'IT Revolution' Has Advantages, Pitfalls for Regions, Brookings Finds

Policymakers must understand the ways in which the information technology (IT) revolution is transforming business operations across both new and traditional industries, according to Paul Sommers and Daniel Carlson, the authors of What the IT Revolution Means for Regional Economic Development, a discussion paper prepared for the Brookings Institution Center on Urban and Metropolitan Policy. By achieving this understanding, economic development officials will "be prepared to respond to the new challenges and opportunities these changes present," say Sommers and Carlson, both of the University of Washington Evans School of Public Affairs.

The IT revolution, the authors state, has had far-reaching effects. Companies beyond the technology sector "are finding ways to cut costs dramatically by automating tasks, outsourcing certain functions, and linking customers to the factory floor." IT also continues to accelerate the fragmentation of large companies into separately located functional units and the number of strategic relationships among firms.

Sommers and Carlson make the following observations:

• "Both 'new' and 'old' economy firms are embracing IT, which means southern and northern cities and metropolitan areas can benefit from the technology revolution." Austin, Seattle and Washington D.C. are given as examples of well known centers for high tech companies. However, engineering firms such as Parker Hannifin, a Cleveland-based company that uses many of the tools of IT, illustrate that all regions need to recognize and address companies' shifting needs.
• "IT enables the 'fragmenting firm' to split off key functions throughout the U.S. and abroad, which presents both opportunities and challenges." Though still robust, the cluster phenomenon is growing to rely on portions of firms, and the functions within them, instead of whole companies or industries. Sommers and Carlson point to such examples as the Boeing Company, which relocated its headquarters to Chicago after leaving behind production facilities in Seattle and Southern California — two areas recognized for aerospace manufacturing. The result, the authors contend, is greater opportunity for metro areas to specialize but also a chance to lose valuable intellectual capital.
• "IT generates new criteria for firm locations, which may bring competitive advantage to some regions." For example, companies may look for a skilled workforce and extensive broadband capacity when considering where to locate. Regions equipped to meet such criteria possess an advantage over regions that are not. And,
• "IT helps firms go 'global,' increasing the need for U.S. regions to market themselves internationally."

Sommers and Carlson conclude that although firms will continue to globalize, fragment and relocate their headquarters, regional leaders can work to ensure "a competitive setting for all business' survival and success in a high tech era." Action steps include investing in IT, providing education programs that foster certain skills, and assuring sufficient venture capital for start-ups. Companies also must effectively use technology and help to facilitate strong relationships between and among regions.

The authors interviewed chief information officers and information architects of 28 companies in Atlanta, Cleveland, Minneapolis/St. Paul, Pheonix and Seattle.

The Brookings Institution, an independent, nonpartisan organization, conducts research on public policy issues in the areas of economics, foreign policy and governance. CEOs for Cities, a national bipartisan alliance of mayors, corporate executives, university presidents and nonprofit leaders, provided funding for the report. The Brookings Report is available at: http://www.brookings.edu/es/urban/publications/sommers.htm