The Diffusion of IT in the Workplace

10 May 2007 at 12:17 am Peter G. Klein 2 comments

| Peter Klein |

Much research on information technology focuses on the IT sector itself (software, computer hardware, telecom, biotech). Less attention has been paid to the effects of IT on the rest of the economy, particularly “old economy” manufacturing and service industries. (Erik Brynjolfsson’s work constitutes perhaps the most prominent exception.) And yet we know that IT has had a significant impact on a range of industries including steel, machine tools, trucking, and banking.

One of the first book-length, single-industry, long-range studies of the effects of IT on workplace practices is JoAnne Yates’s 2005 book Structuring the Information Age, an analysis of the life-insurance industry over the last hundred years. As noted by Thomas Haigh, reviewing the book for EH.Net, life insurance is a conservative, heavily regulated industry concerned primarily with stability, not growth. But because its main activity is processing paperwork, improvements in record-keeping and information processing have always been critical to the industry’s performance. Life-insurance firms have been not only early adopters, but also creators and developers of IT. During the 1920s and 1930s they were the first to add printing capabilities to the tabulating machines that had been around since the 1890s and to develop the ability to process letters as well as numbers. From the 1940s to the 1970s they were among the earliest adopters of digital computing.

Writes Haigh: “I hope Yates succeeds in her stated aim of convincing historians that businesses can be creative users of technologies. We would all benefit if it can also serve what must have been an implicit aim: to remind business school faculty that history explains a great deal about how technology does and doesn’t work when applied within an industry.”

Entry filed under: - Klein -, Business/Economic History, Recommended Reading.

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2 Comments Add your own

1. Dick Langlois | 10 May 2007 at 1:05 pm

This is really a comment on both Peter’s post here and the subsequent one by Chihmao. Peter reports on JoAnne Yates’s work on IT in large multidivisonal firms in the early twentieth century, whereas Chihmao reports that modern IT seems to make firms smaller. As I like to point out, however, there is some endogeneity to this in the medium to long run. The dominance of large vertically integrated firms in the early twentieth century tended to bias technical change in directions that reinforced that structure: tabulating machines, filing cabinets, carbon paper, mainframes all helped to solve the information problems of large firms, which in turn increased the advantage of large firms in information processing, which created additional profit opportunities for reinforcing innovation, and so on. The same presumably with scale-destroying technical change. The interesting question is why technology switched from one regime to the other.
2. Peter Klein | 10 May 2007 at 1:18 pm

I certainly agree with Dick. Moroever, even in a simple, “static” transaction cost framework, the net effect of IT on firm size is ambiguous (see the discussion here. More generally, the relationship between technological change and firm organization is subtle and complex, as work by Dick and others nicely illustrates.