GLOBALIZATION

GLOBALIZATION

A growing percentage of the American economy—and other advanced industrial economies in Europe and Asia—depends on imports and exports. Foreign trade, both exports and imports, accounts for more than 25 percent of the goods and services produced in the United States, and even more in countries such as Japan and Germany. Companies are also distributing core business functions in product design, manufacturing, finance, and customer support to locations in other countries where the work can be performed more cost effectively. The success of firms today and in the future depends on their ability to operate globally.

           Today, information systems provide the communication and analytic power that firms need to conduct trade and manage businesses on a global scale. Controlling the far-flung global corporation—communicating with distributors and suppliers, operating 24 hours a day in different national environments, coordinating global work teams, and servicing local and international reporting needs—is a major business challenge that requires powerful information system responses. 

           Globalization and information technology also bring new threats to domestic business firms: Because of global communication and management systems, customers now can shop in a worldwide marketplace, obtaining price and quality information reliably 24 hours a day. To become competitive participants in international markets, firms need powerful information and communication systems.

RISE OF THE INFORMATION ECONOMY

The United States, Japan, Germany, and other major industrial powers are being transformed from industrial economies to knowledge-and information-based service economies, whereas manufacturing has been moving to lower-wage countries. In a knowledge-and information-based economy, knowledge and information are key ingredients in creating wealth.

           The knowledge and information revolution began at the turn of the twentieth century and has gradually accelerated. By 1976, the number of white-collar workers employed in offices surpassed the number of farm workers, service workers, and blue-collar workers employed in manufacturing (see Figure 1-3). Today, most people no longer work on farms or in factories but instead are found in sales, education, health care, banks, insurance firms, and law firms; they also provide business services, such as copying, computer programming, or making deliveries. These jobs primarily involve working with, distributing, or creating new knowledge and information. In fact, knowledge and information work now account for a significant 60 percent of the U.S. gross national product and nearly 55 percent of the labor force. 

FIGURE 1-3 The growth of the information economy Since the beginning of the twentieth century, the United States has experienced a steady decline in the number of farm workers and blue-collar workers who are employed in factories. At the same time, the country is experiencing a rise in the number of white-collar workers who produce economic value using knowledge and information. Source: U.S. Department of Commerce, Bureau of the Census, Statistical Abstract of the United States, 2003, Table 615; and Historical Statistics of the United States, Colonial Times to 1970, Vol. 1, Series D, pp. 182–232..

           In knowledge-and information-based economies, the market value of many firms is based largely on intangible assets, such as proprietary knowledge, information, unique business methods, brands, and other “intellectual capital.” Physical assets, such as buildings, machinery, tools, and inventory, now account for less than 20 percent of the market value of many public firms in the United States (Lev, 2001).

           Knowledge and information provide the foundation for valuable new products and services, such as credit cards, overnight package delivery, or worldwide reservation systems. Knowledge- and information-intense products, such as computer games, require a great deal of knowledge to produce, and knowledge is used more intensively in the production of traditional products as well. In the automobile industry, for instance, both design and production now rely heavily on knowledge and information technology.

EMERGENCE OF THE DIGITAL FIRM

All of the changes we have just described, coupled with equally significant organizational redesign, have created the conditions for a fully digital firm. The digital firm can be defined along several dimensions. A digital firm is one in which nearly all of the organization’s significant business relationships with customers, suppliers, and employees are digitally enabled and mediated. Core business processes are accomplished through digital networks spanning the entire organization or linking multiple organizations.

           Business processes refer to the set of logically related tasks and behaviors that organizations develop over time to produce specific business results and the unique manner in which these activities are organized and coordinated. Developing a new product, generating and fulfilling an order, creating a marketing plan, and hiring an employee are examples of business processes, and the ways organizations accomplish their business processes can be a source of competitive strength. (A detailed discussion of business processes can be found in Chapter 2.)

           Key corporate assets—intellectual property, core competencies, and financial and human assets—are managed through digital means. In a digital firm, any piece of information required to support key business decisions is available at any time and anywhere in the firm. 

           Digital firms sense and respond to their environments far more rapidly than traditional firms, giving them more flexibility to survive in turbulent times. Digital firms offer extraordinary opportunities for more global organization and management. By digitally enabling and streamlining their work, digital firms have the potential to achieve unprecedented levels of profitability and competitiveness. DaimlerChrysler, described earlier, illustrates some of these qualities. Electronically integrating key business processes with suppliers has made this company much more agile and adaptive to customer demands and changes in its supplier network.  

           Figure 1-4 illustrates a digital firm making intensive use of Internet and digital technology for electronic business. Information can flow seamlessly among different parts of the company and between the company and external entities—its customers, suppliers, and business partners. More and more organizations are moving toward this digital firm vision.

FIGURE 1-4 Electronic business and electronic commerce in the emerging digital firm Companies can use Internet technology for e-commerce transactions with customers and suppliers, for managing internal business processes, and for coordinating with suppliers and other business partners. E-business includes e-commerce as well the management and coordination of the enterprise.

         A few firms, such as Cisco Systems or Dell Computers, are close to becoming fully digital firms, using the Internet to drive every aspect of their business. In most other companies, a fully digital firm is still more vision than reality, but this vision is driving them toward digital integration. Firms are continuing to invest heavily in information systems that integrate internal business processes and build closer links with suppliers and customers. 

         The Window on Organizations describes such a digital firm in the making. Cemex, a world-leading global cement and construction materials firm, has achieved impressive results through ruthless focus on operational excellence. Management took an enterprise-wide view of its business processes and developed a series of information systems to turn the company into a lean, efficient, agile machine that could instantly respond to changes in customer orders, weather, and other last-minute events.