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--- Original Message ---
"Mark Jones" <[EMAIL PROTECTED]> Wrote on
Wed, 9 Aug 2000 10:00:01 +0100
------------------
"..My wife and I commute together by car to our Wall Street jobs
from our
Long Island
home. At least once a week, either my wife or I have to stay
at work later
than usual. On
the way home, we call ahead and take out dinner from a great
Chinese
restaurant on
Third Avenue and 81 St . In my view, this widely practiced ritual
is one of
the sources of
our productivity and it can help us understand how the Internet
specifically
and
Information Technology (IT) in general is working to boost productivity.
�Takeout� is just another way of saying outsource. We all outsource
virtually everything
we need as consumers or businesses every single day. Self-reliance
may be a
virtuous
concept to some, but it is very impractical. We are all better
off by
spending our working
day on tasks that we are skilled and qualified to accomplish.
The income we
earn from
this activity will necessarily be greater if we aren�t distracted
by having
to do additional
chores to support ourselves.
Adam Smith was the first to understand and explain this simple
concept. He
didn�t call it
�outsourcing,� but rather the division of labor. In The Wealth
of Nations
(1776), he
explained that the division of labor means we can all specialize
in what we
do best and
exchange our products in the market for other goods and services
that are
more efficiently
produced by others. In other words, outsourcing is the main source
of
productivity.
Why do we care about productivity? More productive workers tend
to earn more
than less
productive ones. So they have a higher standard of living because
they have
the
purchasing power to buy more. In addition, productivity growth
moderates
inflationary
pressures.
The Internet is a revolutionary new technology. Yet, at the same
time, it�s
greatest
contribution is to promote the ongoing evolution in outsourcing,
thus
boosting
productivity. More specifically, e-commerce markets will increasingly
allow
businesses
to focus on their most profitable activities and outsource everything
else
from human
resources to legal services. Undoubtedly, many firms will outsource
to
e-commerce
market vendors their IT, which is essential to function in our
increasingly
wired world,
but is too costly for most to support in-house.
Metcalfe�s Law helps explain how the Internet reduces costs,
by increasing
efficiency of
communication: The value of a network is proportional to the
square of the
number of
participants. If there are 30 buyers and sellers, the number
of possible
buyer-seller
contact points is 30 2 or 900. But if an e-hub is introduced,
the number of
contact points is
just 60. Obviously, e-commerce hubs over the Internet can create
significant
savings.
British Telecom claims that procuring goods and services online
will reduce
the average
cost of processing a transaction by 90% and reduce the direct
costs of goods
and services
it purchases by 11%. Promoters of e-commerce in many other industries
including autos,
aerospace, and computers project similar savings. I recently
partnered with
CIO
magazine to survey 42 chief information officers from some of
the largest
companies in
the world. In our June �CIO E-conomy Poll,� exactly half of the
panelists
said that the
Internet cut their costs of doing business, while one-third report
higher
costs. My wife and I commute together by car to our Wall Street
jobs from
our Long Island
home. At least once a week, either my wife or I have to stay
at work later
than usual. On
the way home, we call ahead and take out dinner from a great
Chinese
restaurant on
Third Avenue and 81 St . In my view, this widely practiced ritual
is one of
the sources of
our productivity and it can help us understand how the Internet
specifically
and
Information Technology (IT) in general is working to boost productivity.
�Takeout� is just another way of saying outsource. We all outsource
virtually everything
we need as consumers or businesses every single day. Self-reliance
may be a
virtuous
concept to some, but it is very impractical. We are all better
off by
spending our working
day on tasks that we are skilled and qualified to accomplish.
The income we
earn from
this activity will necessarily be greater if we aren�t distracted
by having
to do additional
chores to support ourselves.
Adam Smith was the first to understand and explain this simple
concept. He
didn�t call it
�outsourcing,� but rather the division of labor. In The Wealth
of Nations
(1776), he
explained that the division of labor means we can all specialize
in what we
do best and
exchange our products in the market for other goods and services
that are
more efficiently
produced by others. In other words, outsourcing is the main source
of
productivity.
Why do we care about productivity? More productive workers tend
to earn more
than less
productive ones. So they have a higher standard of living because
they have
the
purchasing power to buy more. In addition, productivity growth
moderates
inflationary
pressures.
The Internet is a revolutionary new technology. Yet, at the same
time, it�s
greatest
contribution is to promote the ongoing evolution in outsourcing,
thus
boosting
productivity. More specifically, e-commerce markets will increasingly
allow
businesses
to focus on their most profitable activities and outsource everything
else
from human
resources to legal services. Undoubtedly, many firms will outsource
to
e-commerce
market vendors their IT, which is essential to function in our
increasingly
wired world,
but is too costly for most to support in-house.
Metcalfe�s Law helps explain how the Internet reduces costs,
by increasing
efficiency of
communication: The value of a network is proportional to the
square of the
number of
participants. If there are 30 buyers and sellers, the number
of possible
buyer-seller
contact points is 30 2 or 900. But if an e-hub is introduced,
the number of
contact points is
just 60. Obviously, e-commerce hubs over the Internet can create
significant
savings.
British Telecom claims that procuring goods and services online
will reduce
the average
cost of processing a transaction by 90% and reduce the direct
costs of goods
and services
it purchases by 11%. Promoters of e-commerce in many other industries
including autos,
aerospace, and computers project similar savings. I recently
partnered with
CIO
magazine to survey 42 chief information officers from some of
the largest
companies in
the world. In our June �CIO E-conomy Poll,� exactly half of the
panelists
said that the
Internet cut their costs of doing business, while one-third report
higher
costs.
My wife and I commute together by car to our Wall Street jobs
from our Long
Island
home. At least once a week, either my wife or I have to stay
at work later
than usual. On
the way home, we call ahead and take out dinner from a great
Chinese
restaurant on
Third Avenue and 81 St . In my view, this widely practiced ritual
is one of
the sources of
our productivity and it can help us understand how the Internet
specifically
and
Information Technology (IT) in general is working to boost productivity.
�Takeout� is just another way of saying outsource. We all outsource
virtually everything
we need as consumers or businesses every single day. Self-reliance
may be a
virtuous
concept to some, but it is very impractical. We are all better
off by
spending our working
day on tasks that we are skilled and qualified to accomplish.
The income we
earn from
this activity will necessarily be greater if we aren�t distracted
by having
to do additional
chores to support ourselves.
Adam Smith was the first to understand and explain this simple
concept. He
didn�t call it
�outsourcing,� but rather the division of labor. In The Wealth
of Nations
(1776), he
explained that the division of labor means we can all specialize
in what we
do best and
exchange our products in the market for other goods and services
that are
more efficiently
produced by others. In other words, outsourcing is the main source
of
productivity.
Why do we care about productivity? More productive workers tend
to earn more
than less
productive ones. So they have a higher standard of living because
they have
the
purchasing power to buy more. In addition, productivity growth
moderates
inflationary
pressures.
The Internet is a revolutionary new technology. Yet, at the same
time, it�s
greatest
contribution is to promote the ongoing evolution in outsourcing,
thus
boosting
productivity. More specifically, e-commerce markets will increasingly
allow
businesses
to focus on their most profitable activities and outsource everything
else
from human
resources to legal services. Undoubtedly, many firms will outsource
to
e-commerce
market vendors their IT, which is essential to function in our
increasingly
wired world,
but is too costly for most to support in-house.
Metcalfe�s Law helps explain how the Internet reduces costs,
by increasing
efficiency of
communication: The value of a network is proportional to the
square of the
number of
participants. If there are 30 buyers and sellers, the number
of possible
buyer-seller
contact points is 30 2 or 900. But if an e-hub is introduced,
the number of
contact points is
just 60. Obviously, e-commerce hubs over the Internet can create
significant
savings.
British Telecom claims that procuring goods and services online
will reduce
the average
cost of processing a transaction by 90% and reduce the direct
costs of goods
and services
it purchases by 11%. Promoters of e-commerce in many other industries
including autos,
aerospace, and computers project similar savings. I recently
partnered with
CIO
magazine to survey 42 chief information officers from some of
the largest
companies in
the world. In our June �CIO E-conomy Poll,� exactly half of the
panelists
said that the
Internet cut their costs of doing business, while one-third report
higher
costs.
How can investors profit from the productivity revolution? The
market�s
answer has been
loud and clear: Buy technology. Despite the crash in dot-coms
and other
technology
stocks from March through May, technology still accounts for
one-third the
value of the
S&P 500. The rebound in this sector during June was impressive.
I think that
half of the
S&P 500 market capitalization could be technology by the second
half of the
decade.
So what does Chinese takeout food have to do with productivity?
Maybe not
much, but
next time you bring it home, tell the kids why it makes more
economic sense
to outsource
it, then to cut up all the vegetables and stir fry them in a
wok on your
stove..."
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