Dog Eat Dog

High-technology industries are tough places to do business.

Competition is constant, fierce and characterized by only temporary advantage, fueled by the ease with which software makers and other high-tech companies can copy and distribute new products and services. Instantaneous delivery through the Internet to hundreds of millions of consumers means a company with a slightly better online marketplace or search engine, for example, can quickly dominate the market, and just as easily be dethroned by a rival with a new approach.

If this brutal competitive cycle—first described as "creative destruction" by Austrian economist Joseph Schumpeter in 1942—makes you uncomfortable, we've got some bad news. We've been studying competition in all U.S. industries, not just the high-tech ones, and we've observed a remarkable pattern: On average, the whole U.S. economy has become more "Schumpeterian" since the mid-1990s. What's more, these changes have been greatest in the industries that buy the most software and computer hardware.

Over the past dozen years, in other words, information-technology consumption is associated with the kinds of competitive dynamics we're accustomed to seeing in the IT-producing industries. And because every industry will become even more IT-intensive over the next decade, we expect competition to become even more Schumpeterian.

PROCESS INNOVATION

What we have observed in industry after industry is the emergence of widespread process innovation and replication that is analogous to the product innovation and replication that takes place in high tech. Just as Google Inc. can take an improved search algorithm and make it immediately available via the Web, or Apple Inc. can quickly distribute an updated version of iTunes, companies in other industries can invent a new way of doing business, embed it in internal software, and deploy it as widely as necessary across locations, divisions and departments to gain an advantage.

CVS Corp. Chief Executive Officer Tom Ryan in 2001 wanted to improve customer satisfaction in the company's pharmacies, so he directed a cross-functional team to devise a better way of filling drug prescriptions. The team decided to change the order of two steps and shift the initial data-entry step so that it took place at drop-off, when the customer was still present. CVS then embedded the change in the software it uses to guide its prescription-filling process and rolled it out to its then 4,000 pharmacies in less than a year.

The technology not only ensured consistency and compliance with the new process, but it also allowed for a much more rapid deployment than if the Woonsocket, R.I., company had tried to implement the change solely via memos, training manuals and directives from headquarters. The change led to significant improvements in customer service and satisfaction, positive effects on patient safety, and decreased costs, says the company, now known as CVS/Caremark Corp. Within a year of the change, customer satisfaction, as measured in a monthly survey of CVS/pharmacy customers, increased 20%.

The CVS experience is a microcosm of a pervasive trend toward using IT to replicate not only digital goods and services but also business processes. This trend encompasses core activities such as customer service and order management, as well as support activities such as accounting and human resources. Once a company embeds its processes in IT, the processes are executed the same way not only across locations, but also over time. This means, for example, that a company can ensure that no large customer order will be accepted until a specific credit check is performed.

While creating an innovative business process is less visible than developing a new product or investing in factories, our research shows it is actually more important to a company's success. Intangible process capital is changing the way companies operate and the capabilities they possess. As a result, it also is changing the way they compete.

SEEDS OF CHANGE

The seeds of this process revolution were planted in the 1990s, when the computing power of U.S. companies rose more than tenfold and two technologies gave them the potential to rapidly deploy changes in the way they perform tasks.