Productivity Arbitrage

December 21, 2005

“ThoughtWorker”: “Obie Fernandez”: came up with the nifty new term “Productivity Arbitrage”:

bq. _Productivity Arbitrage_ is a strategy of statistical arbitrage which leverages innovative new technology to deliver solutions at the market price that is based on the historical price/value proposition of older, less-productive technology.

In software terms, it is the competitive advantage gained by delivering solutions at or slightly below market price, but incurring lower delivery cost due to early commercial use of a new, relatively unproven technology. Over time, the market’s price/value expectation aligns with reality to reflect a new status quo, in turn diminishing profitable opportunities for productivity arbitrage until innovation once again causes a productivity imbalance to arise.

Also a great story on how ThoughtWorks recently won a $800,000 bid with a “Ruby on Rails”: powered system.