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GCSA/U2 Topic 4 Human Capital and Competitiveness, Role of Information Systems in Building Competitiveness

According to a 2015 IMF report, “returns to research and development and subsequent innovation depend critically on the human capital base of countries, which determines their capacity to recognize, assimilate, and apply new technologies.”

Human capital refers to the value of skills, experience, aptitudes and attitudes of the human factor of production labour.

Policies to improve human capital might focus on some of the following:

  • Skills e.g workplace training to increase people’s occupational mobility
  • Enterprise e.g. Programs for start-ups such as Start-Up Chile, Young Innovative Companies in France, Entrepreneurship First (UK), Start up INDIA
  • Mobility: Housing market reforms to improve affordability and geographical mobility
  • STEM: Investment in improved access to and quality of teaching in STEM subjects (Science, Technology, Economics!, Engineering and Maths)

Many businesses in the INDIA complain of shortages of skilled workers as a factor holding them back. INDIA is ranked lower in the world for the flexibility of their labour market.

Weaknesses in human capital is likely to be one factor behind the persistent INDIA productivity gap with many other leading countries.

Role of Information Systems in Building Competitiveness

The information revolution is sweeping through our economy. No company can escape its effects. Dramatic reductions in the cost of obtaining, processing, and transmitting information are changing the way we do business.

Most general managers know that the revolution is under way, and few dispute its importance. As more and more of their time and investment capital is absorbed in information technology and its effects, executives have a growing awareness that the technology can no longer be the exclusive territory of EDP or IS departments. As they see their rivals use information for competitive advantage, these executives recognize the need to become directly involved in the management of the new technology. In the face of rapid change, however, they don’t know how.

The information revolution is affecting competition in three vital ways:

  • It changes industry structure and, in so doing, alters the rules of competition.
  • It creates competitive advantage by giving companies new ways to outperform their rivals.
  • It spawns whole new businesses, often from within a company’s existing operations.

Strategic Significance

Information technology is changing the way companies operate. It is affecting the entire process by which companies create their products. Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information companies provide to create value for their buyers.

An important concept that highlights the role of information technology in competition is the “value chain.” This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business. We call these “value activities.” The value a company creates is measured by the amount that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).

Transforming the value chain

Information technology is permeating the value chain at every point, transforming the way value activities are performed and the nature of the linkages among them. It also is affecting competitive scope and reshaping the way products meet buyer needs. These basic effects explain why information technology has acquired strategic significance and is different from the many other technologies businesses use.

Every value activity has both a physical and an information-processing component. The physical component includes all the physical tasks required to perform the activity. The information-processing component encompasses the steps required to capture, manipulate, and channel the data necessary to perform the activity.

Every value activity creates and uses information of some kind. A logistics activity, for example, uses information like scheduling promises, transportation rates, and production plans to ensure timely and cost-effective delivery. A service activity uses information about service requests to schedule calls and order parts, and generates information on product failures that a company can use to revise product designs and manufacturing methods.

An activity’s physical and information-processing components may be simple or quite complex. Different activities require a different mix of the two components. For instance, metal stamping uses more physical processing than information processing; processing of insurance claims requires just the opposite balance.

Transforming the product

Most products have always had both a physical and an information component. The latter, broadly defined, is everything that the buyer needs to know to obtain the product and use it to achieve the desired result. That is, a product includes information about its characteristics and how it should be used and supported. For example, convenient, accessible information on maintenance and service procedures is an important buyer criterion in consumer appliances.

Historically, a product’s physical component has been more important than its information component. The new technology, however, makes it feasible to supply far more information along with the physical product. For example, General Electric’s appliance service data base supports a consumer hotline that helps differentiate GE’s service support from its rivals’. Similarly, some railroad and trucking companies offer up-to-the-minute information on the whereabouts of shippers’ freight, which improves coordination between shippers and the railroad. The new technology is also making it increasingly possible to offer products with no physical component at all. 

Compustat’s customers have access to corporate financial data filed with the Securities and Exchange Commission, and many companies have sprung up to perform energy use analyses of buildings.

Many products also process information in their normal functioning. A dishwasher, for example, requires a control system that directs the various components of the unit through the washing cycle and displays the process to the user. The new information technology is enhancing product performance and is making it easier to boost a product’s information content. Electronic control of the automobile, for example, is becoming more visible in dashboard displays, talking dashboards, diagnostic messages, and the like.

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