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2
Impacts of Information Technology at
the Industry Level
As discussed in Chapter 1, it is difficult to generalize about the impacts
of information technology (IT) on productivity or performance in the ser-
vice sector, because the effects of using IT cannot be isolated from the
effects of other factors and because the service sector is highly heteroge-
neous. A better picture of IT's impact can therefore be obtained by focus-
ing on individual industries. Although firms differ within a given industry,
they must generally share a common environment whose factors are rel-
evant to their performance for example, an industry's requirements for
particular kinds of workers and skills, the quality of its labor-management
relations, the presence or absence of regulation, how capital- or labor-inten-
sive the industry is, and the kinds of technology applications associated
with it all influence the performance of the firms within that industry.
Likewise, an industry's environment affects the nature of the benefits
that companies can realize from use of IT. Although the dimensions on
which performance may be evaluated such as the nature of improvements
in product quality, increases in product variety, and product innovations-
will therefore vary across industries, industry context is important for un-
derstanding both how and how much the use of IT has affected an industry's
performance in providing services. In addition, the experience of one in-
dustry may provide insights relevant to understanding or anticipating ef-
fects in another.
To explore how industry context affects the use of IT and performance,
the committee focused on six industries: air transport, telecommunications,
52
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IMPACTS OF INFORMATION TECHNOLOGY AT THE INDUSTRY LEVEL 53
retail and wholesale trade, health care, banking, and insurance. Together
the industries chosen accounted for about 27 percent of the gross domestic
product and 35 percent of U.S. employmentin 1989; they are also propor-
tionately much higher users of IT than are some other industries (Tables 2.1
and 2.21.i The sectors to which some of these industries belong are rela-
tively capital-intensive; for example, the ratio of capital investment to value
added in 1991 for transportation and telecommunications exceeded the comparable
TABLE 2.1 Six Selected Service Industries Compared to All U.S.
Industry and All U.S. Service Industries, 1989
(figures in billions of 1982 dollars)
Investment in
IT in 1989
(as %
GPO in 1989 of GPO)
Value of
IT Capital
Stock
in 1989
GNP
GDP
All industry (manufacturing, construction,
mining, and non-goods-producing)
Mining
Construction
Manufacturing
All services (non-goods-producing industries)
Transportation
Communications
Utilities
Wholesale
Retail
Financial, insurance, real estate
Business, personal, professional services
Six selected service industries (air transport,
telecommunications, retail and wholesale trade.
health care, banking, insurance)
Six industries as fraction of "all services"
Six industries as fraction of "all industry"
Six industries as fraction of GDP and GNP
4117.7
4087.6
3610.5
127.2
179.0
929.0
2375.3
156.3
109.4
136.6
304.7
412.0
604.0
652.3
1119.7
47%
31%
27%
128.4(3.6)
1.2(0.9)
0.7(0.3)
24.3(2.6)
102.3(4.3)
5.5(3~5)
17.6(16.1)
6.3(4.6)
11.6(3.8)
10.6(2.6)
33.7(5.6)
16.9(2.6)
62.5(5.6)
61%
49%
513.3
8.8
3.2
78.0
456.1
20.6
124.7
26.0
54.0
44.8
123.2
62.8
291.1
64%
57%
SUMMARY: In 1989, six service industries (air transport, telecommunications, retail and
wholesale trade, health care, banking, insurance) accounted for 27% of GNP, 31% of the 1989
GPO of "all industry," and 47% of the 1989 GPO of "all services." However, they accounted
for 49% of 1989 IT expenditures by "all industry" and 61% of 1989 IT expenditures by "all
services." Similarly, they accounted for 57% of the 1989 IT capital stock value of "all
industry" and 64% of the 1989 IT capital stock value of "all services." In addition, these six
industries averaged 5.6% in their 1989 IT investment as a percentage of GPO, while for all
industries the comparable percentage was 3.6% and for all service industries it was 4.3%.
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54
INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
TABLE 2.2 Snapshots of Selected Service Industries, 1981 and 1989
Air Transport Telecommunications Retail Trade
1981
GPO
(billions of 1982 dollars) 16.8 75.7 286.4
Revenues
(billions of 1982 dollars) 45.2 91.8 453.6
Number of employees
(millions of jobs) 0.5 1.1 16.9
Number of hours worked
(billions) 0.9 2.4 27.4
Annual investment in IT
(billions of 1982 dollars) 1.0 21.0 5.1
IT capital stock
(billions of 1982 dollars) 1.8 125.3 13.2
GPO per labor-hour
(1982 dollars) 17.70 31.97 10.44
Annual IT/GPO 6.2% 27.8% 1.8%
Annual rate of change in GPO
per labor-hour -2.7% 5.2% 1.6%
1989 (1989 Value as Percent of 1981 Value)
GPO
(billions of 1982 dollars) 31.7(189) 98.8(131) 412.0(144)
Revenues
(billions of 1982 dollars) 66.6(147) 100.6(110) 628.3(138)
Number of employees
(millions of jobs) 0.7(149) 0.9(82) 21.2(125)
Number of hours worked
(billions) 1.4(148) 2.0(83) 32.8(120)
Annual investment in IT
(billions of 1982 dollars) 3.0(288) 13.8(66) 10.6(207)
IT capital stock
(billions of 1982 dollars) 9.8(543) 113.7(91) 44.8(340)
GPO per labor-hour
(1982 dollars) 22.64(128) 49.97(156) 12.54(120)
Annual IT/GPO 9.4%(153) 14.0%(50) 2.6%(144)
Annual rate of change in GPO
per labor-hour -8.0% 4.0% 1.2%
NOTE: See Box 2.1 for explanation of terms and sources of data given.
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IMPACTS OF INFORMATION TECHNOLOGY AT THE INDUSTRY LEVEL 55
TABLE 2.2 Continued
Wholesale Trade Health Care Banking Insurance
1981
GPO
(billions of 1982 dollars)212.7138.1 64.2 35.4
Revenues
(billions of 1982 dollars)317.6204.8 88.7 66.8
Number of employees
(millions of jobs)5.75.9 2.0 1.2
Number of hours worked
(billions)11.410.2 3.9 2.4
Annual investment in IT
(billions of 1982 dollars)5.01.8 1.9 0.7
IT capital stock
(billions of 1982 dollars)13.28.9 5.1 1.7
GPO per labor-hour
(1982 dollars)18.6413.49 16.66 14.76
Annual IT/GPO2.4%1.3% 3.0% 2.0%
Annual rate of change in GPO
per labor-hour4.7%-1.2% 0.0% -9.0%
1989 (1989 Value as Percent of 1981 Value)
GPO
(billions of 1982 dollars)304.7(143)164.4(119) 71.4(111) 36.7(104)
Revenues
(billions of 1982 dollars)400.8(126)286.6(140) 99.8(112) 77.5(116)
Number of employees
(millions of jobs)6.6(116)7.9(134) 2.3(112) 1.4(116)
Number of hours worked
(billions)13.1(115)13.5(132) 4.3(110) 2.8(116)
Annual investment in IT
(billions of 1982 dollars)11.6(230)3.6(204) 13.8(715) 6.2(856)
IT capital stock
(billions of 1982 dollars)54.0(409)15.7(177) 35.1(690) 17.9(1080)
GPO per labor-hour
(1982 dollars)23.30(125)12.14(90) 16.80(101) 13.18(89)
Annual IT/GPO3.8%(160)2.2%(171) 19.3%(643) 16.8%(826)
Annual rate of change in GPO
per labor-hour2.3%-3.6% 0.2% -1.1%
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56
INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
BOX 2~1 Notes on Terms and Data Presented in
Tables 2. ~ Through 2.9
Data
Source
GPO (billions of Pleasures clef TYPO tgross domestic product originating in the
1982 dollars) tJ.S. economy) output prepared by the Bureau of Economic
Analysis (BEA3, U.S. Depa~mem of Commerce. Major reYi
sions covering the period from ~ 977 to 1988 were released
by flue BEA in the January 199} Survey occurrent Business. In
April 1991, the BEA further revised APE) figures for 1986 to
1988 and released 1989 figures
Revenues reflect measures ~ gross Output by industry pre
pared by the Bureau clef Labor Statistics, U.S. Department of
Labor.
Revenues (billions
of 1982 dollars)
I Employment
I "millions of jobs)
!
Number of hours
worked Millions)
Annual investment
in IT (trillions of
1982 dollars)
IT capital stack
(billions Off
1982 dollars)
Employment includes both full-time and '~art-time employs
ees; unpublished data, Bureau of Labor Statistics, U.S. De-
partment Of Labor,
Total hours worked by ail employees (including proprietors),
unpublished data, Bureau of Labor Statistics' U.S. Depart-
ment of Labor.
Annual investment In IT derived from data of Stepl~en Roach
of kid organ Staniey, which present IT spending In current
dollars and in 1987 dollars. To obtain t982 dollar equ~va~
}ents, the 1987 dollar figures have been multiplied by the
ratio of the f982 expenditure on IT for the entire service
sector in current dollars (t.e., in 1987 dotters) to the 1982
expenditure on IT for the entire service sector in 1987 dc~t-
}ars. This approximation omits possible adjustments due
a different technology mix in ~ 9B' compared to that of 1987
but is the best that can be done with the aYaTJable dam.
Figures on investment In IT ~r 1969 (Tables 2.3 to 2.9 of
this reports not ,oresented in Roach's data, are estimated an
the basis of the 1970 figure, adjusted by the annual rate of
change between 1970 and 1975.
Same as annual investment In IT.
GPO per GPO (Row 1) dreaded by number of hours worked (Row 43.
labor-hour
~ ~ 982 dollars)
Annual ITJGPO Annual investment in IT as ~ percentage of (iPO (Row 5
divided by Row 1 )+
Annual rate ~Annual compounded percentage change between any year
change in GRO per and the preYTous year.
Iabor-hc~ur
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IMPACTS OF INFORMATION TECHNOLOGY AT THE INDUSTRY LEVEL 57
ratio for durable manufacturing, while the capital expenditure per full-time
employee for transportation, communications, and financial services, insur-
ance, and real estate (FIRE) was larger than or comparable to that for
durable manufacturing.2
The discussion of these industries was informed by a variety of sources:
the individual expertise and knowledge of committee members, interviews
with senior executives from the six industries, data drawn from federal and
other sources, and published articles and books. However, because the data
available at the industry level are limited in scope and detail, this chapter's
brief vignettes of each industry are intended in part to capture the direct and
intuitive observations of experienced industry executives and industry ana-
lysts. Given the multidimensional nature of performance in the service
industries and the resulting difficulty of isolating the specific impact of
using IT vis-a-vis other factors, these vignettes are largely anecdotal but
suggest the important factors that have affected overall industry perfor-
mance and the scale and impact of the use of IT in each industry.
Box 2.1 describes the origin of the data on each industry presented
below.
AIR TRANSPORT
In the last two decades, the U.S. air transport industry has undergone
remarkable change, expanding its equipment inventories and facilities rap-
idly to handle substantial increases in passenger volume. In 1989, it oper-
ated a fleet of some 4000 large jet aircraft,3 produced 433 billion revenue
passenger-miles (RPMs),4 generated revenues of $67 billion (1982 dollars),
and employed about 691,000 peoples (Table 2.3~. However, poor profit-
ability and even sometimes net losses have characterized the industry
for much of the last decade.6
The industry has also undergone considerable consolidation and today
is highly concentrated. As of September 1991, four large air carriers (America
West, Continental, Midway, and Pan American) had filed for bankruptcy
protection, and Eastern Airlines ceased operating in January 1991. Twenty-
two large carriers (out of over 200 certificated U.S. air carriers) account for
95 percent of total airline revenues for scheduled passenger operations.7
A major event in the last decade was the deregulation of the airline
industry. Beginning in the early 1980s, there was a gradual lifting of gov-
ernment regulations whose effect had been to reduce the efficiency of air-
craft use and to generate incentives for the acquisition of certain kinds of
equipment and for the maintenance of routes that did not optimize the use
of resources for the country as a whole. Deregulation has allowed airlines
to employ a much more efficient "hub-and-spoke" routing system, rather
than the point-to-point routing used in a more regulated environment.8 Other
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58
TABLE 2.3 Air Transport Industry
INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
1969
GPO
(billions of 1982 dollars)
Revenues
(billions of 1982 dollars;
SIC 45a)
Output measure
(billions of RPMsC)
Employment
(millions of jobs)
Number of hours worked
(billions)
Annual investment in IT
(billions of 1982 dollars)
IT capital stock
(billions of 1982 dollars)
GPO per labor-hour
(1982 dollars)
Annual IT/GPO
RPM C/labor-hour
Annual rate of change in GPO
per labor-hourd
1980 1981 1982 1983
15.1
34.8
132b
0.4
0.8
0.0
0.0
20.0018.19
0.1%3.8%
174b267
o.g%e
17.3 16.8 19.0 22.8
52.1 45.2 41.4 44.2
254 248 260 281
0.5 0.5 0.4 0.5
1.0 o.s 0.9 0.9
0.7 1.0 0.9
1.2
1.0 1.8 2.4 3.2
17.70
6.2%
262
-2.7%
20.88
4.5%
285
17.9%
302
24.49
5.3%
NOTE: See Box 2.1 for explanation of terms and sources of data given.
aStandard Industrial Classification system code.
b 1969 figure.
important influences on the airline industry in the last decade have included
significant increases in fuel costs, the 1981 strike of air traffic controllers,
expensive purchases of new airplanes owing to need or to regulations call-
ing for greater fuel efficiency or quieter aircraft, and a recessionary economy
for much of the l980s that drove down demand for air travel.
Extensive deployment of IT has been necessary to help the air transport
industry deal with larger volumes of passengers and inquiries, higher operat-
ing tempos, and more complex flight and ground operations. Indeed, the air
transport industry is a major consumer of IT, having spent $3 billion in 1989
(1982 dollars) on IT. The importance of IT is suggested, though not proven,
by the fact that in both the air-cargo and passenger-transport segments, air
transport companies prospering in the last decade have tended to be those with
strong IT systems (e.g., American Airlines, United Airlines). However, the
wide range of external influences on the industry in the last decade makes it
difficult to identify with confidence the impact of any single factor such as IT.
Indeed, some analysts assert that the benefits of IT, substantial though they
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IMPACTS OF INFORMATION TECHNOLOGY AT THE INDUSTRY LEVEL 59
TABLE 2.3 Continued
1984 1985 1986 1987 1988 1989
GPO
(billions of 1982 dollars)
Revenues
(billions of 1982 dollars;
SIC 45a)
Output measure
(billions of RPMsC)
Employment
(millions of jobs)
Number of hours worked
(billions)
Annual investment in IT
(billions of 1982 dollars)
IT capital stock
(billions of 1982 dollars)
GPO per labor-hour
(1982 dollars)
Annual IT/GPO
RPM C/labor-hour
Annual rate of change in GPO
per labor-hourd
23.4 23.2 28.4 33.0 32.4 31.7
47.9 51.1
305 336
0.5
57.7 62.3 65.1 66.6
367 404 423 433
0.5 0.6 0.6
1.0 1.1 1.2 1.2
1.1
3.8
1.5 3.1
1.7
4.6 6.9 7.6
21.30 24.27
6.4% 11.1%
23.15
4.5%
302 308 313
-5.5% -8.0% 13.9%
0.7 0.7
1.3 1.4
1.8 3.0
8.2 9.8
26.74 24.60 22.64
5.2% 5.5% 9.4%
328 321 309
10.2% -8.0% -8.0%
CRPM, revenue passenger mile.
dThe compounded annual rate of change in GPO per labor-hour from 1981 to 1989 was 3.1
percent. Labor productivity is sometimes measured in terms of GPO per labor-hour.
eAverage annual rate of change in GPO per labor-hour from 1969 to 1980.
may be to the leaders in the airline industry, are small compared to the general
economic problems that the industry faces at present.9
In the air transport industry, IT has had an impact on both business and
operational dimensions. In the business dimension, IT has been used to
improve both the cost-efficiency and quality of performance as well as to
provide services not otherwise available. Perhaps the most significant of
these services is the use of computerized reservation systems (CRSs). CRSs
are a classic example of IT use that has had a large-scale strategic impact
on an industry. Generally owned by individual airlines, these systems con-
tain fare and route information for both the CRS owner and other carriers,
and they make it possible for agents to book passage on any carrier in the
database. CRSs have enabled airlines to manage passenger loads and hub-
and-spoke toutings that would otherwise have been extremely cumbersome
and time consuming if possible at all-under less automated conditions.
Two CRSs, SABRE (American Airlines) and APOLLO (United Air-
lines), dominate the industry: in 1981, nearly 80 percent of travel agencies
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INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
with connections to CRSs were tied to one or both of these systems.~°
Today, virtually all airline bookings are made through one of four airline-
owned Cress. Carriers without their own CRSs pay CRS owners to have
their flights and fares listed, thereby providing CRS owners with additional
revenue. 12
Initially, CRSs simply replaced manual reservation systems and did not
communicate either with the systems of other companies or with other de-
partments within the owning company. However, by making relevant infor-
mation about most scheduled flights available in a single database,~3 CRSs
now enable passengers to use independent travel agents as well as agents
from each participating airline as one-stop points of contact to gather sched-
ule and fare information on all carriers providing the desired service and to
make complete trip reservations, rather than having to call individual air-
lines directly. In the future, it will be common for CRSs to provide gate-
ways to other non-airline systems through which hotel reservations and
automobile rentals can be obtained.
CRSs have played an important role in facilitating the interlinkage of
major and regional carriers through a process known as cross-coding. Re-
gional carriers operate in specialized markets, whereas major carriers pro-
vide what could be called "trunk" service on major routes. Flying between
two small airports on opposite ends of the country usually requires coordi-
nation of flights operated by a major carrier and by smaller regional carri-
ers; from listing its flights on CRSs owned by major airlines, it is a rela-
tively small step for a regional carrier to affiliate formally with a major
carrier to provide a higher degree of operational integration.
CRSs have enabled implementation of a fare structure that can be very
finely tuned to maximize revenues through yield management,~4 and they
have provided a mechanism for the rapid implementation of price changes
and for monitoring the prices of competitors. Moreover, CRS-based IT
figures prominently in marketing mechanisms that have flourished since
deregulation (e.g., incentives and bonuses for travel agents) and indeed in
the growth of the travel industry itself. For example, CRSs have been
linked to "frequent-flyer" databases that have themselves been made opera-
tionally feasible by IT.
The potential drawback of CRSs is their ability to communicate the
fares of one carrier very quickly to other carriers. As of this writing, the
U.S. Department of Justice (DOJ) has alleged that carriers participating in
various CRSs use postings of future fare changes to fix prices at artificially
high levels. For example, the DOJ suit alleges that one airline announced
on January 15 a price increase to take effect on February 1, and that other
airlines noticed the posting and raised prices upward accordingly. In effect,
CRSs are alleged to have replaced face-to-face meetings to set prices that
are illegal under antitrust laws. In response, the airlines have argued that
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IMPACTS OF INFORMATION TECHNOLOGYAT THE INDUSTRY LEVEL 61
they provide notices of future price changes for the benefit of consumers,
who may wish to know when price increases are to take effect. The DOJ is
seeking to enjoin the airlines from posting changes that will occur in the
future. is
The impact of IT on the air transport industry's operations has also
been quite significant. For example, IT-based systems connected to CRSs
keep track of flight arrivals and departures, and they manage the many
changes in planned schedules that are inherent in complex planning opera-
tions. Some airplane maintenance crews make use of knowledge-based
"maintenance advisors" that guide mechanics through certain repairs. In-
ventories of spare parts are maintained and supplies are replenished via IT-
based systems, and airline food services are also being automated.~7
Computer-based flight simulators are used extensively to train pilots for
reasons of cost and safety. An hour in a flight simulator costs far less than
an hour of actual flight (hundreds of dollars vs. thousands of dollars), thereby
reducing fixed costs associated with crew training. In addition, emergency
situations can be simulated and pilot responses rehearsed with no real dan-
ger to life or to an airplane, enabling the pilot to obtain experience and
familiarity with situations that occur only rarely in actual flight. Today's
simulators are so good that pilots for some commercial airplanes can be
certified entirely on the basis of their experience in flight simulators.
Flight safety is critically dependent on IT. Highly automated air traffic
control systems manage thousands of en route flights. Weather an impor-
tant influence on safety and flight schedules is monitored and predicted
using IT-based systems. In-flight communications and navigation depend
on state-of-the-art ITS Weight, and therefore fuel costs, are reduced by
on-board IT that monitors every aspect of an airplane's flight performance.
On-board computers complement pilots' abilities in flying airliners, thus
enhancing safety.20
IT is becoming increasingly important to airplane design, since com-
puter-aided design and engineering save time and design effort and reduce
construction costs. In some cases, airframe designs stored in digital form
are tested in simulated wind tunnels, and high-fidelity results can be ob-
tained without a single model having to be built.
The logistics planning requirements of major airlines managing hun-
dreds of flights per day are formidable, especially with hub-and-spoke rout-
ing. Today, centrally located dispatchers that previously operated out of
three or four locations use IT-based systems to assist pilots with crew scheduling,
flight plans, and fuel-load and weather-change calculations, an approach
resulting in significant improvements in efficiency.22 (One estimate sug-
gests that Delta Airlines was able to reduce the amount of unproductive
crew time from 11 percent to 8 percent, thereby saving $14 million per
year;23 United Airlines saved $6 million per year by installing, at a cost of
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INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
$500,000, a computer-based planning system for scheduling shift work.24)
Working with expert systems that take on-line variables from local sites,
such as the number of bags loaded onto a plane, crew schedulers and load
planners are able to balance loads and to communicate directly with pilots.
Airlines also use expert systems to generate least-cost routings of flights.
The benefits of using IT to assist with operations are relatively easy to
demonstrate quantitatively: for example, computer-assisted route planning
provides for more optimal use of fuel and assignment of crews than would
manual planning. However, specific financial bottom-line benefits of using
IT are more difficult to quantify. A vice president of a major airline noted,
We want to convert our unintelligent workstations to intelligent ones be-
cause we've developed a number of programs that we believe are going to
be significant in terms of their support and enhancement of customer ser-
vice activities and other types of activities at the airports. Though the
benefits are there, we cannot quantify them specifically. We're doing this
to enhance the overall environment for the passenger.
U.S. air transport companies have consistently led the worldwide indus-
try in major innovations such as customer reservation systems, overnight
package handling, special customer services (e.g., frequent-flyer programs
and package tracking), and differential pricing systems to maintain load
factors. Well-automated major U.S. airlines have maintained their relative
competitiveness with other international carriers and have extended their
penetration of U.S. and foreign markets. Indeed, none of the several senior
executives from major airlines interviewed by the committee believed they
could operate without extensive IT systems, and all pointed to important
cost and quality improvements enabled by IT. Given the relatively poor
financial performance of the industry as a whole,25 the ability to make
necessary investments in IT may have been an important element in the
survival of current industry leaders.
In the future, IT may be used by the airline industry to create a variety
of additional benefits. For example, airport operations and procedures could
be greatly streamlined if the current manual system of check-in were auto-
mated to link CRSs and airport systems.26 In-flight time could be used to
entertain travelers or to help them be more productive; a number of pilot
projects to provide relevant services have been launched or planned.27 IT
could also be used in customized, proactive marketing for example, poten-
tial customers could be alerted to the existence of inexpensive fares.
TELECOMMUNICATIONS
Over the last decade, the telecommunications industry has undergone
dramatic structural change. It has also been highly successful in financial
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INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
INSURANCE
The insurance industry is divided into two large segments: (1) life and
health insurance, including pensions and annuities, and (2) property and casu-
alty insurance. Life and health insurance is divided among individual prod-
ucts (sold to individual consumers) and the group market (life, health, and
pension insurance products sold to employee or other groups).68 Property and
casualty insurance products are divided between personal lines (individual
products, mainly automobile and homeowners' insurance) and commercial
lines (e.g., coverage for liability, errors and omissions, business continuation,
and employee fidelity bonding, as well as fire, theft, and so on).
Total premium receipts for life and health insurance and annuities ap-
proach $300 billion annually. Life and health insurance is provided by
about 2350 companies;69 total life insurance in force (i.e., aggregate policy
face value) exceeds $10 trillion, with the average U.S. household now hav-
ing more than $100,000 in coverage. Net written property and casualty
premiums total about $225 billion annually,70 with about 3800 companies
providing such coverage.7i About 55 percent of this figure covers commer-
cial liabilities, with the remainder covering personal liability. The scale of
these dollar flows makes insurance companies a major element of the U.S.
financial system and major institutional investors.
The several thousand companies that provide insurance coverage range
from very large multiline companies that sell a broad range of products in
all states, to small companies that sell particular products to fill specialized
customer or product niches. Policies are sold to the public through direct
writers that sell through their own agents (often known as captive agents) or
directly through telemarketing, the mail, and so on, and through agency
companies that sell through independent agents who offer products from
several insurance companies. In 1989 about 1.4 million people worked for
insurance carriers (Table 2.9~. Expenditures on IT in the insurance industry
have grown significantly more rapidly than those of most of the other ser-
vice industries examined. Table 2.9 describes the evolution of the industry
in more detail.
In recent years, major changes have taken place in the insurance indus-
try. Life insurance carriers have relied less on traditional whole-life poli-
cies, having been pushed by market forces to offer products that compete
with a wide range of other investment vehicles. In the very competitive
market for pensions and annuities, life insurance companies offer a wide
range of investment vehicles to individuals and corporate pension plans. In
the health insurance market, traditional indemnity-based group health plans
now are in a minority, as insurers more often offer and serve as administra-
tors of managed health care plans, such as health maintenance organizations
and preferred provider organizations. Insurance companies are facing in
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IMPACTS OF INFORMATION TECHNOLOGY AT THE INDUSTRY LEVEL 87
creasing competition from a range of entities, including banks and other
financial institutions, health insurance plan administrators, and corporations'
increasing willingness to self-insure.
Understanding the impact of these changes on productivity in the insur-
ance industry is highly problematic, and the BLS has been unable to de-
velop a meaningful measure of output for the insurance industry. Still,
certain structural features of the industry can be identified.
Much of the insurance industry, especially the property and casualty
and health segments, is data-intensive, being characterized by huge volumes
of accounting, analysis and statistical data, and transaction processing. In-
surance companies are concerned about the quality of business generated by
their agents, as measured, for example, by the level of loss payouts result-
ing from the mix of products offered by a company. These companies need
to be able to assess the risk to which a given portfolio exposes them, and
thus they are large users of actuarial data that enable them to calculate
statistically the likelihood of these risks with adequate levels of predictabil-
ity. In addition, a large volume of data persists throughout an insurance
product's life cycle, which includes underwriting (in which a substantial
number of risk factors are evaluated in determining the acceptability of a
risk and the premiums to be charged), maintaining policyholder and policy
and coverage information, and keeping records of claims and payments.
Thus, it is not surprising that insurers were among the first in the com-
mercial and corporate community to invest heavily in computers of all sizes,
to develop their own extensive software and to use packaged software, and
to install major telecommunications networks. For example, the insurance
industry was quick to automate claims processing, which involves verifying
that a claim has been submitted by a current policy holder, validating the
consistency between the particular claim made and the policy's coverage
(perhaps checking other policies held to coordinate benefits), and generat-
ing a check for the appropriate amount along with an explanation for how
that amount was derived. All of these functions are performed today in a
highly automated fashion. Automation has enabled the volume of claims
processed to grow enormously with a minimal increase in personnel re-
quirements, clearly an increase in productivity. As importantly, such sys-
tems enable claims processing to be carried out more quickly on a decen-
tralized basis by employees (or agents) in the field who can access the
necessary databases remotely.
Beyond reducing labor requirements and increasing processing speed in
back-room operations such as accounting and records, insurance companies
are using IT to do qualitatively different things. For example, portable
computers are being used increasingly in field operations to communicate
with the home office for a variety of functions. An agent tied by modem to
the home office can serve a customer much more effectively now, by pro
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88
TABLE 2.9 Insurance
INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
1969 1980 1981 1982 1983
GPO
(billions of 1982 dollars)
Revenues
(billions of 1982 dollars;
SIC 63a)
Employment
(millions of jobs)
Number of hours worked
(billions)
Annual investment in IT
(billions of 1982 dollars)
IT capital stock
(billions of 1982 dollars)
GPO per labor-hour
(1982 dollars)
Annual IT/GPO
Annual rate of change in GPO
per labor-hourb
20.2 38.7
44.1
1.0
1.9
0.0
0.1
35.4
67.8
66.8
29.8
67.8
33.2
67.3
1.2 1.2 1.2 1.2
2.4
0.6
1.3
10.54 16.21
0.2% 1.6%
4.0%
2.4
0.7
1.7
14.76
2.0%
-9.0%
NOTE: See Box 2.1 for explanation of terms and sources of data given.
2.4
0.8
2.0
2.4
1.8
3.1
12.4513.97
2.5%5.3%
-15.6%
12.2%
viding customized quotes or claims payments instantaneously, than in the
past. Insurance companies have connected their own agents and indepen-
dents through networks they have designed and built themselves, or through
systems such as the Insurance Value Added Network System (IVANS) de-
veloped by IBM.
Development of insurance policies for different corporate clients has
also benefited from the use of IT. For example, the Aetna Life and Casu-
alty Company used IT to revamp its "case installation" process for develop-
ing health plans for new clients.72 The networked PC-based system now
used by Aetna's Health Plan business unit for case installation was based on
reengineering Aetna's installation process to homogenize case installations
across regional offices and to reduce the volume of paperwork associated
with each new installation and its different requirements.
Knowledge-based expert systems are being used increasingly by under-
writers to help decide acceptance of applicants for coverage. Such systems
facilitate the rapid comparison of a particular individual's risk profile with
those in the community at large and make it easier to customize a policy
based on the risks faced by that individual. They also provide the capabil-
ity, based on quite sophisticated and elaborate data analysis developed by
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IMPACTS OF INFORMATION TECHNOLOGYAT THE INDUSTRY LEVEL 89
TABLE 2.9 Continued
1984 1985 1986 1987 1988 1989
GPO
(billions of 1982 dollars) 35.9 39.5 36.0 34.4 37.0 36.7
Revenues
(billions of 1982 dollars;
SIC 63a) 70.2 74.2 73.7 73.5 76.9 77.5
Employment
(millions of jobs) 1.2 1.3 1.4 1.4 1.4 1.4
Number of hours worked
(billions) 2.4 2.5 2.7 2.7 2.8 2.8
Annual investment in IT
(billions of 1982 dollars) 3.3 3.6 4.6 5.6 6.4 6.2
IT capital stock
(billions of 1982 dollars) 5.4 7.5 10.0 12.9 15.8 17.9
GPO per labor-hour
(1982 dollars) 14.93 15.72 13.52 12.53 13.32 13.18
Annual IT/GPO 9.2% 9.1% 12.8% 16.4% 17.3% 16.8%
Annual rate of change in GPO
per labor-hourb 6.9% 5.3% -14.0% -7.4% 6.3% -1.1%
aStandard Industrial Classification system code.
bThe compounded annual rate of change in GPO per labor-hour from 1981 to 1989 was -1.4
percent. Labor productivity is sometimes measured in terms of GPO per labor-hour.
the insurance industry, to implement widespread and varied cost-contain-
ment techniques in paying group health claims.
Quality in the insurance industry can be reflected in the extent to which
insurance products can be tailored to meet the needs of individuals and in
the manner in which customers are served. As is the case with many other
service-providing activities, measuring the quality of the service delivered
in the insurance industry is problematic. Although in some cases quality
does have quantitative indicators (e.g., the average number of days needed
to issue a policy or settle a claim), often the value of quality is subjective;
i.e., it is in the minds of customers.
Today, many companies are using customer surveys and focus group
sessions to find out what is important to their customers. Many insurers are
focusing their initial reengineering efforts in areas that will affect customer
service, seeking ways to further differentiate themselves in what is being
viewed increasingly by many customers as a commodity market. The ulti-
mate goal is to sell insurance to a market of one single clients to whose
individual circumstances a policy's payments and benefits are specifically
tailored. The way each company uses IT will help determine whether and
how it meets this goal.
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9o
INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
Selling customized insurance to markets of one may change the tradi-
tional notion of insurance as the sharing of risk among large groups of
individuals. Insurance companies have always differentiated among some
risk groups (e.g., male drivers under the age of 25 usually pay more than
others for auto insurance). But prior to the widespread availability of IT,
data to differentiate more finely among individuals were simply unavail-
able. Today, the use of IT enables insurance companies to collect data on
individuals from multiple sources and thereby define risk groups consist-
ing of relatively small numbers of individuals, individuals with AIDS or
cancer. Insurance may not be available to such groups at all, or only at a
very high price a possibility that poses significant questions for social
policy.
IT has also been used effectively by insurance companies attempting to
compete in new markets. For example, James Stewart, executive vice presi-
dent and chief financial officer, noted that CIGNA invested in IT "to sig-
nificantly improve and enhance the ability to deal with an individual participant' s
statements and a whole bunch of other services that we felt were respon-
sive, both to the competition and to the customer's needs. That decision
was made, not on a cost-benefit basis, but rather [to answer such questions
asi, What markets do we want to compete in? What do we need to do to
position ourselves against both the insurance company and non-insurance
company competition?"
Insurance agencies that provide coverage to individuals have followed a
similar path with respect to using IT. A recent survey of independent
agents found that 85 percent of independent agencies have some automation
and that a growing number are using integrated, comprehensive full-func-
tion agency systems for back-office work (e.g., commission analyses, ac-
counts receivable and payable). Regardless of whether they have agency
systems, 90 percent have word processing, 85 percent have automated in-
surance rating, 76 percent have automated accounting, and 72 percent have
automated billing. Somewhat fewer have automated underwriting (33 per-
cent) and automated interfaces to multiple companies (44 percent, up from
23 percent in 1987~. Seventy-two percent of these systems were installed
before 1989.73
Agency systems, like corporate systems, have been used largely to au-
tomate what were previously manual processes (accounting, billing, market-
ing, and customer service). Although such systems enable the same number
of people to handle a larger volume of work (and thus hold down labor
costs), independent agents' desires and expectations for agency automation
are, according to some observers, largely unfilled. Early agency users of IT
experienced more difficulties than they had expected, partly as a result of
their failure to understand the new systems, plan appropriately for their use,
and train employees accordingly.
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IMPACTS OF INFORMATION TECHNOLOGY AT THE INDUSTRY LEVEL 9
J. Raymond Caron of CIGNA Systems argues that
There is a big evolution of IS (information systems) in an insurance envi-
ronment. We went through an era with massive tab card sorting. We left
that era and went into mainframe computers, data centers, and batch pro-
cessing. We left that era and went into on-line applications, networks, and
all that stuff. I think we're on the verge of a significant change in what IS
organizations are all about, and I think that change is going to be radical.
Reengineering, how we build applications, and how we work on solutions
will be the new drivers.
CIGNA's systems organization is going through the process of reengi-
neering along with every other division within the company. What we are
striving for in our reengineered systems organization is to be an integrated
part of the business strategy. To accomplish this, we have had to help our
people change their mind-set from a narrow technology perspective to a
more global business perspective. Today, CIGNA systems professionals
use their skills to solve business problems, not technology problems. And
they understand that their performance will now be measured by customer
satisfaction and business results.
One of the things I'm planning is changing the way IS people think.
If you get them to think about it right they can provide solutions that have
nothing to do with technology. We need to get them to think that way
because those might be the most powerful solutions rather than thinking
the only thing IS can bring is technology. So we're restructuring IS, and I
think the difference will be dramatic.
Put differently, IT may be used to drive restructurings that might not
happen in the absence of technology. Developing better ways to use IT is
already an integral part of many insurance companies' strategic planning
and is a key factor in the industry's growth and in the successes of indi-
vidual companies.
OBSERVATIONS AND CONCLUSIONS
In both scale and nature, the use of IT is highly varied within and
among the industries the committee examined. That is, IT has been used by
companies for many different purposes, both operational (e.g., accounting,
logistics scheduling) and strategic (e.g., changing competitive positioning
or providing totally new services). Although IT has been used primarily to
improve the efficiency and effectiveness of specific activities, the impact of
IT in these individual instances has sometimes had a large influence on the
structure of the industry as a whole. Because of the effects of other non-IT
forces, the significance of IT's use for an industry may be observable in
aggregate industry data only when its impact is truly overwhelming or revo-
lutionary. A good example is the telecommunications industry, which liter-
ally has been built on IT and which is now pervaded by IT. In other
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INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
instances that are more likely the norm, IT's impact may be measurable
only at the level of individual enterprises (e.g., in shifts of share or profit)
or in activities within various companies.
At the same time, it is clear that the use of IT can bring about changes
in the boundaries and definition of an industry. For example, deregulation
and new technologies have allowed new players to provide services that
were once the exclusive domain of traditional telephone carriers; today,
private carriers and value-added carriers handle voice and data long-dis-
tance traffic for paying customers, and even some corporate networks have
spare capacity that can be sold to other outside users. IT has been used to
alter existing relationships among wholesalers, retailers, manufacturers, and
end users (e.g., to eliminate intermediaries and enable direct sales from
manufacturers to end users). Insurance companies are moving ever deeper
into the business of health care management, and the lines between the two
are already blurring. Through the use of IT, different industries are moving
into banking, thus threatening the traditional understanding of what consti-
tutes the banking system. IT (in the form of CRSs) has been part of what
one airline executive suggested has been the transformation of the airline
industry into one of the largest retailers of perishable goods (i.e., empty
seats that disappear when the flight takes off). Further examples and ampli-
fications of this point are contained in Chapter 3.
Lastly, IT may well create entirely new sectors for business that will
encompass a variety of new and different industries. For example, a power-
ful telecommunications and information infrastructure has the potential to
open the private home to a host of new information-related services. A1-
though most network-based services have been aimed at businesses and
other organizations, many now envision the creation of large home-based
markets for new products combining computing and communications de-
vices and services (e.g., multimedia technology). Although past attempts to
develop services for the home such as videotext information delivery or
computer-based teleshopping were largely unsuccessful, greater potential is
seen in the more sophisticated offerings promised by recent and announced
efforts to blend telephone, cable television, software, video, audio, text, and
image database services. Better services for the home imply changes in the
existing communications, information services, and entertainment indus-
tries; new markets for services; and new possibilities for home-based work.
Consistent with the benefits-pass-through phenomenon discussed in Chapter
5, these new markets will likely generate public or private financial gains
that far exceed those realized by the first companies entering these new
markets.
Although an industry perspective offers particular insights about the
actual performance of IT-based systems versus IT's measurable effects on
productivity, further analysis at the enterprise and activity levels is neces
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IMPACTS OF INFORMATION TECHNOLOGY AT THE INDUSTRY LEVEL 93
sary to understand where and how deployment of IT can be most effective
and how IT's use is changing the basic structure of the economy, individual
organizations, and most jobs.
NOTES AND REFERENCES
sin 1989, the United States employed 116.6 million workers in full-time and part-time
jobs. See U.S. Department of Commerce, Bureau of Economic Analysis. 1990. Survey of
Current Business, July, Table 6.6B, Government Printing Office, Washington, D.C.
2U.S. Department of Commerce, Bureau of Economic Analysis. 1992. Survey of Current
Business, July, Government Printing Office, Washington, D.C. Table 6.22C (p. 91) provides
corporate capital consumption allowances by industry, Table 6.1C (p. 82) provides national
income by industry, and Table 6.5C (p. 84) gives full-time-equivalent employees by industry.
3U.S. Department of Commerce. 1992. U.S. Industrial Outlook, Government Printing
Office, Washington, D.C., p. 40-1.
4The revenue passenger-mile (RPM) is the principal measure of output for the air trans-
port industry: a single paying passenger carried for a 1000-mile airplane flight counts as 1000
revenue passenger-miles. The RPM is thus a direct measure of the service being delivered:
the movement of passengers between different points.
5U.S. Department of Commerce, Bureau of the Census. 1991.
Table 1072, p. 627, Government Printing Office, Washington, D.C.
U.S. Statistical Abstract,
6Scheduled passenger carriers suffered losses from 1981 to 1983, in large part due to the
recession and high fuel prices. From 1984 to 1989, the industry earned positive net income in
four of the six years and reported a minimal loss in another. However, the industry's financial
losses were so severe in 1990 (an operating loss of $3.95 billion in 1990-1991) that any gains
in the 1980s were wiped out; scheduled passenger carriers lost about $2 billion from 1981 to
1990. (U.S. Department of Commerce, 1992, U.S. Industrial Outlook, p. 40-2.)
7U.S. Department of Commerce, 1992, U.S. Industrial Outlook, p. 40-1.
8Recent trends suggest that hub-and-spoke routing systems are most profitable under
conditions of relatively high demand. Lower demand reduces the revenues that airlines can
generate, while the costs of maintaining a hub are considerably less elastic. As recessionary
pressures have driven down the demand for air travel, many airlines are starting to scale back
the number of hubs they maintain. See Hirsch, James. 1993. "Big Airlines Scale Back Hub-
Airport System to Curb Rising Costs," Wall Street Journal, January 12, p. Al.
9See Margolis, Nell. 1992. "AMR Cuts Costs, Jobs," Computerworld, December 21, p. 2.
10Transportation Research Board, National Research Council. 1991. Winds of Change:
Domestic Air Transport Since Deregulation, Special Report 230, National Academy Press,
Washington, D.C., p. 54.
U.S. Department of Commerce, 1992, U.S. Industrial Outlook, p. 40-4.
12For example, this revenue stream is worth $100 million per year to American Airlines
(Quinn, James Brian. 1988. "Technology in Services: Past Myths and Future Challenges," p.
37 in Technology in Services: Policies for Growth, Trade, and Employment, Bruce R. Guile
and James Brian Quinn (eds.), National Academy Press, Washington, D.C.).
13The CRS is conceptually a single database, although in fact the data it contains may be
physically distributed over many different computer systems. Technologically, the CRS pro-
vides a single standard interface to the human user (e.g., the travel agent) for access to mul-
tiple heterogeneous databases.
14The term yield management refers to the practice of continuously managing the number
and fare class of seats on a given flight. By combining knowledge of how quickly seats of a
given fare are selling with knowledge of competitors' pricing, yield management minimizes
the number of empty or low-paying seats on any given flight, thus increasing revenues.
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INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
15See Tolchin, Martin. 1992. "U.S. Sues 8 Airlines Over Fares," New York Times,
December 22, p. D1.
Air Transport World. 1991. "Ryder Automates Parts Location," September, p. 106.
Air Transport World. 1991. "Recipes by VideoSpecs," August, pp. 78-81.
18The A320 Airbus is a case in point. See Stix, Gary. 1991. "Along for the Ride,"
Scientific American, July, p. 97.
19Air Transport World. 1991. "ICAO Looks to Space," December, pp. 96-98.
20Science. 1989. "Flying the Electric Skies," Vol. 244(June 30):1532-1534.
21Aviation Week and Space Technology. 1991. "Airbus Employs Advanced Procedures
in A330/A340 Manufacturing, Assembly," November 4, p. 48.
22Air Transport World. 1991. "Command Center on the Prairie," May, pp. 38-39.
23Kindel, Sharen. 1991. "The Route Cause," Financial World, August 20, pp. 70-72.
24Larson, Richard. 1988. "Operations Research and the Services Industries," in Managing
Innovation: Cases from the Services Industries, Bruce R. Guile and James Brian Quinn (eds.),
National Academy Press, Washington, D.C.
25From 1990 to 1992, the U.S. airline industry lost $9 billion to $10 billion dollars, wiping out
all that it had earned, and more, in the 1980s. See Lenorovitz, Jeffrey. 1993. "Panel Issues
Guidelines for Airline Recovery," Aviation Week and Space Technology, August 9, p. 31.
26See O'Leary, Meghan, 1991, "Airport '91," CIO, June, pp. 40-52; Air Transport World,
1991, "Ionworks," May, pp. 62-66; and Air Transport World, 1991, "Automation Picks Up
Speed," September, pp. 51-56.
27Air Transport World. 1992. "New Cabins in the Sky," April, pp. 75-80.
28U.S. Telephone Association. 1992. Statistics of the Local Exchange Carriers: 1992
for the Year 1991, U.S. Telephone Association, Washington, D.C., p. 2.
29Federal Communications Commission. 1991. "FCC Releases Report on Long-Distance
Market," news release, October 2, FCC, Washington, D.C.
30Schatz, Willie. 1992. "Who's Calling, Please?" Computerworld, November 23, p. 69.
31U.S. Department of Commerce, 1992, U.S. Industrial Outlook, p. 28-3.
32In some countries, long-distance calls are still logged by operators with hand-written
tickets.
33According to Peter Chinloy, labor costs constituted approximately 75 percent of the
operating costs for the Bell system in the early 1980s. (See Chinloy, Peter. 1981. "Implica-
tions for the Communications Workers of America of Technological Change at the Bell Sys-
tem," reproduced in Productivity in the American Economy, 1982, Hearings before the Sub-
committee on Employment and Productivity of the Committee on Labor and Human Resources,
U.S. Senate, March 19 and 26 and April 2 and 16, Government Printing Office, Washington,
D.C.) This study of the Bell system from 1947 to 1978 also found that labor input grew more
slowly than output, resulting in a steady increase in labor productivity. However, note that
"labor" costs refer only to the costs incurred by telecommunications service providers; cus-
tomer-provided labor (e.g., the keying by customers of telephone and credit card numbers) is
not included in such costs. In other words, "reductions" in the labor required are at times more
accurately characterized as shifting labor costs from provider to customer. Customers can also
benefit from such shifts, as they can complete their calls more quickly, more securely, and less
expensively by keying numbers themselves.
34Calling cards were invented in the 1950s but became especially popular after 1982,
when AT&T automated the calling and billing processes, eliminating the need for operator
intervention. See Ramirez, Anthony. 1992. "Plastic Keys to Phone Wizardry," New York
Times, May 30, p. 48.
35See Wall Street Journal. 1992. "AT&T Unveils Card for ATMs That Has Wider
Range of Uses," December 8, p. A6.
36Today, with a few exceptions (notably cable TV companies), telecommunications com-
panies provide their customers with the ability to move and manage data and information that
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IMPACTS OF INFORMATION TECHNOLOGY AT THE INDUSTRY LEVEL 95
the customer generates and/or owns. Local telephone companies, especially the regional Bell
holding companies, are actively interested in providing information content as well as delivery.
Legislative action may be taken in the future to remove the constraints placed by the 1982
consent decree on providing such services.
37Personal communication, Joseph Timko, vice president, AT&T Architecture, June 1992.
38See Business Week. 1992. "Clout! More and More, Retail Giants Rule the Market-
place," December 21, pp. 66-73.
39For example, small manufacturers often have limited financial resources that prevent
them from creating a direct-selling organization. To the retailer the wholesaler offers multiple
lines of merchandise and a larger assortment than is available from an individual manufacturer;
wholesalers also obviate the need to work with multiple manufacturers. The wholesaler has
the ability to buy in huge bulk portions that can be broken down into smaller units for the
retailer. Some manufacturers are engaged in the wholesale business through the use of their
sales branches. Retailers may also choose to buy directly from the manufacturer through
chain-store warehouses; however, this activity does not fall within the wholesale classification.
40Inventory can represent as much as 70 percent of a retailer's assets. See, for example,
Standard & Poor's Corp., 1992, "Retailing: Current Analysis," Industry Surveys 160(2), sec.
1, January 9; and Standard & Poor's Corp., 1991, "Retailing: Basic Analysis," Industry
Surveys 159(17), sec. 1, May 2.
41National Retail Federation, Financial Executives Division. 1991. Merchandising &
Operating Results of Retail Stores in 1990, National Retail Federation, New York.
42Business Week. 1992. "Clout! More and More, Retail Giants Rule the Marketplace,"
December 21, pp. 66-73.
43See Elliot, Stuart. 1993. "A Last Hurdle for Shoppers: The Checkout-Counter Pitch,"
New York Times, January 11, p. D-7.
44Bencin, Richard L., and Donald J. Jonovic.
Prentice Hall, Englewood Cliffs, New Jersey, p. 276.
An
1989. Encyclopedia of Telemarketing,
4)U.S. Department of Commerce, U.S. Statistical Abstract, 1991, Table 162, p. 104, for
ambulatory care and Table 173, p. 109, for hospital usage.
46But see also explanatory note in Table 2.7.
47Tierney, W.M., M.E. Miller, J.M. Overhage, and C.J. McDonald. 1993. "Physician
Inpatient Order Writing on Microcomputer Workstations: Effects on Resource Utilization,"
JAMA 269(January 20):379-383.
48U.S. Department of Commerce, 1991, U.S. Statistical Abstract, Table 807, p. 501.
49U.S. Department of Commerce, 1991, U.S. Statistical Abstract, Table 804, p. 500.
50U.S. Department of Commerce, 1991, U.S. Statistical Abstract, Table 802, p. 499.
51U.S. Department of Commerce, 1991, U.S. Statistical Abstract, Table 802, p. 499.
52U.S. Department of Commerce, 1992, U.S. Industrial Outlook, p. 46-1.
53Humphrey, David B. 1991. "Productivity in Banking and Effects from Deregulation,"
Federal Reserve Bank of Richmond, Economic Review 77(March/April):16-28.
54Srinivasan, Aruna. 1992. "Are There Cost Savings from Bank Mergers?," Federal
Reserve Bank of Atlanta, Economic Review 77(March/April):17-28.
55Andersen Consulting. 1991. Strategies for High Per~formance, Arthur Andersen, Chicago.
56Steiner, Thomas D., and Diogo B. Teixeira. 1990. Technology in Banking: Creating
Value and Destroying Profits, Dow Jones-Irwin, Homewood, Illinois, p. 29.
57Ganley, Oswald, and Gladys Ganley. 1992. "To Inform or to Control?," The New
Communications Networks, Second Edition, Ablex Publishing, Norwood, New Jersey, p. 223.
Also personal communication with Visa, 1992, cited in "Rewards and Risks: Communications
and Information in the Global Financial Services Industries," PIRP, Harvard University, Cam-
bridge, Mass., June 1992.
58Stewart, Thomas. 1992. "U.S. Productivity: First But Fading," Fortune, October 19, p. 56.
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INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY
59Bove, Richard X. 1991. "Bank Technology Reshapes Industry," The Bankers Maga-
zine, May/June, pp. 17-20.
60Glaser, Paul. 1988. "Using Technology for Competitive Advantage: The ATM Expe-
rience at Citicorp," in Managing Innovation: Cases from the Services Industries, Bruce R.
Guile and James Brian Quinn (eds.), National Academy Press, Washington, D.C.
61Passell, Peter. 1992. "Fast Money," New York Times Sunday Magazine, October 18, p. 42.
62Fortune. 1992. "How to Steal the Best Ideas Around," October 19, p. 106.
63Steiner and Teixeira, 1990, Technology in Banking: Creating Value and Destroying
Profits, p. 23.
64Steiner and Teixeira, 1990, Technology in Banking: Creating Value and Destroying
Profits, p. 49.
65Bove, 1991, "Bank Technology Reshapes Industry."
66Andersen Consulting, 1991, Strategies for High Performance, p. ix.
67Andersen Consulting, 1991, Strategies for High Performance, p. 5.
68There are two large subgroups within the group arena: Medicare (health insurance for
the elderly) and Medicaid (health insurance for the poor) are government-sponsored programs
that are administered by companies under contract to states. Blue Cross and Blue Shield
organizations are also state organized but privately administered. Over three-quarters of life
insurers' health premiums come from the group health market (usually through employer
plans). See U.S. Department of Commerce. 1992. U.S. Industrial Outlook, p. 50-2.
69U.S. Department of Commerce, 1991, U.S. Statistical Abstract, Table 851, p. 518.
70The Department of Commerce estimates life and health insurance premium receipts in 1991
at $283.5 billion and net written premium receipts for property and casualty insurance at $224.9
billion (U.S. Department of Commerce, 1992, U.S. Industrial Outlook pp. 50-1 and 50-6).
71U.S. Department of Commerce, 1992, U.S. Industrial Outlook, p. 50-7.
72Cafasso, Rosemary. 1993. "Manual No More: Aetna Unit Gets PCs, Results,"
Computerworld, January 18, p. 37.
73Acord Corporation. 1992. Moving Into the 90s: The 1992 Acord Agency Automation
and Interface Survey, Acord [Agency Company Organization for Research and Development],
White Plains, New York.
Representative terms from entire chapter:
industry level
