News Release

Internet Business Solutions Expected to Account for 40 Percent of U.S. Productivity Increase Over 10 Years

By 2005, U.S. businesses expect to realize one half trillion dollars in cost savings through the adoption of Internet business solutions
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Dec 04, 2001

Momentum Research Group

SAN JOSE, Calif., December 4, 2001 - Internet business solutions are proving to be a significant contributor to the acceleration of U.S. productivity, according to preliminary results of a Momentum Research Group study released today. According to the study, Internet business solutions will drive 40 percent of the projected acceleration in the U.S. productivity growth rate from 2001-2011.

Respondents are finding that their adoption of Internet business solutions is financially beneficial.

  • Many organizations participating in this study reported revenue increases resulting from the adoption of Internet business solutions.
  • Of these organizations, the average revenue increase was 10.3 percent, and most companies reported that the major revenue impact came from an increased ability to attract new customers and grow existing customer relationships.
  • The adoption of Internet business solutions has yielded a cumulative cost savings of $155 billion to U.S. companies and is expected to produce an additional $373 billion in cost savings, most of which will be realized by 2005.

"There are several studies that have tackled the 'productivity paradox' at the macro, industry and firm level," said Hal Varian, dean of the School of Information and Management Systems at the University of California, Berkeley. "However, this is the first study, to our knowledge, that looks inside the firm to gauge the impact of different Internet-enabled business processes on revenue enhancement and cost savings."

The U.S. government estimates that the U.S. productivity growth rate was 2.5 percent from 1995 to 2000, presenting an acceleration of 1.3 percentage points over the productivity growth rate experienced between 1974 and 1995 (1.2 percent). Furthermore, the government estimates that the U.S. productivity growth rate will continue to grow during the next 10 years at a rate of 2.1 percent. This 2.1 percent represents an acceleration of .9 percentage points over the productivity growth rate from 1974-1995. The study findings indicate that the cumulative cost savings of $528 billion ($155 billion plus $373 billion) resulting from the implementation of Internet business solutions will account for .36 percentage points of the productivity growth rate or 40 percent of the forecasted .9-point increase. Furthermore, if these cost savings are sustained for 10 years, the impact of Internet business solutions on the productivity growth rate could generate $213 billion in increased wages.

"The Internet is the 21st-century-equivalent of Adam Smith's 'invisible hand' with respect to its influence on the U.S. economy and the way the world does business overall. Among other things, the Internet is helping to reduce costs and increase productivity throughout the economy. These gains in productivity ultimately benefit workers by permanently raising their wages," said Robert Litan, vice president and director of Economic Studies at The Brookings Institution.

Additional findings of the study included:

  • If all U.S.-based public and private organizations fully implement Internet business solutions, up to $1.4 trillion in cost savings could be realized.
  • Those cost savings translate into $3,500 in increased wages per worker.
  • All estimates for increased wages are based on permanent per capita increases that would be realized after ten years.

Study Background

The Cisco Systems, Inc.-sponsored study measures the financial impact of Internet business solutions on U.S. businesses, which the study calls, "Net Impact." Net Impact is measured in terms of revenue creation and cost savings. The study is the product of researchers from Momentum Research Group, The Brookings Institution and University of California, Berkeley.

The study surveyed more than 2,000 senior decision-makers charged with implementing Internet business solutions for their companies and then created a projection of the financial impact for the entire U.S. economy from the results. Preliminary results indicate that businesses believe that their investments in Internet solutions are paying off in the form of cost savings and increased revenues.

For the purposes of the Net Impact study, the researchers defined Internet business solutions as any initiatives that combine the Internet with networking, software and computing hardware technologies to enhance or improve existing business processes or create new business opportunities.

Interviews for this study were conducted during September and October 2001. Respondents were chosen to participate in the study from a leading database of U.S. companies. A probability sampling technique was employed to ensure that the study results were representative of businesses in key industry verticals including healthcare, wholesale/retail/trade, manufacturing, financial services and service providers/telecom. The full report is available at www.netimpactstudy.com.

About Momentum Research Group

The Momentum Research Group focuses exclusively on market intelligence in the business to business sector. An expert in measuring the impact of Internet technology on businesses and economy, MRG was the first company to measure the size of the U.S. Internet economy. Its flagship research services leverage the Cunningham Momentum Management(SM) research methodology from Citigate Cunningham to give technology marketers the intelligence necessary to build highly relevant and differentiated market positions - positions that translate into market leadership. Momentum Research Group can be found at www.momentumresearchgroup.com.