Hal Varian on how the Web challenges managers

McKinsey story

Google’s chief economist says executives in wired organizations need a sharper understanding of how technology empowers innovation. 

Extract from the article

More than ten years into the widespread business adoption of the Web, some managers still fail to grasp the economic implications of cheap and ubiquitous information on and about their business. 

On flexible innovation

We’re in the middle of a period that I refer to as a period of “combinatorial innovation.”  .... Now what we see is a period where you have Internet components, where you have software, protocols, languages, and capabilities to combine these component parts in ways that create totally new innovations ...... There are no inventory delays. It’s a situation where the components are available for everyone, and so we get this tremendous burst of innovation that we’re seeing.
On corporations and work
The work goes to you, and you’re able to deal with your work at any time and any place, using the infrastructure that’s now become available ... When we’re all networked, we all have access to the same documents, to the same capabilities, to this common infrastructure, and we can improve the way work—intellectual work, knowledge work—flows through the organization. And again, in my opinion, that will lead to a substantial advantage in terms of productivity.
On free goods and value
Back in the early days of the Web, every document had at the bottom, “Copyright 1997. Do not redistribute.” Now every document has at the bottom, “Copyright 2008. Click here to send to your friends.” So there’s already been a big revolution in how we view intellectual property. So it’s not so much the question of what’s owned or what’s not owned. It’s a question of how can you leverage the assets you have to realize the most value .... We have to look at today’s economy and say, “What is it that’s really scarce in the Internet economy?” And the answer is attention. [Psychologist] Herb Simon recognized this many years ago. He said, “A wealth of information creates a poverty of attention.” ....
On workers and managers
... now we really do have essentially free and ubiquitous data. So the complimentary scarce factor is the ability to understand that data and extract value from it ... In the old organization, you had to have this whole army of people digesting information to be able to feed it to the decision maker at the top. But that’s not the way it works anymore: the information can be available across the ranks, to everyone in the organization. And what you need to ensure is that people have access to the data they need to make their day-to-day decisions. And this can be done much more easily than it could be done in the past. And it really empowers the knowledge workers to work more effectively.

On computer monitoring and risks

One of the really interesting phenomena that’s been going on in the last 20 years is what I call “computer-mediated transactions.” So now, in the middle of almost every transaction from person to person or organization to organization, there’s a computer. And the computer can monitor that transaction, record the information, collect the data, and assure that the transaction is carried out the way it was intended to be carried out. So one of the subtle implications of this is you can now write contracts and make contracts enforceable that simply weren’t enforceable before....

On reshaping industries

We’re obviously going to see enormous change in the traditional marketing industry...

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