Unit 05: Information Technology and Emerging Trends

Objectives: By the end of this lesson, the student will be able to

1. discuss and describe the different industrial revolutions,
2. describe what is the difference between innovation and invention
3. compute for productivity as an effect of information technology on workers or on the
organization as a whole.

We are living in extraordinary times where extraordinary technologies are within reach from
anywhere, by anyone. We almost always take these technologies for granted because they have
become part of the everyday life of people.

To start with this module, see the presentation for IT Trends: Lesson04GITTechTrends

The rise of information and communication technologies (ICT) – that is, computers, software,
telecommunications and the internet – and the large impact that these new technologies are
having on the way that society functions, have prompted many to claim that we have entered a
new era.

Industrial Revolutions
A period of development in the latter half of the 18th century, where there is change from
one economy to another.

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 Generally, the term refers to eras when rapid and significant technological changes
fundamentally alter the way that production is carried out in society, affecting not only how people
work but also how they live their lives.

Industrial revolution involves technological, socioeconomic, and cultural aspects. It occurs

when technological change fundamentally transforms the way in which a society carries out the
production and distribution of goods.

The changes could be inventions, innovations, product innovations, or process innovations.

The term ‘invention’ refers to the discovery of new products or processes, while ‘innovation’ refers
to the commercialization (bringing to the market) of new products or processes.

INVENTION is the discovery of new products and processes.

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 Machines Telephones Automobiles Television

INNOVATION is the commercialization and improvement of the existing products.

Assembly Lines CD’s Flat Screen TV’s Smartphones

Product innovations result in the production of a new product, such as the change from a
three-wheel car to a four-wheel car, or the change from LP (Long Play/Playing) records to CDs
(Compact Discs). Process innovations increase the efficiency of the methods of production of
existing products, for example the invention of the assembly-line technique.

Here are the different Industrial Revolutions with their products / services, transportation,
production system, and communication.

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 FIRST INDUSTRIAL REVOLUTION - 1765
Started in England during the late 18th century, concentrated in Britain and initially focused on
textile manufacturing.
● Significant evolutions: Cort’s puddling; rolling process for making iron, Crompton’s mule
for spinning cotton, Watt steam engine
● Products / Services – Vegetables, Coal, Iron, Discovery of chemicals
● Transportation – Railroads, Basic farming
● Production System – Manual Labor to mechanical
● Communication - Printed materials

SECOND INDUSTRIAL REVOLUTION - 1870

● Significant evolution: Development of electricity, Internal-combustion engine, Railway,
Chemical industry
● Products / Services – electricity, chemicals, petroleum, steel
● Transportation – automobiles, aircrafts
● Production System – machine-aided equipment
● Communication – telephone, telegraph

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 THIRD INDUSTRIAL REVOLUTION - 1969
● Started with the development of transistors and the rise of electronics and digital
technology.
● Products / Services – Internet, rise of electronics, source of energy: nuclear power
● Production System - Automation

Fourth Industrial Revolution

See Lesson04Video1IndustrialRevolutions.mp4
Klaus Schwab described the fourth industrial revolution as marked by an era of technological
revolution that is blurring the lines between the physical, digital and biological spheres.
Watch Lesson04Video2FourthIndustrialRevolution.mp4

FOURTH INDUSTRIAL REVOLUTION – 2000 onwards

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 IT and PRODUCTIVITY
Economists interested in the pervasive effects of technological change in different
industrial revolutions have devised the concept of a General Purpose Technology (GPT). It is a
technology of wide application used in various industries and whose impact is strong on their
functioning.

Main Characteristics of a GPT

As you read the list, consider how a new technology such as electricity or information technology
fulfils each criterion.

● It must have a wide scope for improvement and elaboration - this means that the
technology does not appear as a complete and final solution, but as a technology that can
be improved through the different opportunities for technological change that surround
it.

● It must be applicable across a broad range of uses - this means that its use is not restricted,
for example, to only one industry but open to many different types of industries and
consumers.

● It must have a potential use in a wide variety of products and processes - this means that
the new technology should not result in the creation of only one set of products (such as a
computer), but a wide set of products (such as complex new air-traffic control systems or
new inventory controls).

● It must have strong complementarities with existing or potential new technologies - this
means that the technology does not only replace existing methods but also works with
them, ensuring an even broader impact on the systems of production and distribution.

Productivity
Productivity is the quality of producing something. It is a measure of the efficiency of a person,
machine, factory, system, etc., in converting inputs into useful outputs. It is an indication of the
efficiency of production or distribution.

The Effect of Technology on Productivity

Labor productivity can be measured as output produced per hour of labor. For example, consider
an automobile factory that is able to produce 10 cars per day using 100 hours of labour. If a new
invention permits those same workers to produce 20 cars in the same amount of time, their
productivity has been doubled.
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 Gross Domestic Product (GDP) - Total monetary or market value of all the finished goods and
services produced within a country's borders in a specific time period. Total output divided by total
labour hours in the year gives us a measure of labour productivity. A 5 per cent growth in UK
productivity over a year means that the UK economy has become 5 percent more productive than
it was in the previous year. This should mean that the economy can produce 5 per cent more
output (GDP) with the same amount of inputs.

Example Computation for Productivity

Question1: If a group of workers produces 10,000 units of output in one year, and 12,000 units
the next year. Calculate the percentage increase in productivity.
Answer:

You want to know the percentage increase represented by the second year's output, 12,000,
over the first year's output, 10,000. Subtracting 10,000 from 12,000 gives us the increase.
Divide the answer by 10,000 to calculate the increase relative to the first year. Then multiply by
100 to turn the answer into a percentage.
2,000
12,000 − 10,000 = 2,000 ; ∗ 100 = 20%
10,000

So, output increased by 20 percent. As the number of workers stayed the same, this is also the
increase in productivity.

Question2: Calculate the percentage increase in productivity if the output expands from 12,000
in year 2 to 15,000 in year 3.
Answer:

Division of Labor and Productivity

The division of labor refers to the degree to which the various tasks involved in the
production of a good or service are divided among different workers.
Productivity increases when the division of labor increases. Increases in productivity can
be transmitted throughout the economy for several reasons:

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 Productivity – Income
Increases in productivity can lead to higher incomes for an economy's citizens. All output
must be transformed, through the process of production and sale, into someone's income (e.g.
the boss's profits and the workers’ wages). Hence, increases in productivity, which allow more
output to be produced by a given amount of inputs, also lead to more income per head, that is,
greater wealth for society. For example, if more cars can be produced due to increases in the
productivity of car production, more cars are sold, which means that the car manufacturers’
revenues increase.

Productivity – Cost of Production

If increases in wages are linked to increases in productivity, then workers’ wages may also
rise (or, at least, their employment prospects may be more secure). Second, increases in
productivity diffused throughout the economy have an effect on prices. Increases in productivity
tend to lower the cost of production, precisely because more output can be produced with the
same amount of inputs. Since cost reductions tend to be translated into price reductions, increases
in productivity eventually tend to reduce prices. Indeed, the introduction of assembly lines made
a substantial contribution to the affordability of consumer durables such as the car. The increase
in income per head and the reduction in prices allow consumers to be better off.

Prices and Industrial Change

How can we look at price changes over time in industries in which the product undergoes
many changes, especially in early stages? We use the concept of the price index. Indices are used
a lot in economics. They are basically a simple way of measuring change.
Price index is a measure of the average level of prices for some specified set of goods and
services, relative to the prices of a specified base period. The most widely used method of
constructing an index is based on the notion of the percentage. An example is provided below.
Suppose that the price of a product is Php 500 in 2000 and Php 750 in 2001 and Php 1000
in 2002. In this simple example, our market basket consists of only one product. Selecting year
2000 as the base year, we can express the prices in years 2001 and 2002 relative to the price in
year 2000 as follows:

The price in year 2000 (base year) is equal to 100 percent

P 750
Price Index: year 2001 = (P 500) ∗ 100 = 150
P 1000
year 2002 = ( ) ∗ 100 = 200
P 500

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 Changes in Industry Structure
Industry structure refers mainly to the way in which power is distributed among firms. This
can be described by factors such as the number of firms in the industry and the distribution of
market shares.

Sustainability of Productivity
Objectives: By the end of this lesson, the student will be able to
1. discuss the impact of game changing technologies on work and employment,
2. summarize the concept of platform economy.

All economies fluctuate in a business cycle. For a few years, growth is quite rapid, output
and incomes rise, and unemployment falls. This is the ‘boom’. Then the cycle turns. Growth slows,
and in a true recession the total output of the economy falls. This is the down-turn of the cycle.
The industry life cycle focuses on those economic mechanisms that cause firms to be born (to
‘enter’ an industry), to grow, and to die (to ‘exit’ an industry).

Industry Life Cycle

The industry structure refers to the characteristics of an industry, such as the number of
firms operating in it, the distribution of power between them (whether some are very large and
others very small, or whether they are all very large), and the degree to which new firms find it
easy to enter the industry).
Mechanisms affecting industry structure include the dynamics of entry/exit, technological
change and falling prices. The industry life cycle is characterized by the following phases:
(examples are set in the year 2018 for reference)
1. A pre-market or hobbyist phase, in which the product is produced more as a hobby or
luxury than for commercial purposes. (e.g. self-driving electric cars)
2. An introductory phase, in which the product begins to be produced more for commercial
purposes than for hobby reasons. (e.g. self-driving cars)
3. A growth phase, in which the industry grows rapidly due to the emergence of a
standardized product. (e.g. electric cars - Tesla Model S)
4. A mature phase, in which demand slackens and fewer technological opportunities are
available. (e.g. ford focus car)

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 Game Changing Technologies
See Work-in-the-Digital-Age-1.pdf pages 133-140
● Advanced Industrial Robotics - Involves machines which are designed to perform industrial
tasks automatically, with high programmability and the capacity to interact with their
environment thanks to the use of digital sensors, usually seen in manufacturing or
production lines.

● Additive Manufacturing - Involving digitally controlled devices to add layer on layer of

material(s) to create objects from 3D digital models. This is usually done in the industrial
sector such as architectural, medical, dental, aerospace, automotive, furniture and jewelry.

● Industrial Internet of Things - the use of connected sensors attached to different objects
throughout the production process to feed live data to central computers, usually seen on
the factory floor.

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 ● Electric Vehicles - vehicles whose main system of propulsion depends on (externally
generated) electricity rather than fuel. (e.g. Tesla)

● Industrial Biotech - the use of biological processes of living organisms for industrial
purposes, drawing on recent scientific insights such as systems genomics and
metabolomics. Uses enzymes and microorganisms to make bio-based products in sectors
such as chemicals, food ingredients, detergents, paper, textiles and biofuels.

Advanced industrial robotics, additive manufacturing and Industrial Internet of Things

involve innovations in the manufacturing production process, and have a very wide applicability
across most manufacturing sectors.
Electric vehicles and industrial biotech concern innovations of specific products (and
related processes), and have a more narrow applicability to particular sectors

Effects of Game Changing Technologies

1. Increasing centrality of (digital) information – information as a key source value
2. Mass Customization – flexible production process with interconnecting objects
3. Servitization – technologies involve the gradual replacement of manufacturing as
traditionally understood by a type of economic activity that is closer to the traditional
concept of services
4. Increased Labor/Resource Efficiency – more efficient use of materials and energy in
production

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 Effects of Game Changing Technologies on Work and Employment
1. Upgrading of occupations
2. Higher level of ICT competence
3. Decline of repetitive and routine industrial work brought about by digital factories

While there are innumerable positives that can be drawn from these Game Changing
Technologies, it is imperative that we also take a look at the adverse effects that these
technologies cause.

Like many other things, there are always two sides of the story. On one end, productivity
numbers received a massive boost thanks to new technologies. On the other end, there
is a question of whether the same numbers are not telling the whole story.

While new technologies, even new applications being downloaded, have made an impact,
some of them have caused other people to rely too much on technology and not develop
their own skills anymore. Technology, in some ways, has become workers of our time
instead of serving as a tool to help us.

Quite possibly, the worst effect of it is the accessibility of such technologies. With only a
fraction of the people in the world having the chance to know how to take advantage of
these new technologies, what happens to those who are not as fortunate?

It matters that we look into all the effects of technology. It is only through looking at the
other side that we can actually discover how to improve what we currently have and
develop new technologies that would benefit everyone.

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 The Platform Economy

See Work-in-the-Digital-Age-1.pdf pages 163-174

A platform is a business that connects people through technology, making an ecosystem
that allows value to be created and exchanged. This works by matching users to each other in
order to make financial or social transactions that create value.

Platforms don’t own the resources that create value, they can grow much faster than
pipeline businesses. These businesses make up a platform-based economy. Some key features of
a platform will include:
● Using sophisticated logistics software for matching and payment
● Providers on the platforms are independent contractors
● Very low barriers to entry for providers on most platforms
● Trust is achieved via crowdsourcing of ratings and reputational data.

Platform Model

The platform model shows three (03) components:

● platform - controller of the channel or platform and arbiter of the participants in the
platform
● consumers/customers - buyers or users of the outputs offered through the platform
● producers/providers - supplier of the outputs sold through the platform

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 References

● NEUFEIND, M., RANFT, F., AND O’REILLY, J. (2018) Work in the Digital Age: Challenges of
the Fourth Industrial Revolution. Rowman & Littlefield International Ltd

The Open University (2016). Information Technology: a new era. Walton Hall, Milton Keynes,
MK7 6AA. https://www.open.edu/openlearn/people-politics-law/politics-policy-people/
sociology/information-technology-new-era/content-section-1

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