Since the inception of the Internet, it is clear that information
systems have had a direct impact on the economic development of organizations,
government, and society. Overall, I believe that information systems benefit the
economy through reducing transaction costs, increasing management and work
efficiency, creating new jobs, and making the markets more competitive.
The Internet can transmit information quickly, conveniently, and
inexpensively. Companies can reduce cost of operations through web-based
technology such as online databases for processing and transmitting information.
One health insurance organization, Electronic Data Interchange, claims it can
reduce costs of processing, from $10-15 per paper-based claim to $2-4 per
electronic-based claim. To put this into perspective, if health insurance
claims were to shift to web-based technology, $20 billion per year could be
saved and the process would be faster and more convenienti.
Coase’s theory states that the Internet reduces transaction costs, such as reducing
the need for negotiations, contracts, and inspections. It is easier for producers
to procure raw materials by outsourcing activities or owning suppliers in
The Internet has facilitated the reduction of transaction costs due to the ease
of information transmission. While web-based technology is helpful, there may
be limitations if customers do not have access to the Internet. Additionally,
there may be issues of communication and with governments when dealing with
international outsourcing including bylaws, lack of technology in developing
countries, and language barriers. Companies may be reluctant to swap into
web-based processes; change is generally a turn-off for companies, especially
if their current process is sufficient. There would be the complication of
developing the new process, getting approvals, testing, employee training, and
potential loss of historical data.
The Internet as a management tool has improved work efficiency in
essentially all industries through improving communication, scheduling, and
collaboration. Supply chain management technology is able to reduce cycle
times, inventories, and improve effectiveness of distribution channels. Information
technologies offer smart manufacturing – where all information, from the plant
floor, along the supply chain, and to the final product – can be captured in
real-time. Organizations are able to predictively meet needs through intelligent
Online product documentation and FAQs allow customers to get support without
requiring a customer service representative. Cisco reported savings of $500
million by restructuring and integrating processes with suppliers and customers
with the help of web-based applications and toolsiv.
McKinsey Global Institute conducted a study that demonstrated the Internet
accounting for 3.4% of the global GDPv.
Comparing to the traditional sectors, the Internet sector has already surpassed
agriculture and education, and almost passing transportation. While it is true
that some jobs will become outdated, there have been more jobs created. For
example, in France, the Internet has destroyed over 500,000 jobs but created more
than 1,200,000 in the past 15 years. Companies with a high web index are seen
to have twice the growth compared to those with low to non-existing web
presence. An issue that a company with high dependency on the Internet and
web-based applications is that if there is a problem with connections or power
outages, what will they be able to do? These external factors may result in
major losses for small companies. For example, a 5-hour power outage in Taiwan
caused $3 million worth of losses for 151 companiesvi.
Advanced Semiconductor Engineering reported the power outage resulted in approximately
$500,000 to $800,000 loss.
The markets become more competitive as the Internet enables the whole
economic system to be available internationally. Online shopping has become
extremely prevalent and consumers can shop for the best deals over a wide
geographic area in the comfort of their homes. Prices of goods and services are
transparent and companies are able to compete on a bigger scale, thus
increasing the competitive market through the need of higher productivity and
better processes. However, Joseph Bailey of the University of Maryland finds
retail Internet sales insignificant; about 1% of retail sales at the beginning
of 2000. There is an issue with data drowning due to the flood of information
and marketing noise that invades the Internet. Legitimate businesses lose
traffic and revenues due to consumers ignoring the onslaught of information.
While the Internet has many benefits towards
economic development, there are a few drawbacks including: business technology
reliance, security issues resulting in economic losses, loss of traditional
jobs, and imbalance of global economic power.
Although it is clear that the information
systems have become a major aspect of organizations, there can be a few faults.
Small businesses that aren’t able to afford expensive web-based technology are
not able to compete with larger companies that have improved their technology
and are able to provide a better and efficient service or product. Production
is greatly affect by malfunctions of machinery and information management
systems. With these complicated systems, only specialized professionals such as
mechanics and programmers, have the ability to fix problems. An entire automatic
production line may halt if one key operation has an issue.
With the heavy reliance on the Internet, there
is the aspect of Internet security and privacy. There is always the potential
risk of losing important data and vital information to hackers and viruses for web-based
technology. Recently a Tokyo-based cryptocurrency exchange called Coincheck
Inc. lost $425,000,000 of its virtual currency to hackersvii.
Just last year, Equifax reported that 145.5 million Americans have had their
personal information compromised; putting many people at risk of identity theft
and fraud, and as such, shares in Equifax dropped by almost 14% on Wall Streetviii.
The new craze of Bitcoin could potential crash the stock markets according to
The loss of traditional jobs to automation is
evident, especially in manufacturing. In a video, Anthony Carneval of
Georgetown University estimates 75% of the job losses in manufacturing are due
The labour market has decreased dramatically – in 1st world countries,
this can lead to greater inequality and further erosion of the middle class
while in the emerging economies, industrialization may become more difficult. This
causes a larger gap between the high and middle class workers, resulting in higher
levels of poverty, poor public health, and lower economic growth. Associated
Press released a video reporting that some banks in South Korea are closing
branches and making everything automatedxi.
In Japan, rail lines are becoming fully automated and do not require an onboard
conductor. These technologic advances have thrown many of the middle-class
workers out of jobs and thus, it is a concern of what are these people going to
do. The middle-class workers will have to adapt to these changes through
retraining or learning new skills.
Finally, information systems increase the gap
between the rich and the poor for global economies, resulting in an imbalance
of economic power. In correlation to losing middle class jobs to automation, many
jobs in developing countries may be replaced with more efficient machines. This
also ties in the globalization which impacts the economy of developing nationsxii.
Countries unable to take advantage of globalisation fall further behind and the
increased interdependency of countries cause greater vulnerability to economic
problems (such as the recent global recession). Countries with easy access to
information systems are able to flourish more while countries with limited
access, generally those with developing economies, drown. This issue is
correlated to the digital divide and the idea of appropriate technology which
may help reduce the gap between these economiesxiii.
Mobile devices have to potential to overcome three types of exclusion: social,
political, and economic. They provide access to education, healthcare,
government services, and access to markets for products and finance.
While it is difficult to quantify the actual impact of information
systems on the economy, I strongly believe that it is beneficial. As technology
innovations advance, the economy is generally affected positively and companies
that utilize these technologies are able to grow financially through increased
productivity, reduced operating/manufacturing costs, ability to reach global
customers, and provide better services/products. However, developing countries
that have limited access to information technology struggle to compete with
developed nations and the gap between high and middle class may cause lower
economic growth. Through methods including suitable technology in developing
nations, positive globalisation growth, and retraining and potentially
redefining the standards of the middle-class, these issues can be addressed
resulting in a better global economy.