What was the information technology tidal wave?
Discussion of the Information Technology Tidal Wave in the 1990’s
Throughout history, information had always been important. The problem was that information traveled at the speed of a human. In 490 B.C. a messenger ran the 41.3 kilometers to Athens from the plains of Marathon, Greece. He died after announcing the Greek victory over the Persians.
For hundreds of years later, with the exception of the use of the carrier pigeons, information still traveled at the speed of man. In the 1700s the Rothchilds in Germany founded a money-trading empire. With branches in Germany, France, England, and Italy, the flow of business information and constant communication was essential to the growth of their business. Whenever important documents, news, or cash had to be transported, they had stables of horses and coaches and boats at the ready all over Europe.
Samuel Morse invented the electric telegraph service in 1837. He tapped out the first message that traveled faster than man on May 24, 1844, “What hath God wrought?” along thirty-seven miles of telegraph wires near Baltimore. New York to San Francisco service began in 1861, and by 1866 Western Union had more than 4,000 offices.
John Steele Gordon tells us in A Thread Across the Ocean about a New York entrepreneur named Cyrus Field who came up with a plan to connect the New World to the Old World by laying cable on the ocean floor. After multiple attempts, the first cable was finally laid in place on August 16, 1858. Queen Victoria sent the first message to President James Buchanan. Sir Arthur C. Clarke proclaimed Field’s accomplishment to be the “Victorian equivalent of the Apollo Project.”
From Morse and Marconi to Satellites in Orbit
Information and communication technology (ICT) is the infrastructure and knowledge that is necessary to make information and communications readily available.
There are four main categories of ICT:
1. Computers and peripheral equipment
3. Communications equipment
ICT literally began with the first telegraph service in 1837 and when Guglielmo Marconi demonstrated wireless Trans-Atlantic radio signals in 1901. The growth, integration, and sophistication of ICT today is rapidly changing our society and economy. Our nation’s capital stock of business equipment and software is twenty times higher than in 1950. In 1970 we had no fiber-optic cable in place, no cellular sites, no cellular towers, and no commercial satellites in orbit.
By 2001, there were 39 million miles of fiber-optic cable in the ground, 128 million Americans owned cell phones, and there were 114,059 cellular sites, 104,000 cellular towers, and 700 satellites in orbit. According to The Emerging Digital Economy, a report published by the U.S. Department of Commerce, the share of the ICT sector grew from 4 percent of the U.S. Gross Domestic Product in 1977, to 6 percent in 1990, and to 8 percent in 1998.
In previous decades, companies used ICT and companies like IBM to automate and support specific business functions. Today, however, ICT is such an integral part of most businesses that it is hard to separate ICT from the company itself. Businesses use ICT networks even more extensively to conduct and re-engineer business activities and product processes, streamline procurement processes, reach and service new customers, and manage internal operations. Increasingly, a company’s business strategy relies on information systems as an enabler and, in many cases, as a key source of competitive advantage for mature larger organizations.
ICT Fueled Productivity
The 1990s were an extraordinary period in U.S. economic history. For more than a decade we experienced sustained growth, low unemployment, and low inflation. Rising productivity growth, which signified higher living standards through new products, technologies, and management methods, surged unexpectedly in the second half of the 1990s. Martin N. Baily, senior fellow at Institute for International Economics, remarked, “The strong growth of the U.S. economy after 1995 is linked to a recovery of productivity growth.”
There is no doubt that the emergence of the information economy fueled this productivity growth. Baily found that information technology has affected productivity in two ways. First, computers and other ICT hardware have become better and cheaper, leading to increases in investment, employment, and output of the ICT sector. Second, advances in technology have also increased productivity in the more traditional sectors of the economy financial services, business services, and the retail and distribution industries.
Martin Feldstein, president and CEO of the National Bureau of Economic Research, believes that advances in information technology will lead to continued strong productivity growth. Information and data has become the lifeblood of any supply chain system. The ability to access, process, and analyze vast amounts of information quickly and accurately is critical to a company’s bottom line and long-term profitability. In other words, ICT slashes fixed costs in three areas: information, production, and distribution. As Michael Dell has said, “We substitute information for inventory and ship only when we have demand from real end consumers.” It adds up to higher productivity for Dell’s business and a significant competitive advantage.
ICT Planted the Seeds of the New Economy
Long ago Henry Mintzberg said that information and control are essential components of organizations. He discovered that “management spends 80 percent of their time actively exchanging information.” In 2002, Tom Siebel, founder of Siebel Systems, said, “We are at a point where it’s a stretch to understand how you could run a reasonable-size business today without information technology.”
Modern economies have evolved from the “invisible hand” and Fordism to the present, when the innovations of the “new economy” are powering changes in industry after industry. As U.S. Federal Reserve Chairman Alan Greenspan says, “A hundred years ago, physical brawn was critical to value-added determination. People who personally could lift rolled sheet steel and help haul it from one part of the plant to another performed an activity that was valuable in the marketplace. Today, several generations later, the structure of production has become, to a remarkable degree, idea-determined.”
The most principal characteristic of the new economy is that one’s consumption of a good does not necessarily detract another’s consumption. For example, when you are reading a book, no one else can be reading it at the same time. But if are reading it on the Internet, thousands can be reading it concurrently. Thomas Jefferson put it best, “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening mine.”
Drucker sees the future as a knowledge-driven society, where the basic economic resource is not materials, labor, or capital, but information and knowledge. As Greenspan said, “The revolution in information technology has altered the structure of the way the American economy works.” The collective market capitalization of five large ICT companies—Microsoft, Intel, Compaq, Dell, and Cisco—grew from less than $12 billion in 1987 to more than $588 billion in 1997, or more than 4,800 percent. In the next Article, we look at how the information technology tidal wave that crashed on the world’s economy in the 1990s came to be.