Term Paper: Computers Have Influenced Business

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Since then new learning tools have been developed which have included more group scenarios and decision making tools and shell can be seen as a true learning organisation.

New technology has facilitated this with ease as study groups may never meet up with each other, but communicate with the planners by e-mail. Shell has even participated with the MIT centre for organisational learning (Fulmer, 1995).This centre has noted the way in which a common factor in many learning organisations has been the use of information technology. Many learning organisations utilise this as a tool which aids productive behaviour and helps it adopt to the changing situations. This attitude to technology can be seen throughout the organisation. The increased skills this training and time saved. In the use of technology has now been seen to show productive results in the use of manpower hours.

This would indicate that the use of computers and the associated technology will create added value, however, the evidence for this is also contradictory, and with the advent of computers we also have the emergence of the productivity paradox. Individual cases may show that increased use of technology increases productivity, but the empirical evidence demonstrates a different pattern (Patterson, 2000, Lichtenberg, 1995).

The paradox is a difficult one, as the higher the amount invested in IT and copmputers the higher we would expect to find productivity, otherwise there would be no other reason to invest and the aspect of pure cost reduction is an unsustainable argument in most cases (Business Line, 2000). This does not appear to be the evidence we would expect, throwing out the purpose and productivity of IT investment into great question. There have been countless studies that have not only demonstrated a lack of increased productivity, but had actually indicated a negative correlation between the investment in IT and the productivity rates (Business Line, 2000, Lichtenberg, 1995). This can also be expanded in terms of economic measurements with an overall downward trend since the introduction of the computer into the work place (Business Line, 2000).

Economist Robert Solow has made an observation that may give us the clue to this paradox, as he tells us that when we look around we are surrounded by computers, and that the one place they appear to be lacking is in the productivity statistics (Anonymous, 2001). Indeed when we look to the productivity statistics form the introduction of computers in business with a very definite and prolonged downturn ever since the 1960's (Anonymous, 2001).

There are many explanations to this, and one of the most widely accepted is that the way in which we measure productivity may not be suitable for the digital age where products may exist only in virtual world. And information can be seen as playing such a major role in an economy (Anonymous, 2001). Another argument is put forward by the technophobes which argue that the productivity is not influenced by new technology (Anonymous, 2001).

If we look to consider this in a more specific sense we can look to one of the worlds largest economies where technology is well established, for this we will look the United States. Here there is an economy that is neither totally digital, remaining partly mechanised in the older more established sense as well as the more modern technological sense (Anonymous, 2001). There has been seen an established and well documented desire for the mechanical production techniques to be updated and changed so that there is a higher level of automation that can speed up production and increase efficiency.

The automation of these mechanical production lines has worked as productivity in the sectors has increased, with the growth rate in both agriculture and manufacturing where there has been very high levels of automation over the last century increasing at between 3% and 4% (Anonymous, 2001).

This would look to demonstrate that in real terms there is an increase, but this is not the case. There has also been a growing trend towards the service sectors, and in many western nations as well as eastern countries the majority of jobs are now in the service sector, this is a move away form the more traditional production jobs. However in this sector the growth in productivity has been a lot lower, usually at a rate of less than 1% (Anonymous, 2001). Here it has been very hard to find ways of increasing production through investment in IT.

The paradox is further demonstrated when it is proven that the application of investment in IT as in areas where there has been this investment there has been an increased average productivity of 1.1% since the 1970's (Anonymous, 2001). Where there has only been light investment there has been an increase of about.35% (Anonymous, 2001). Therefore although IT can be seen as aiding business it is also concentrated in specific areas, and the paradox of the association of decreased productivity is not solved.

Now when we look at productivity we can also see that there is an increased use in asset measurement, and that this is also a paradox in itself as for every $1 spent on IT we can see that there will be an associated increase in market value of $10 (on the share prices) (Brynjolfsson and Hitt, 1998). There we must interpret this as the additional $9 in value representing the hidden value by way of associated and complementary assets (Brynjolfsson and Hitt, 1998). One of these expenditures may well be ERP; enterprise resource planning software as seen with SAP's R/3 system where for every single dollar spent on the system there will be an additional amount of, on average, between $3 - $4 (Brynjolfsson and Hitt, 1998). ERP is a management tool that can be seen as giving a greater level of control to the company in terms of information so that it may be integrated and give a better indication of productivity rather than the traditional measures. In this we may see it is a useful management tool, but also a step towards addressing the productivity paradox problem and seeing how there is an increased value by investment in computers.

All of the costs are an investment, it makes a company work better and more effectively, the staff may be a competitive advantage ands the firm might be operating in a much better way, but in terms of assets measurement such as traditional efficiency measures including return on assets this does not add a material amount to the companies balance sheet (Brynjolfsson and Hitt, 1998). If it does not appear on the balance sheet then the figures are not included in many of the methods that are used to calculate productivity (Brynjolfsson and Hitt, 1998). Therefore the paradox continues, we know that IT increases periodicity and effective running, but in material terms the empirical evidence still denies this and will continue to do so until the measures are made in a different way with ERP only adding to the paradox as well as being able to explain it to some extent.

One thing is certain, computers have changed the way that businesses operate, they are now a necessity, and although the source of savings and competitive advantage, they will only ever be as good as the programmes they run and the people that use the information and the results of hose programmes. This is a trend that is likely to continue.

References

Anonymous (2001) Explaining The Productivity Paradox (no author cited), The New Economy Index [online] accessed at http://www.neweconomyindex.org/productivity.html

Anonymous (2001) Enterprise Resource Planning [online] accessed at http://phoenix.som.clarkson.edu/pants/erp1/

Brynjolfsson E, Hitt LM (1998) Beyond the Productivity Paradox; Computers are the Catalyst for Bigger Changes, [online] accessed at http://grace.wharton.upenn.edu/~lhitt/bpp.pdf

Business Line, (no author cited), (2000, Nov 22), India: The productivity paradox. Business Line, pBSLN13886880.

Davis Michael, (2000 Jan 31), Shell Oil Implements Aggressive Globalization Strategy. Knight-Ridder/Tribune Business News, pITEM00032098

Fulmer Robert M. (1995, May), Building organizations that learn: the MIT Center for Organizational Learning. Journal of Management Development, v14 n5 p9(6)

Lichtenberg FR (1995), The Output Contributions of Computer Equipment and Personnel; A Firm Level Analysis, Economics of Innovation and New technology, v3 p201-217

Mintzberg H, Quinn J, Goshal S… [END OF PREVIEW]

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