FOUNDATION OF DOING BUSINESS

FOUNDATION OF DOING BUSINESS

In the United States over 23 million managers and over 113 million workers in the labor force rely on information systems every day to conduct business (Statistical Abstract, 2003). In many industries, survival and even existence without extensive use of information systems is inconceivable. Obviously, all of e-commerce would be impossible without substantial IT investments, and firms such as Amazon, eBay, Google, E*Trade, or the world’s largest online university, the University of Phoenix, simply would not exist. Today’s service industries—finance, insurance, real estate as well as personal services such as travel, medicine, and education—could not operate without IT. Similarly, retail firms such as Wal-Mart and Sears and manufacturing firms such as General Motors and General Electric require IT to survive and prosper. Just like offices, telephones, filing cabinets, and efficient tall buildings with elevators were once of the foundations of business in the twentieth century, information technology is a foundation for business in the twenty-first century.

           There is a growing interdependence between a firm’s ability to use information technology and its ability to implement corporate strategies and achieve corporate goals (see Figure 1-2). What a business would like to do in five years often depends on what its systems will be able to do. Increasing market share, becoming the high-quality or low-cost producer, developing new products, and increasing employee productivity depend more and more on the kinds and quality of information systems in the organization. The more you understand about this relationship, the more valuable you will be as a manager. 

FIGURE 1-2 The interdependence between organizations and information systems. In contemporary systems there is a growing interdependence between a firm’s information systems and its business capabilities. Changes in strategy, rules, and business processes increasingly require changes in hardware, software, databases, and telecommunications. Often, what the organization would like to do depends on what its systems will permit it to do.

PRODUCTIVITY

Today’s managers have very few tools at their disposal for achieving significant gains in productivity. IT is one of the most important tools along with innovations in organization and management, and in fact, these innovations need to be linked together. A substantial and growing body of research reported throughout this book suggests investment in IT plays a critical role in increasing the productivity of firms, and entire nations (Zhu et al., 2004).

          For instance, economists at the U.S. Federal Reserve Bank estimate that IT contributed to the lowering of inflation by 0.5 to 1 percentage point in the years from 1995 to 2000 (Greenspan, 2000). IT was a major factor in the resurgence in productivity growth in the United States, which began in 1995 and has continued until today at an average rate of 2.7 percent, up from 1.4 percent from 1973 to 1995 (Baily, 2002). Firms that invested wisely in information technology experienced continued growth in productivity and efficiency.