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INTERNET TO RELENTLESSLY DRIVE PRODUCTIVITY
Reuters 24-OCT-97
By Neil Winton, Science and Technology Corresdpondent LONDON, Oct 24 (Reuters) - Information technology is being lauded as the surprise provider of ever increasing wealth without inflation.
Economists in the United States are scratching their heads to solve a problem which the busineses schools suggested was impossible.
How is the U.S. economy still powering ahead in top gear with low unemployment without incurring inflation?
Information technology is getting the credit, but productivity gains notched up from the use of computers have been overlooked by government statistics.
As the Internet age gathers momentum companies around the world will be able to slash costs and gain access to markets which would have been impossibly expensive before.
Last week Federal Reserve Chairman Alan Greenspan said real productivity gains associated with computers and telecommunications may not have been fully realised yet.
Information technology experts agree. ``The Internet makes smaller and remote companies look big and next door,'' said Bill Rosser, research director at the information technology consultancy Gartner Group in Stamford, Connecticut.
``You can put up your website and your products and bring a presence to a much broader market. Because of its rich delivery capacity a small company in Lichtenstein can win business from General Motors,'' Rosser said.
ECONOMIC IMPACT DIFFICULT TO PINPOINT
The economic impact of information technology is undoubted, but difficult to pinpoint.
The problem for economists is how to accurately measure output and productivity in service industries such as banking, law firms, software and services companies generally, which account for an ever increasing percentage of the U.S. and other wealthy economies.
It was relatively easy to add up the number of widgets produced and divide the cost by the number of workers employed, but it's not so easy to measure the impact of information technology.
``It's hard for economists to figure this out. I think it's really based on problems with measuring how companies use IT to reduce the number of people needed to do certain tasks,'' said Eilif Trondsen, research director at consultants SRI International in Menlo Park, California.
``Companies like GE (General Electric Co ), and Cisco Systems Inc are finding ways of doing things with a fraction of the people they used to need, using the Internet,'' Trondsen said.
GE is one of the U.S.'s biggest companies with major businesses in power generators, appliances, lighting, plastics, medical systems, aircraft engines, financial services and broadcasting. GE earned net profits of $7.28 billion in 1996. Revenues were $79.2 billion.
Cisco provides the ubiquitous equipment which links computers across telephone lines over the Internet, pumping electronic mail and digital data around the world. Last year revenues jumped 80 percent to around $4 billion.
Bob Chatham, senior analyst at technology researcher Forrester in Cambridge, Massachusetts, points to novel ways that costs can be cut using computers.
``GE in its procuring of supplies and materials can save 15 to 20 percent buying online. Some firms can reduce the cost of a purchase order from $45 to around a dollar fifty. New companies like Free Markets Online will run an (virtual) auction for you and cut costs about 22 percent,'' Chatham said.
Pittsburgh, Pennsylvania based Free Markets Online targets markets such as plastic injection moulding or metal casting in which hundreds of companies compete for contracts, and sets up virtual auctions using its software to make the cheapest possible deals.
HOW INFORMATION TECHNOLOGY HELPS BUSINESS
SRI's Trondsen said the use of information technology can create a seamless flow of information through a company so that it can become more productive. Orders flow in and automatically trigger inventory and production decisions which have a big positive impact on productivity. Bills are settled electronically.
``The Internet helps companies find suppliers they didn't even know existed,'' according to Trondsen.
Gartner's Rosser said IT can make more information available to workers to let them make decisions on their own where supervisors would have needed to intervene previously.
``It makes them smarter. It enlarges the jobs because they've got the data. You don't have to talk to the supervisor, you see it (the data) and bingo, take action,'' Rosser said.
``This is bringing huge improvements, but we are not seeing this in economic statistics. Now the future is with the Internet, that's what Greenspan was talking about,'' said Rosser.
``This is all about maximising the use of your intellectual capacity.''
But won't all this labour saving technology result in huge swathes of unemployment around the world, and leave the competition in places like Europe in permanent second place?
SRI's Trondsen said Europe will catch up, but more bureaucratic organisations which lack the necessary corporate culture will have problems.
According to Rosser, short term upheavals will become long term benefits for all.
``Well yes, the buggy-whip makers will always go out of business. Most long term studies show lots of temporary problems, but ultimately we will get workers applied elsewhere to produce more goods and value added services,'' Rosser said.