BANK OF AMERICA ROUNDTABLE ON THE SOFT REVOLUTION: ACHIEVING GROWTH BY MANAGING INTANGIBLES

Economist Paul Romer has developed a new theory of economic growth—one that moves the factors of scientific discovery, technological change, and innovation back to the center of economic analysis. For corporate management, Romer's theory amounts to a new model of value creation. Where the old idea was to accumulate and make the most efficient use of “hard” assets—machines, factories, and natural resources—the new model points to “soft,” or intangible, assets as the key to growth and profitability. More precisely, the focus of Romer's model is something he calls “nonrivalrous information,” or “software” for short. “Software,” in brief, is valuable knowledge or formulas or instructions that can readily transmitted to others and therefore replicated throughout an organization. It is “nonrivalrous” because it can be used outside the firm—and indeed throughout the nation and the world—without diminishing its value to the firm. In this roundtable, Romer discusses his concept of software and its potential corporate applications with the CEOs of three successful companies. Besides illustrating the variety of forms software can take, the discussion also considers the challenge of managing the development of corporate software. One of Romer's messages to corporate management is that all workers are potentially creators of software—and this theme is echoed in the testimony of each of the three CEOs. In each case, moreover, a certain amount of decentralization of decision‐making is said to be necessary to achieve continuous improvement. And a number of comments by the panelists suggest that decentralization reinforced by stock ownership or well‐designed profit‐sharing schemes has considerable potential to add value.