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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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60 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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62 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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86 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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92 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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94 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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96 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.