INFORMATION TECHNOLOGY REVOLUTION
Information Technology synthesises the convergence of previously
distinct and separate technologies. As is clear from Figure-1 below,
developments in computer technology, electronic components technology and the
communications technology along with appropriate software have converged and
are now known by the catchword Information Technology' (IT). Information
Technology refers to `a very wide range of elements which are utilised to
create, transfer, transform and convey information through means, irrespective
of whether these elements are in the form of equipment, services or know-how'.
Developments in information technology have already produced vast gains in
productivity resulting in counter inflationary trends in prices as well as
substantial improvements in technical performance of many products and
services.
Figure-1 : Convergence of Components, Computers and
Communications
Tr = Transistor
IC = Integrated Circuit
LSI = Large Scale Integration
VLSI = Very Large Scale Integration
SD-ESS = First Generation Electronic Switching Systems TD-ESS =Second
Generation Electronic Switching Systems C&C = Computers and
Communications
Source : Kobayashi, Koji, "The Japanese Telephone Industry in the Year 2000" in International Telecommunication Union (ITU), 3rd World Telecominunication Forum, Part 1, p. 11.6.4., ITU, Geneva, 1979.
Information technology is all-pervasive as it affects all,
activities that contain some form of logical function. The source of the
activity could be mechanical, electrical, pneumatic, hydraulic or even
intellectual. Information technology cuts horizontally across clerical,
supervisory, managerial and communication activities, which are common to all
sectors of industry and also affects the design of products and services,
processes and organisations producing the same. We shall now discuss some of
the major changes brought about by developments in information technology.
CHANGES IN PRODUCTS
Information technology brings about changes in products by
replacing mechanical (e.g. watches), electromechanical (e.g. calculators) or
older electrical or electronic (e.g. computers) parts or components, by
upgrading traditional products by enhancing their capability. It includes
functions involving, for example, logic and decision-making (auto focus in
cameras) and even by creating entire new products (e.g., video games),
smartphones, tablets, laptops.
Figure-2 : Change in Products
by IT
The product changes mentioned above have three major consequences.
The first is that the value addition is transferred from the manufacture and
assembly of parts to the production of the electronic assemblies/sub-assemblies
with associated software as shown is Figure-2 for the telephone switching
equipment as an example. Juxtaposed is the fact that the manufacture of
electronic component based systems can have very low labour intensity (labour
per unit of capital). The picture that emerges suggests that the labour
intensity of such products decreases with further 'consequences in terms of
employment as well as location of the manufacturing plants.
The second effect relates to shortening of
product life cycles. Product design of many products get linked to developments in
information technology in general and to developments in electronic technology
in particular. Because there are very fast developments in these technologies,
they have their effect on the design of newer products, thus shortening their
product life cycles. As a convergence technology, IT acquires the ability to
condition developments in an ever increasing number of sectors of the economy.
The ability to create, store, retrieve, transfer, transform and
convey information/data efficiently and economically (imparted to products by developments
in information technology) allows the products to the integrated into
larger systems so that the products are compatible with the larger systems for enhanced
capability. For example, electronic-typewriters cannot only type but also store
the, typed information for later processing on a microcomputer and so compatibility
with microcomputers will be one more feature to be built into electronic
typewriters.
CHANGES IN SERVICES
We use the term "services" in its broadcast sense as bundles-of
benefits some of which may be intangible and others tangible, and they may be
accompanied by facilitating goods. This sector has the highest growth rate in most
economies of the world and 'has the largest single share of employment in the
world GDP. It is said that in USA services account for over 70% of total
income. In developing countries the share of services estimated is around 40%
but with technological developments taking place it is likely to grow further.
Information technology is already affecting the productivity of service
production as well as increasing their transportability. In order to understand
these changes better, we present a classification scheme for services as,
proposed by Baumol (and modified by Buffa and. Sarins) and classify services
into the following four broad categories:
Stagnant Personal Services: These services require direct contact between the customer
and the service provider. Since the quality of the service, to a great extent,
depends upon the amount of time spent on services it 'is difficult to realise significant
productivity gains in these services. For instance, hair cutting, teaching and
counselling belong to this category. However, it is possible to realise significant
gains in productivity in the supporting activities necessary for providing the
service. For example, overhead projectors, photocopying facilities teaching
aids, and computers have all contributed to a higher productivity of teachers.
Substitutable Personal Services: These services also require
direct personal contact but it is possible to substitute these services with
technological alternatives. For example, guards can be substituted or helped by
electronic security and serveillance equipment and domestic servants by a
variety of household appliances like washing Machines, ovens, -mixers, etc.
Information technology has played a big role in improving the productivity and the performance of this
equipment substituting services. Centrally controlled computer devices or
gadgets incorporating programming facilities have been developed to operate the
domestic appliances in accordance with the consumers’ needs or desires.
Progressive Services: These services require the use of some equipment and also direct
personal contact with the receiver of the service. Technological change affects
the productivity of the equipment more directly and significantly than the personnel
offering the personal contact-based service. For example, air transportation requires
the use of the airplane as well as that of the ground and cabin crew; and broadcasting
requires the use of studio and transmitting equipment as well as the "personal"
contact established by the broadcaster(s). In a way, there is some hardware and
some software required to render the service and information technology is
affecting the productivity of the hardware more than that of the software.
Explosive Services: Services that do not require personal contact belong to this category
such as telecommunications. Information technology is bringing about significant
productivity increases in these services thereby reducing the unit cost and
setting counter inflationary trends in prices. Developments in information technology
are also contributing to the generation of new services in this category e.g.,
facsimile transmission (FAX), Videotext and Electronic Mail.
The above classification helped us to understand the role of
information technology on productivity improvements in services. It also
brought out another major effect of information technology, viz., its
contribution to the transportability of services. Many services, based on
exchange and transformation of information, are becoming more and more
transportable. This can be seen happening in some banking and retailing
operations, stock market services as well as in services relating to
development of software.
Transportability of services has brought about at least three major effects in
its wake. It has led to internationalization of services in many fields
bringing out cross border flows of messages, information and data. Many of the
services traditionally catering to local markets are now being offered to the
global market. The second effect relates to changes in barriers to entry in
services. In many services the barriers to entry are getting lower as the cost
of entry is 'practically limited to the cost of equipment which itself is
falling e.g., desktop publishing. On the other hand, the barriers to entry in
some other services, where an integrated network of services is offered, are
getting higher. This can be seen in some banking operations as well as
development of software requiring satellite data transfers (since the cost
involved in developing infrastructure is very high). Transportability of
services has also increased the transparency of market due to widespread
availability of information. The foreign exchange market and the money market
have already affected by information technology. The Bombay Stock Exchange is
being planned to be more transparent very 'soon. Being designated as National
Stock Exchange, scripts of many international companies will be admitted and
many Indian companies would be listed on the stock exchanges abroad.
CHANGES IN PROCESSES
Information technology changes processes in two major ways: it
allows the incorporation of higher levels of skills and functions into
equipment (as in computer controlled machine tools and robots) and it increases
the flexibility of many processes to achieve economies of scope involving
almost continuous production of individualized products. This can be seen in
Figure 3.7 below where different stages of manufacturing automation are plotted
against volume and variety.
Figure 3 : Different
Stages of Manufacturing Automation
Source : Arthur D. Little, The
Strategic Benefits of Computer-Integrated Manufacturing, Cambridge, Mass.,-1983,
p 194
Process automation as the general characteristic of replacing
direct labour (unskilled and semi-unskilled) with capital in conformity with
the long-term shift in prices. Consequently, direct labour cost as a fraction
of the product cost is declining. This phenomenon is wiping out the comparative
advantage of developing countries in terms of low labour cost. Training and
retraining of labour, including technicians / operators, has almost become a
necessity in the existing enterprises. The second effect is the combination of
lower labour cost with higher automation. Automation seems to be removing the
primary reasons for locating assembly operations in off-shore locations. The
cost of assembling semi-conductor devices in Hong Kong is lower than that of
USA. So advantage for USA in terms of a lower labour cost in Hong Kong due to
higher automation.
The automated assembly process using the so-called
"hands-off" approach also produces products of very high quality.
Information technology enables the producers of process equipment to develop
horizontal links with other products or equipment or services such as material
handling, integrated process control, fabricators etc. It also helps the
manufacturing process through better planning, coordination and control. For
example, modern manufacturing resource planning enables management to plan and
control all manufacturing resources-material, equipment, personnel, tools, etc.
more effectively, thus improving the productivity of operations as well as releasing
investments in inventory.
It is now widely known that in Japanese enterprises inventories
are operated on hourly basis, while in India and other developing countries
inventories are still carried on monthly basis, which increases the over-all
costs of operations and products.
These changes also affect the skill-mix of personnel required
for the changed process. As production processes become more sophisticated, the
number of direct workers would perhaps show a decline whereas more engineers
and technicians would be required to carry out reprogramming, installing,
repairing and even developing newer processes. This would also call for
extensive retraining at all levels, especially those skills, which are likely
to become scarce.
The changes in products, services and processes discussed above
may, in many cases, require new forms of management structure and business
organisation. This may be seen happening in many industries but perhaps not
fast, enough, thus acting as a constraint in the institutionalization of other
changes. The organisation structure can no more be static but should be capable
of absorbing changes fast enough, at least in those organisations where changes
in products and processes are occurring very fast, so as not to constrain further
changes. To be successful with new technologies, an organisation must be able
to innovate and produce competitively. This shows up in the form of flatter
organisations where the number of hierarchical levels gets reduced
significantly. This also gives rise to higher dependence on task groups, expert
' committees and other forms of temporary working groups:
Information technology also allows higher integration of
suppliers, vendors and subcontractors into the network of manufacturing
companies. Specialist suppliers, in many cases, are better placed to adapt
changes in products and processes and many large firms are finding it easier
and more economical to "buy" than "make". In the case of
many large manufacturers in developed countries, this has given rise to a
hierarchical structure of subcontractors akin to the organisation structure (with
the 'subcontractors being part of the extended organisation). Ancillarisation of
large manufacturing units in India is a step in this direction. E-Commerce
evolved as the latest integration model of manufacturer/ suppliers with
marketers (Marketplace) to reach the customers through figure tips.
Increased office automation, has not only improved office
productivity substantially but has also made the coordination functions easier
and more effective as human resources can be used and consulted in real time.
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