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The Global Information Economy and Service

Industrialization: The UCLA BIT Project


Uday S. Karmarkar
UCLA Anderson School of Management
110 Westwood Plaza, PO Box 951481, Los Angeles, California 90095-1481
ukarmark@anderson.ucla.edu ; www.anderson.ucla.edu/bit.xml
ABSTRACT physical services (such as distribution, transportation,
Most of the large economies in the world are already construction) that dominate the US job scene. The data for
dominated by services. Developed countries are now Korea and Germany show similar patterns. While we do
also becoming information economies; the US is a case not yet have the data for other countries, it is more than
in point. The confluence of these trends means that likely that this pattern holds for all developed economies.
information services are the largest part of the US and It also seems likely that developing economies will follow
other developed economies, with others close behind. the same path, and probably at an accelerated rate.
This evolution is being accompanied by a revolution: However, this picture is still to be filled out.
the rapid industrialization of information services.
The movement towards economies dominated by
These developments have manifold consequences for
information services is now accompanied by an
the economy as a whole, as well as for productivity,
trade, jobs, globalization and competition. At the sector “industrialization” of that sector [25]. This
level, many industries are undergoing massive changes industrialization is fundamentally technology driven, and
in structure. There are also significant implications for has some resemblance to the industrial revolution in
management strategies and internal organizational manufacturing. This development has very significant
structure for all firms. implications for global trade and competition, for
The Business and Information Technologies (BIT) economies and national policy, for industry sectors, for
project at UCLA Anderson is a global effort to track and firms and organizations, and for individual jobs and
assess these changes through GNP studies, surveys of functions. In short, these changes are far reaching and
business practice, and studies of key industry sectors. broad as well as deep.
INTRODUCTION The Business and Information Technologies (BIT) project
Of the largest 25 economies in the world, all but one are at UCLA Anderson School was created to study these
dominated by services, in that services comprise the major changes at multiple levels of economic and business
part of the GNP. This is even true of countries like India, activity ranging from global and national, to sectors, firms,
where although agriculture dominates employment (60%), functions and jobs [29]. The project has 18 research
services still comprise over 50% of the GNP. The sole partners around the world as of June 2007, and this group
exception is China, and it could be conjectured that this is a will eventually grow to cover perhaps 20–25 countries.
matter of reporting conventions. It seems that even if The purpose of this network is to understand the global
manufacturing or agriculture play large roles in an shift to information economies, to track the new wave of
economy, no economy can really function without a large service globalization and to compare development levels
service sector. Today it is essential to recognize another
important trend: that from a material to an information
economy. Apte and Nath [4] establish that the US in 1997 Product Services
was already an information economy, with over 60% of
GNP attributable to primary and secondary information 37
sectors. Choi, Rhim and Park [19] following the same Material 11% 26%
methodology, conclude that Korea in 2000, while having a
relatively larger manufacturing sector than the US, was also
effectively an information economy. Karmarkar [23] has
noted that superimposing the two dichotomies of product- 7% 56% 63
service and material-information (Figure 1) gives a useful Information %
perspective.
Information services, by 1997 already constituted the 18 82
largest sector in the US private economy in terms of GNP. % %
The arrows in Figure 1 show the direction of change over Figure 1. Distribution of GNP in the US economy from
30 years, that we expect to continue for two or three Apte, Karmarkar and Nath [4]. The information sector
includes both primary and secondary information sectors
decades. However, note that in terms of employment, it is
as defined in Apte and Nath [5].

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and business practices in different countries. Globalization
An immediate consequence of industrialization, is the
In the following section I first describe what we consider to globalization of data, information and knowledge intensive
be the most important research issues related to services (and production processes), coupled with the
management in the emerging global information economy. increased intensity of competition that comes from both
These issues are the basis for the projects being conducted standardization and globalization. We are reminded once
globally under the BIT umbrella. more that the world is not flat. Or at least that while the
playing field might be level in terms of capability and
RESEARCH ISSUES
opportunity, the economic gradients on the field are
The evolution of all major economies towards services has
extremely large, leading to large potential relocations of
long been visible and for the developed economies it is
economic activity.
very far along. But that towards information is less well
studied and very much still in process. Establishing the However, in contrast with the material world, the
extent of this evolution is one of the core activities of the information world is naturally more influenced by
BIT project. There are many other issues and trends that linguistic and cultural divisions, that determine its
are important and are difficult to study. I describe some of topography. This is particularly true of consumer markets,
these issues, progressing from a general and global level to and to a lesser extent with industrial information services
the specific and operational. Not all are central to the and products [6,25].
project, but all underlie and inform our approach.
From a comparative perspective, the BIT studies from
different countries reveal very different patterns in the use
Productivity, Sector Growth and Decline
and implementation of new technologies [29]. For
It is likely that productivity is a fundamental cause of the
example, the US data shows a very substantial level of
trends noted in Figure 1. The relatively low productivity
organizational change occurring in all companies because
growth in services has been long identified as a reason for
of new information technologies. However, in contrast, the
the growth of services [10,11]. Symmetrically, high
data from Italy shows very little change (at least as yet).
productivity in sectors like manufacturing and agriculture
Rather, on-line technologies are being used more to
plays a role in their relative decline. Another basic cause
reinforce existing external business relationships. There is
may be that there are some limits to the consumption of
a wealth of such comparative information emerging from
certain goods and services (satiation). Now a new factor in
the parallel country studies within BIT.
this equation is that productivity in services (and especially
information services) is beginning to show growth [21,22].
Sector Restructuring and Information Chains
Much of the attention in the early days of the appearance of
The “Industrialization” of Information-intensive
Services modern on-line information technologies went to the B2C
The industrialization of manufacturing was driven by layer between firms and consumers. However, the BIT
standardization coupled with efficient logistics. The project takes the perspective of the end-to-end information
standardization of end products was followed by production and delivery chain. While ecommerce
standardization of components, processes, and capabilities. developments have been very visible to all, a substantial
This enabled the creation of modular processes, and degree of restructuring has occurred and continues to occur
distributed supply chains which today have become global. across entire information intensive sectors, down to the
In the information sector too, we see standardization function, job and operation level. We have undertaken
(resulting in specifiability) of software products and several studies on technology driven restructuring and the
information processes, coupled with modern information creation of information and service chains in sectors such
logistics. This industrialization at the “shop floor” level of as retail banking [18], mortgage banking [14], financial
processing and communication is now migrating upwards services [24], film and video distribution [13], RFID in
into transactional processes, business processes, and supply and service chains [16], and health care delivery [1].
business structures [23]. This is visible as the increased These studies have included cases studies
modularization of processes and businesses, the creation of [2,8,15,16,17,19,23] in addition to analyses of current and
distributed information chains, and the restructuring of future information chain structures, and of issues related to
many information service sectors with a marked tendency technology management, strategy and policy.
towards de-integration of industry value chains. To carry These sector studies have verified and reinforced the
the picture of de-integration and modularization to its concept of industrialization, and the consequences such as
extreme: it almost seems as though the efficient scale of globalization, new competition, modularization, and the de-
production in the information economy of the future will be integration of chains. However, they have also revealed
close to the level of the individual. While this is not quite that in many sectors, change is occurring slowly due to a
true yet, it has large implications for industry structure, rational reluctance to undertake costly change and
organizational design, and company scale in the future. difficulties in orchestrating change, combined with

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defensive moves by incumbent firms who are threatened by Organizational Change and Company Structure
new business models and chain structures. It is vital to note that the issues of industrialization and
process change do not just apply at the industry and sector
The Economics of Information and Service Chains level. They are just as relevant to all information intensive
We have leaned upon analogies with the manufacturing processes within a firm. Clearly most managers and many
world when addressing industrialization, and the structure employees in any firm are engaged in internal information
of information and service chains. However the analogies and service processes. The modularization, de-integration,
have their limits. In particular, the economics of and restructuring occurring at the sector level are also
information service processes are very different from those occurring at the level of organizational departments,
of material goods and services. At a very basic level, functions, and jobs. These effects are very visible in the
quantification of outputs is often a problem [26, 28]. While case studies we have undertaken.
it is tempting to think that information theory might
One of the most serious issues related to firm level
provide a solution in the case of information chains, that
changes, is the need for reconsidering the organizational
turns out not to be the case. It is true that information
structures of companies from the top down. It appears that
logistics yields to technical analysis for purposes of
the traditional functional organization of the executive suite
analyzing transport, storage and processing capacity.
is not well aligned to the needs of the internal and external
However, production costs, productivity, process quality
work structures that are emerging. And of course, these
and customer value present difficult problems for services
organizational changes are the most difficult to make.
in general and information services in particular [28].
Some of the issues that we have begun to address include At a more detailed level, we are able to track changes that
quality management [3], intermediation in information are occurring in the workplace across different industry
chains [20], collaboration and joint production in services sectors and different countries. We have begun to conduct
[12, 26], and service competition [26]. these comparative analyses.

Industrialization Strategies at the Company Level Company Strategies and Operational Management
From a management perspective, industrialization and There is a very large set of issues to be tackled at the level
globalization have led to a set of strategies at the firm level, of management of the firm, ranging from strategy to
that are intended to improve productivity in the monetary operations. We are presently focusing on the issues of
sense (i.e. monetized output/input or revenue/cost). This is quality management, productivity, competitive strategy, the
not the same as true factor productivity and in fact, it can integrated treatment of operations and marketing, and the
often involve lower productivity as is often true with off- practical aspects of process engineering, outsourcing and
shore production. However, it is a measure more directly off-shoring.
related to the firm level objective of profit maximization.
THE BUSINESS AND INFORMATION TECHNOLOGIES
The most basic issues are of course (BIT) PROJECT AT UCLA ANDERSON SCHOOL
• Standardization of services and products As stated earlier, the BIT project was started at UCLA
Anderson in 2004 as a global research network. The
• Modularization of processes down to an atomic level partners are leading management research and educational
• Implementation of on-line information logistics institutions in their countries: IAE (Argentina), The
Catholic University (Chile), CINTEL (Colombia),
More “macro” strategies are
Humboldt University and ESMT (Germany), The
• Automation University of Athens (Greece), IITB (India), ISB (India)
SDA Bocconi (Italy), Politecnico di Torino (Italy), Korea
• Outsourcing
University (Korea), The University of Auckland (New
• Off-shoring Zealand), ESAN (Peru), ISCTE (Portugal), IESE (Spain),
• Service and product re-design The World Internet Institute (Sweden), The University of
Switzerland in Lugano (Switzerland), and National
• Process re-engineering and technology insertion SunYatSen University (Taiwan). We continue to add new
• Globalization of markets and providers partners, with a goal of covering at least 20–25 countries.
• Self service (more generally, operation shifting in the As of 2007, eight countries have conducted country studies,
information chain) with the UCLA group having the longest history. We
Except for the last, these strategies mutatis mutandis reflect expect most groups to be active within a year.
to a substantial degree what occurred in manufacturing over The structure of the project is a federation, with each team
many decades. The catch is that experience in operating independently, but with an agreement to conduct
implementing such strategies is still lacking in many certain common studies. The major common activity is a
service organizations as our cases studies show [14,16,18]. survey of business practice, where each partner uses
exactly the same survey instrument, subject to translation to

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will examine these sectors in the future. Working Paper. Presented at the MSOM Conference,
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