Information Technology in the Service Society A Twenty-First Century Lever (1994) / Chapter Skim
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2 Impacts of Information Technology at the Industry Level
2 Impacts of Information Technology at the Industry Level
Pages 52-96
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From page 52... ...
In addition, the experience of one industry may provide insights relevant to understanding or anticipating effects 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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From page 53... ...
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)
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From page 54... ...
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)
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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)
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From page 56... ...
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)
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From page 57... ...
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 analysts. 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 performance and the scale and impact of the use of IT in each industry.
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From page 58... ...
Extensive deployment of IT has been necessary to help the air transport industry deal with larger volumes of passengers and inquiries, higher operating 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)
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From page 59... ...
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.
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From page 60... ...
Regional carriers operate in specialized markets, whereas major carriers provide what could be called "trunk" service on major routes. Flying between two small airports on opposite ends of the country usually requires coordination of flights operated by a major carrier and by smaller regional carriers; from listing its flights on CRSs owned by major airlines, it is a relatively small step for a regional carrier to affiliate formally with a major carrier to provide a higher degree of operational integration.
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From page 61... ...
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 operations.
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From page 62... ...
U.S. air transport companies have consistently led the worldwide industry in major innovations such as customer reservation systems, overnight package handling, special customer services (e.g., frequent-flyer programs and package tracking)
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From page 63... ...
In 1990, the telecommunications industry supported over 136 million access lines.28 Although data on total minutes of local calls are not available, the Federal Communications Commission reports that 308 billion minutes in interstate calls were connected in 1990 through these access lines.29 Two major factors have shaped contemporary telecommunications: (1) deregulation, in combination with the divestiture of AT&T, and (2)
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Number of hours worked (billions) Annual investment in IT (billions of 1982 dollars)
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From page 65... ...
Number of hours worked (billions) Annual investment in IT (billions of 1982 dollars)
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From page 66... ...
For example, MCI has a relatively new product, Service Without Paper, that provides corporate telecommunications managers with billing and usage data on optical disk. o Telephone credit cards (calling cards)
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From page 67... ...
By extending the traditional notion of plain old telephone service, such services increase the number of options for local customers and generate substantial revenue for local telephone companies today. IT has also been used in the telecommunications industry to enhance and improve corporate image and the quality of customer service, even when these considerations do not relate directly to calling volume.
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From page 68... ...
For example, if a caller Is known from ,oreY'~us interactions to speak Spanish, ANI can be used to route calls from that party to Spanishspeaking operators. Credit card holders can be routed to different service staffs depending on the type of card they hold Equipment service organizations can route calls SO the appropriate staffs based an databases that coordinate telephone numbers with equipment present at given sites.
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From page 69... ...
Retail trade is dominated by relatively few, large, national or regional chain operations specializing in merchandise trade, food, and pharmaceuticals.38 A much larger number of smaller "mom-andpop" retail operations are locally based; such operations are relatively easy to start (compared to ventures in telecommunications or air transport)
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Annual investment in IT (billions of 1982 dollars) IT capital stock (billions of 1982 dollars)
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Annual investment in IT (billions of 1982 dollars) IT capital stock (billions of 1982 dollars)
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Annual investment in IT (billions of 1982 dollars) IT capital stock (billions of 1982 dollars)
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11.912.112.212.312.8 13.1 Annual investment in IT (billions of 1982 dollars) 13.912.313.79.612.6 11.6 IT capital stock (billions of 1982 dollars)
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Such systems are often used to link retail stores and wholesale vendors through electronic data interchange systems and allow nearly paperless and highly automatic ordering. In some instances, these systems allow orders to be shipped from wholesalers directly to retail stores, bypassing warehouses.
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Kmart believes that the installation of IT to count customers will enable managers to determine conversion ratios with unprecedented accuracy and will guide them in their improvement. HEALTH CARE In recent years, public concern over the health care industry has reached unprecedented levels.
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3.25.75.96.26.3 Number of hours worked (billions) s.6c9.810.210.710.8 Annual investment in IT (billions of 1982 dollars)
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6.5 6.6 6.9 7.2 7.5 7.9 Number of hours worked (billions) 11.1 11.4 11.7 12.2 12.8 13.5 Annual investment in IT (billions of 1982 dollars)
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From page 78... ...
As a whole, the health care field has been slow to use IT in its business operations and record-keeping activities. Nevertheless, pressure on the health care industry to explore the use of IT is now being exerted by a variety of factors, including the explosion of medical knowledge, the larger volume of clinical information potentially relevant to individual patients, the increasingly cooperative nature of medicine, the need for more detailed clinical audit trails to defend against potential malpractice litigation and to ensure proper third-party payment, greater regulation, greater competition among health care institutions, and greater pressure for outcomes assessment and improvement of quality and patient satisfaction.
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From page 79... ...
Outcome-based treatment is thought by many to have considerable potential for reducing health care costs. A second growing application of IT in health care is its use in giving physicians remote access to hospital information systems through dial-up modems or leased lines, allowing them to check on the status of patients through CPRs.
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From page 80... ...
The banking industry is a major factor in the economy. It generated revenues of $209 billion (current dollars)
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One reason these have not appeared in measures of macroeconomic productivity is that such measures in the banking industry remain highly problematic. Figures on the gross domestic product originating in the U.S.
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Annual investment in IT (billions of 1982 dollars) IT capital stock (billions of 1982 dollars)
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Annual investment in IT (billions of 1982 dollars) IT capital stock (billions of 1982 dollars)
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This IT-based consolidation reduced staff requirements by 17 percent while volume increased by 80 percent. In the late 1980s, the banking industry began to focus on automation of data communications.
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Thus the interaction will be more indirect. In the future, there may be more card-based interactions, as the uses of credit cards grow and as cards themselves become "smarter" (e.g., smart cardtelephone services)
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From page 86... ...
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 administrators of managed health care plans, such as health maintenance organizations and preferred provider organizations.
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From page 87... ...
Thus, it is not surprising that insurers were among the first in the commercial 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)
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Annual investment in IT (billions of 1982 dollars) IT capital stock (billions of 1982 dollars)
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From page 89... ...
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)
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From page 90... ...
Today, the use of IT enables insurance companies to collect data on individuals from multiple sources and thereby define risk groups consisting 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.
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From page 91... ...
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 individual companies. OBSERVATIONS AND CONCLUSIONS In both scale and nature, the use of IT is highly varied within and among the industries the committee examined.
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From page 92... ...
. Insurance companies are moving ever deeper into the business of health care management, and the lines between the two are already blurring.
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From page 93... ...
is the principal measure of output for the air transport 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.
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40-52; Air Transport World, 1991, "Ionworks," May, pp. 62-66; and Air Transport World, 1991, "Automation Picks Up Speed," September, pp.
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1991. Merchandising & Operating Results of Retail Stores in 1990, National Retail Federation, New York.
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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.
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