).
"What is RFID Worth to Your Company? Measuring Performance at the Activity Level".
Robert Laubacher, S. P. Kothari, Thomas W. Malone, and Brian Subirana
Leading global retailers like WalMart, Target and Metro have recently launched initiatives requiring their major suppliers
to implement radio frequency identification (RFID) technology. RFID tags are in line to become the bar codes of the 21st century,
allowing manufacturers and retailers to track items moving through the supply chain more quickly, cheaply and reliably. Bar codes
came into widespread usage in the 1980s and by 1997 were generating over $15 billion in annual benefits for the $300 billion U.S.
grocery industry. RFID has the potential to spur an even broader and deeper revolution in supply chain practices.
"China Deals: Tracking Deal Strategies and Patterns of Investment in the Chinese Telecommunications Market".
Tony Lim, James E. Short
China’s entry into the World Trade Organization (WTO) in December 2001 lent speed to an ongoing series of market reforms
that has opened up the massive Chinese domestic market to the world. The idea of China selling its products and services freely
in global markets in exchange for opening up its own growing domestic market of 1.2 billion people is a staggering one, demanding
business decision makers to have a comprehensive understanding of China’s unique, and changing, investment landscape.
Volume V, October 2004
"Leadership in an Age of Uncertainty"
The question, “What is leadership?” has permeated society from our earliest times. Interest in this question has
only intensified as we watch a new world order unfold in the aftermath of September 11th, and as we are bombarded with images
of corporate corruption and attempts at reform. We all hunger to know what leadership is yet the concept remains amorphous.
This research brief seeks to communicate a framework that allows us to integrate prior leadership theories, while focusing
on what leaders actually do. It is a framework that views leadership not as a person, but as a capacity that individuals and groups possess.
"Information Worker Productivity: Evidence from Worker Output, Compensation and Email Traffic Data"
Erik Brynjolfsson and Marshall Van Alstyne
Information workers now account for as much as 70% of the U.S. labor force. The real output of most information workers
is difficult to measure. Counting the number of meetings attended or the number of memos filed is not closely linked to the value
they may, or may not, create. Yet if IT is to have a significant effect on the economy, it almost surely must be via its use
by information workers and the tasks they perform. Does the use of IT lead professionals to complete their tasks more quickly?
Does it allow a given worker to do more tasks at a given time? Can information work be explicitly linked to revenues?
"ELM: Experience Lifecycle Mapping"
Facilitating a deep understanding of how the experience of our customers is supported, nurtured, or ignored by our information
systems and organizational design is a central goal of the new knowledge management system - ELM. Designed and implemented
under a Center for eBusiness research project with the newly created MasterCard Advisors division of MasterCard International,
the ELM framework supports a variety of complex conversations. The “customer experience” focused consultants of
this new division are using ELM in their engagements with clients in the financial services sector. They are also using it as
an in-house knowledge collection and organizing framework.
Volume IV, May 2004
"Location Based Services Case Study"
Location Based Services have been presented by press and industry as a set of applications that may deliver significant
profit to the mobile phone industry, and possibly beyond. These applications promise high margins with relatively low additional
costs, and therefore high profitability. The key questions are which applications will be demanded and how different parts
of the value chain will benefit from these demands.
At the Core-Edge Working Group, we are attempting to frame questions like these in a context of Core-Edge dimensions. Such
dimensions for this particular case are enumerated below, but the general framework is that the Core represents the backbone
of the network, e.g. centralized carriers operating long-haul equipment, and the edge represents the fingertips of the network,
e.g. individuals holding handsets or other consumer devices.
"Using Communication Norms for Coordination: Evidence from a Distributed Team"
Tanu Ghosh, JoAnne Yates, and Wanda Orlikowski
In our empirical study of a small geographically-dispersed software development team, we examine the role and importance
of communication norms in facilitating effective distributed coordination. Our longitudinal investigation of the ongoing
communication engaged in by team members within multiple media highlights the creation and emergence of a number of key coordination
norms that were critical to helping the team get its distributed work done.
Geographically-distributed teams have been receiving a lot of coverage lately in both the practitioner and academic literatures.
These literatures recognize that while dispersed teams can bring benefits such as increased flexibility they also include challenges
such as difficulties with coordination. The coordination challenge is particularly critical for dispersed teams because in addition
to accomplishing their ongoing production work, they engage in activities that span many boundaries (e.g., temporal, geographical,
cultural, and technical). There is thus a view, particularly in the practitioner discourse, that dispersed teams need advanced
technologies to accomplish their distributed communication and tasks.
"Measuring the Impact of Information Technology on Value and Productivity Using a Process-Based Approach: The Case of RFID Technologies"
Brian Subirana, Chad Eckes, George Herman, Sanjay Sarma, and Michael Barrett
The attention given to radio frequency identification (RFID) has been going up steadily throughout the past years
given the remarkable benefits it can provide. In particular, the application of RFID to the consumer packaged goods (CPG)
supply chain has been one of the first to capture large scale adoption, with companies like Wal*Mart mandating their top 100
suppliers to begin sending cases and pallets of goods with RFID/EPC (Electronic Product Code) tags by the year 2005. This mandate
will cause these suppliers to invest in new RFID and IT infrastructure. For each supplier there are many options: tag cases at the exit
doors, tag all cases in the supplier's warehouse entry doors, tag a certain section of the warehouse, etc.
With this challenge in mind, we set out to find a methodology for quantifying the value of RFID for a consumer packaged goods
company (CPG). Through our summer 2003 study of a major CPG company exploring RFID for one of their warehouses, we were
able to come up with a methodology.
Volume III, January 2004
"The Future of Work"
Thomas W. Malone
Imagine organizations where bosses give employees enormous freedom to decide what to do and when to do it. Imagine that workers
are allowed to elect their own bosses and vote directly on important company decisions. Imagine organizations where most workers
aren’t employees at all, but electronically connected freelancers living wherever they want to. And imagine that all
this freedom in business lets people get more of whatever they really want in life—money, interesting work, helping other
people, or time with their families. The Future of Work shows where these things are already happening today and how—if
we choose—they can happen even more in the future.
"Protocols for Negotiating Complex Contracts"
Mark Klein, Peyman Faratin, Hiroki Sayama, and Yaneer Bar-Yam
Work to date on negotiation protocols has focused on negotiating what we can call ‘simple’ contracts, i.e. contracts
consisting of one or a few independent issues. These protocols work via the iterative exchange of proposals and counter-proposals.
Since issues are independent, the utility of a contract for each agent can be calculated as the weighted sum of the utility for each issue. The utility function for each agent is thus
a simple one, with a single optimum and a monotonic drop-off in utility as the contract diverges from that ideal.
Real-world contracts, by contrast, are generally much more complex, consisting of a large number of inter-dependent issues. Even
with only 50 issues and two alternatives per issue, we encounter a search space of roughly 10^15 possible contracts, too large to be explored exhaustively.
The value of one issue selection to an agent, moreover, will often depend on the selection made for another issue. Such issue interdependencies lead to nonlinear
utility functions with multiple local optima.
In such contexts, an agent finding its own ideal contract becomes a nonlinear optimization problem. Simply conceding toward the
other agents’ proposals can result in the agents missing contracts that would be superior from both their perspectives.
The minimal concession protocol that works optimally for simple contracts produces outcomes, for complex contracts, that are
"Tradeoffs Between Costs and Benefits: Lessons from "The Price of 0"
Dan Ariely and Kristina Shampan’er
One of the most generic and common choices that consumers face are choices of one option among competing alternatives that
vary on quality, quantity, and price. Examples for such decisions range from selecting one’s morning coffee, to picking
vacations and cars and even larger decisions such as selecting a house to live in. When researchers conceptualize how consumers
make such choices the standard perspective common to both economic theory and behavioral decision theory is that consumers behave
as decision analysts – trading off costs and benefits. In particular, when making a choice of a single item out of
many substitutes, the standard perspective prescribes that consumers assess the benefits of each product, subtract the cost from
these benefits and select the option that has the highest positive net value.
Volume II, August 2003
"Cross-Organizational Data Quality and Semantic Integrity: Learning and Reasoning About Data Semantics with Context Mediation",
Allen Moulton, Stuart E. Madnick, and Michael L. Siegel
"Roadmapping the Communications Value Chain", Charles Fine
"Information Asymmetry and Thwarting Spam", Marshall Van Alstyne, Thede Loder, and Rick Wash
Volume I, May 2003
"Managing Products and Services in Software and Other Businesses", Michael Cusumano
"The Importance of Corporate Disclosure: How Market Transparency Affects the Firm's Financial Health", SP Kothari and JE Short
"Supply Chains and Value Networks: The Factors Driving Change and Their Implications to Competition in the Industrial Sector", Gabriel Bitran, Paolo F. Bassetti and Gary M. Romano
"The Trust Imperative", Glen Urban
"The Digital Organization: Seven Practices of Highly Productive Firms", Erik Brynjolfsson
"Online Reputation Mechanisms: A Roadmap for Future Research", Chris Dellarocas and Paul Resnick