Information Technology and American Business - The Impact Of Information Technology On American Businesses

The rise of the IT industries, though dramatic, did not impact the American economy nearly as much as the products that these industries produced. Nearly every task in a modern office, regardless of the business, employs some piece of technology that either was not present before the proliferation of information technologies or was only present in a very limited way. These technologies have had a profound effect on the productivity of businesses as well as individual employees.

In Digital Economy 2003 the Commerce Department reported that the annual growth of productivity per employee in the private sector increased sharply during the 1990s. Figure

FIGURE 3.1

3.1 is a chart of productivity growth of the private, non-farm business sector from 1973 to 2003. Between 1973 and 1995 the productivity of workers in America increased at a rate of roughly 1.4% each year. Then in 1995, which was just about the time the Internet became widespread, this entire curve shifted and the productivity of workers began to grow at 3.2% per year. The growth in value of what the average worker in the United States produced each year increased by 1.8%.

To determine if this sudden acceleration in worker productivity was indeed due to the introduction of IT technologies into the workforce, the Commerce Department separated all private industry into those that were IT-intensive, such finance and retail, and those that were less IT-intensive, such as construction. The authors of the study found that IT-intensive industries, which already had a relatively high worker productivity growth per year, increased in productivity much faster than less IT-intensive industries in 1995. During the recessionary period in 2000 and 2001, the IT-intensive industries' worker productivity did not wane. On the other hand, yearly growth in worker productivity in non-IT intensive industries had not occurred prior to 1995; it then rose 1% per year until 2000 before turning negative. Such results suggest that the introduction of IT technology into the workplace has not only improved worker productivity for the long term, but has also increased the rate at which it improves.

How IT Has Increased Productivity

The ways in which Information Technoloy increased productivity and made businesses more profitable are

TABLE 3.4

Shipments, sales, and revenues, by total and e-commerce, 2002–01
[Shipments, sales and revenues are in billions of dollars.]
	Value of shipments, sales, or revenue				Year to year percent change		% Distribution of e–commerce
	2002		2001
Description	Total	E–commerce	Total	E–commerce	Total	E–commerce	2002	2001
*We estimate B-to-B and B-to-C e-commerce by making several simplifying assumptions: manufacturing and wholesale e-commerce is entirely B-to-B, and retail and service e-commerce is entirely B-to-C. We also ignore definitional differences among shipments, sales, and revenues. The resulting B-to-B and B-to-C estimates, while not directly measured, show that almost all the dollar volume of e-commerce activity involves transactions between businesses.
SOURCE: "U.S. Shipments, Sales, Revenues and E-Commerce: 2002 and 2001," in United States Department of Commerce E-Stats, U.S. Census Bureau, Economics and Statistics Administration, U.S. Department of Commerce, April 2004, http://www.census.gov/eos/www/papers/2002/2002finaltext.pdf (accessed November 11, 2004)
Total*	14,675	1,157	14,585	1,080	0.6	7.1	100.0	100.0
B-to-B*	6,582	1,072	6,672	1,010	−1.3	6.1	92.7	93.5
Manufacturing	3,840	752	3,971	724	−3.3	3.8	65.0	67.0
Merchant wholesale	2,742	320	2,701	286	1.5	11.7	27.7	26.5
B-to-C*	8,093	85	7,913	70	2.3	21.4	7.3	6.5
Retail	3,230	44	3,157	34	2.3	29.3	3.8	3.2
Selected services	4,863	41	4,756	36	2.2	15.0	3.5	3.3

nearly endless. The reduction of paper in the workplace saved many large corporations millions of dollars. Word processors and desktop publishing software dramatically reduced the time necessary to complete many mundane office tasks, particularly in the communications industry. Computer systems in factories allowed manufacturers precise control over production lines, increasing efficiency and thus saving millions of dollars. Interoffice and Internet networks gave corporations weekly and sometimes even daily access to sales numbers and profit margins, enabling them to make faster decisions to increase profitability. If a line of clothing was not selling, for instance, the company would see the figures immediately and pull the line from the stores, rather than allow it to take up valuable retail space.

The improvements in efficiency created by information technologies even hit the open road. Digital Economy 2003 included a study that employed data from the U.S. Census's Vehicle Inventory and Use Surveys. The study examined the use of onboard computers on trucks. Standard onboard computers recorded how truck drivers operate the trucks they drive. Owners of trucking fleets used these standard computers to keep tabs on their drivers to make sure they were not mistreating the trucks. Advanced onboard computers, which debuted around the turn of the twenty-first century, added several new features, including GPS locators that allowed the dispatcher to determine where the truck was in real time and communicate schedule changes to the driver. Armed with advanced onboard computers, the dispatcher could see where the entire fleet was and make scheduling decisions to fully utilize the trucks and avoid situations where the trucks were idle and waiting for cargo. The Commerce Department report analyzed the impact these various onboard computers had on the companies that used them. The study found that when advanced onboard computers were used instead of the standard onboard computers, truck utilization increased by 13%. Industry wide, the use of advanced computers added up to a 3% increase in the amount of truck utilization, which translated to $16 billion in extra revenue per year.