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ROI Study

Topic: ROI Study

Overview: The Widening technology gap An increasingly large productivity gap exists between companies with the newest technologies and companies with average technology. In a recent research by Jason Cummins of the Federal Reserve Board and Giovanni Violante of University College in London measured the productivity difference in manufacturing between average technology and the best available technology. They found that the productivity edge gained by using the best technology jumped by almost 250% from 1975 through 2000.  In 1975, for example, average technology lagged the best technology in productivity by 15%.  By 1990, the gap had climbed to 35%, and by 2000 it stood at a startling 40% productivity advantage.

The investment implication: Companies that have the cash to spend on constantly upgrading to the newest production technology have an ever-increasing cost advantage over companies that employ average technology. And that puts an ever increasing share of the profits into the hands of a relatively few "best technology" companies. This secular trend just magnifies the competitive advantage of keeping capital investment high -- or at least higher than competitors -- during a down cycle, which I wrote about in my column "6 bubble survivors with 'Fantastic' futures." And it increases the penalty for failing to keep up.

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