Information Technology in the Service Society A Twenty-First Century Lever (1994) / Chapter Skim
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1 Introduction and Impact of Information Technology at the Macroeconomic Level
1 Introduction and Impact of Information Technology at the Macroeconomic Level
Pages 24-51
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From page 24... ...
For purposes of this report, the service industries consist primarily of transportation, communications, wholesale and retail trade, financial services, insurance, real estate, utilities, and personal and professional services; unless otherwise specified, information technology (IT) includes computer and communications hardware, as well as the software and associated services required to exploit that hardware.
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From page 25... ...
The farming sector has also achieved solid growth in productivity. Much of the rest of the economy, however, has lagged behind especially construction and elements of the service sector.
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From page 26... ...
Indeed, over the past 10 years, the service sector spent $862 billion on IT hardware alone-accounting her about 85 percent of the nation's total IT expenditures This surge of spending has been enough to equip the average white-callar worker In the service sector with about $10,() 00 worth of IT hardware in 199'-essentially double the endowment Mat existed in 1980~ Such extraordinary commitments to IT have not yielded measurable benefits far productivity, Roach maintains, because service companies have had little incentive to strive for efficiencies, given the unique protection they enjoyed from compet'tive realities.
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From page 27... ...
Thus, he views the reality of serv~ce~sector restructuring as an independent confirmation of the IT paradox-a growing recognition by managers that there Is, in fact, considerable Validity to the disturbing results conveyed through the macroeconomic data on measured produ~:iY'ty. At the same time, he also views restructuring as a powerful catalyst that is now forcing managers to rethink ap,olicat~ons of IT setting In motion a process that could well culminate in Me long-awaited macroeconomic payback from the use of IT SOURCE: Stephen Roach, Morgan Stanley ~ Co.
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From page 28... ...
. A fifth view underscores the importance of examining the impact of IT at much lower levels of aggregation than is possible using macroeconomic data.
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From page 29... ...
There was general agreement that existing methods for measuring productivity at the aggregate level do not entirely capture the changes taking place in the U.S. economy as a result of using IT and that focusing on the apparent productivity paradox gives an overly narrow picture of what is happening in services.
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From page 30... ...
To better understand these complex issues, the committee chose to investigate the full range of impacts of IT use on performance in the service industries, including measured productivity as only one element in overall performance. To do so, the committee analyzed the impacts of IT use at four levels: the macroeconomic level, the industry level, the enterprise level, and the activity level within the enterprise.
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From page 31... ...
The BEA collects information on final sales and inventories to estimate GDP in current dollars, that is, with everything priced at its actual sales price. It then uses price information collected by the Bureau of Labor Statistics and, for some components, by BEA itself to construct an aggregate price deflator for GDP.
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From page 32... ...
The Bureau of Labor Statistics (BLS) makes some adjustments to the NIPA data on output associated with business GDP and GDP by industry and combines those data with data on labor input by industry to give average labor productivity (Box 1.2)
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From page 33... ...
Difference in Rate of Growth, 1948-73 and 1979-89 1973-891973-89 Sector 1948-73 Business 2.88 0.63 1.35 1.08 -1.80 Goods producing 3.21 0.71 2.31 1.71 -1.50 Farming 4.64 0.11 3.22 2.04 -2.60 Mining 4.02 -5.S6 2.13 -0.82 -4.84 Construction 0.58 -2.02 -0.71 - 1.20 - 1.78 Manufacturing 2.87 1.80 3.33 2.75 -0.12 Durable goods excluding nonelectrical machinery 2.56 1.55 2.35 2.05 -0.51 Nonelectrical machinerya 2.03 1.06 9.10 6.01 3.98 Nondurable goods 3.40 2.37 2.37 2.37 -1.03 Service producing 2.49 0.58 0.84 0.74 -1.75 Transportation 2.31 0.15 0.95 0.65 -1.66 Communication 5.22 4.27 4.84 4.63 -0.59 Utilities 5.87 2.66 2.35 2.46 -3.41 Trade 2.74 -0.35 2.10 1.18 -1.56 Wholesale 3.14 -1.21 2.65 1.18 -1.96 Retail 2.40 0.14 1.72 1.13 -1.27 FIREb 1.44 0.36 0.05 0.17 -1.27 Services 2.17 0.84 0.01 0.32 -1.85 Government enterprise -0.15 0.62 0.04 0.26 0.41 General government 0.21 0.03 0.53 0.34 0.13 aNonelectrical machinery hours from Bureau of Labor Statistics. bFinance, insurance, and real estate.
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From page 34... ...
The most extensively developed and widely used measure of productivity is the one relating output to labor input-labor productivity. It is a ~tool relevant for analyzing labor costs, real income, and employment and, I as a practical matter, is most easily measured.
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From page 35... ...
Human capital is one form of nonphysical or intangible capital, and there is some concern that other forms of nonphysical capital have become increasingly important but are not counted. Manufacturing industries spend heavily on R&D, and many industries In the manufacturing sector and in services spend heavily in developing software and computer systems.
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From page 36... ...
Notable over this period is the strong growth of productivity in transportation, communications, utilities, trade, and the narrowly defined services sector.~3 As Table 1.1 indicates, productivity growth in both the goods- and service-producing sectors collapsed after 1973. Productivity had actually begun to decline prior to 1973 in both the mining and the construction sectors, and this decline continued in the 1970s.
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From page 37... ...
For several years after new products are introduced, their prices are not used in the calculation of the price deflators. For example, after color TVs were first introduced, the price index for televisions continued to be based solely on black and white TVs for some time.
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From page 38... ...
Real sales per hour of labor input or per square foot of selling space have grown little over time, or have even fallen over some years. But there has been a huge increase in the variety of products offered and in the quality of other services provided.
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From page 39... ...
Need for Wider Use of Hedonic Price Indexes For some products, the price deflators are adjusted to capture the effects of changes in quality. For example, when a new model of computer is introduced that runs at higher speed or has more memory, these changes are reflected in what is called a hedonic price index.
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From page 40... ...
The way in which real output is computed ensures that almost no change in measured productivity will be observed in the banking industry group, regardless of what the actual increase in productivity may have been. Industry-specific Measures of Productivity Developed by the Bureau of Labor Statistics The Bureau of Labor Statistics (BLS)
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From page 41... ...
In some instances the data on labor input weights are not available, and approximations such as gross margins have to be used. The data on labor input cover the hours of all persons employed in a particular industry, including the self-employed, and are based on the BLS surveys of establishment employment and hours.
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From page 42... ...
SOURCE: Bureau of Labor Statistics.
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From page 43... ...
The measures for some of the trade industries present some difficulties primarily because of the heterogeneity of the categories of merchandise line sales and the limited availability of adequate price deflators. However, these indexes of productivity are useful indicators of trends over time and are continually being improved as the number of detailed price indexes increases.~7 Many difficulties remain in clarifying some of the basic conceptual problems of defining the output of certain service industries, and many inadequacies are present in the data available.
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From page 44... ...
The U.S. economy has been very successful over the years in increasing the number of jobs it has generated, and the largest number of these have been in the service sector.
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From page 45... ...
OBSERVATIONS AND CONCLUSIONS Many Factors Influence Productivity: IT Affects Many Aspects of Performance As noted at the beginning of this chapter, many factors besides the application of information technology determine growth in the productivity of the U.S. service sector.
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From page 46... ...
The ~cK'nsey study Is based an an analysis in a single year (1989) of productivity levels and therefore does not directly contradict the Bureau of Economic Analysis macroeconomic data that show a slow rate of growth of productivity in the service sector in the United States.
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From page 47... ...
· In some service industries, the BEA data exclude, by definition, any changes in measured productivity because real output is measured by the number of employees working in the industry. Banking and financial services are the most important examples.
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From page 48... ...
derive from earlier studies in the goods-producing industries, but to the committee, most of these seemed inadequate for understanding trends in the service sector. For example, whereas productivity in goods-producing activities is measured in terms that refer to relatively concrete units of output, dollar sales, or profits, performance in services may relate to more subjective quantities such as timing, quality, comfort, or convenience.
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From page 49... ...
base productivity levels may still be higher than those of its competitors. 6See, for example, Kendrick, J.W., 1987, "Service Sector Productivity," Business Economics, April, pp.
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From page 50... ...
With regard to data, more and improved data are needed on prices, value of output, capital, and material input. The BLS and other government statistical agencies have undertaken initiatives to expand the coverage in the service sector, and the results of these efforts should lead to better and more comprehensive industry measures.
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From page 51... ...
1982. "Measuring Productivity in the Services," Monthly Labor Review, Vol.
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