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3.1 The contribution of ICT to productivity
The study has found that in the manufacturing industry environment the key ways in which ICT can increase productivity are through its capacity to reduce costs, increase the capability of machinery, and provide increased flexibility in production planning and scheduling.
ICT allows for increased scale and speed of machinery operations as well as an expanded management span of control/coordination. Increased capability comes about through the digital control hardware embedded in the machinery and the process execution systems that monitor and control factory operations.
Additional productivity and performance enhancements may accrue to those companies that successfully integrate process control systems with corporate systems through software solutions such as manufacturing execution systems (MES). A major challenge in this area is encouraging managers to ‘trust’ software and machine generated data, monitoring and analysis to validate processes without the need for physical inspection and activation.
Detailed discussions with managers indicated that in the factory environment, the impact of ICT on labour productivity can be dramatic as a result of its capacity to fully automate production processes and systems.
In the corporate environment, the interviews indicated that substantial productivity gains have been achieved by sales teams through the adoption of customer relationship management (CRM) systems that provide for electronic transfer of orders from the field to systems that manage the order fulfilment process.
B&D Doors use ICT to link orders to its computer aided design (CAD) systems and numerically controlled machine tools. This reduces lead times for producing products to customer specifications and lowers the cost of production, mainly by reducing the need for human intervention in the production process.
Notwithstanding the importance of ICT to achieving these outcomes, expenditure on computer hardware and software accounts for only a fraction of the total investment needed to drive productivity gains. The largest share of investments goes toward redesigning and changing the business processes and the relationships between businesses, their suppliers and customers. In the contemporary business environment, however, business process redesign and system design are complementary.
These complementary investments are less visible but arguably more important in ensuring an observable bottom-line impact. Research at the MIT Centre for e-business reported in a recent article in the MIT Technology Review reaches the following conclusion:
The unsung heroes of the IT revolution have not been the microchip and the Web browser, but rather the creative, diligent, and painstaking work done by those who have been rethinking supply chains, customer service, incentive systems, product lines, and 1,001 other processes and practices affected by computers. Investments of intangible capital constitute the real source of today’s productivity growth (Brynjolfsson 2004).
The MIT research indicates substantially different outcomes among companies that spend similar amounts on ICT. In other words, ICT is important in contributing to business performance through the way it is used rather than for what it is. Driving the way ICT is adopted, applied and used is a management rather than a technology issue. The study supports research findings reported in leading business journals that, without creative management and understanding of the business context, the potential benefits to be gained from ICT will not be achieved.
Some national and global ICT companies have recognised the close and symbiotic relationship between business processes and ICT systems and are expanding their capacity to provide business improvement services on a contract and consultancy basis. Increasingly, these companies are seeking to provide services on a partnership basis where consultants are closely involved in the work of a client’s business in an endeavour to achieve productivity and efficiency gains through ICT enabled process, product and supply chain innovation.
The trend among the ICT vendors towards consulting and partnership strategies is reflected in substantial internal investment to build capability and in mergers and acquisitions – such as the merger between IBM and PricewaterhouseCoopers consulting. However, this study found some resistance on the part of manufacturing enterprises who do not wish to cede control of their core business processes to third parties.
Measuring ICT’s contribution to productivity can be more difficult in non-ICT manufacturing sectors, particularly when it is embedded in machinery and equipment designed to provide non-ICT outputs and where the associated productivity benefits are primarily realised by a non-ICT function or outcome. For example, ICT enabled medical equipment and diagnostics may increase the accuracy and speed of tests, extend the range of tests possible and the locations where they can be undertaken, and deliver more accurate diagnoses. In this situation, productivity gains are realised in the health services sector. In addition, the source of gains is the manufacturing sector not the ICT sector.