"Impact of information capital on enterprise efficiency"

mag.oec. Sasa Aksentijevic, univ.spec.oec, ph.d. cnd.ICT forensics court expert Nova Gorica, Slovenia, November 2011.

• What is capital?

• Production factors: capital, land, labour, organization• Forms of capital: physical, financial, human, social, individual, natural, public, intellectual …

• What is information capital?

„Enterprise information capital can be defined as non-material form of capital whose usage in business activity acts as a catalyst in production of goods and services, and it is represented by classified information and knowledge stored inside information and documentation systems of

the enterprise.”

• What is the relation between data, information, knowledge and business strategy?

• Information capital management principally consists of two mutually connected activities: information security management and knowledge management

Business strategy

Knowledge

Information

Data

• What is productivity? -> efficiency of production = input/output• What is cost-efficiency? - > produce most effect with least cost, avoid waste• What is profitability? -> ability to generate earnings compared to expenses

• What is (economic) efficiency?

„use of resources so as to maximize the production of goods and services”

Key question: which resources?

Two resources considered in classical model: labour and capital

Dilemma: is information capital pertinent to labour or capital?

Solow residual

Robert Solow defined rising productivity as rising output with constant capital and labor input.

It is a "residual" because it is the part of growth that cannot be explained through capital accumulation or the accumulation of other traditional factors, such as land or labor. The Solow Residual is procyclical and is sometimes called the rate of growth of total factor productivity.

Solow`s residual is therefore a useful tool to show the effect of so called “technology” growth, as opposed to “industrial” growth.

Annual growth rate of technology:

Solow Residuals and output growth:

In 1987, after receiving a Nobel prize, Robert M. Solow said “You can see the computer age everywhere but in the productivity statistics." This has since been known as „Solow productivity paradox“ – and usually interpreted that the productivity of labour has not risen after information technology has been introduced in industry and across enteprises. Empirical evidence is that usage of new technologies boosts output in industry and office evironments but such evidence cannot be confirmed by growth indicators. It is interesting that exactly after 1970s, when computerization and usage of information science and capital was really booming, the productivity has fallen down or at best, stagnated, as shown in table 1.

Productivity growth (%) in some world countries and associations 1960-2007:

Trend in output per hour for EU-15 and U.S.A. 1981.-2004.:

Processes that involve intensive application of information capital are those that are somewhat remote from “real economy” processes and production (even though deployed technology in production process necessarily depends both on innovation and underlying processes). That is why information capital enhances underlying processes, but that does not translate into real productivity increase, neither in labor nor in capital sense, Similar analogy has been noted by some other authors. For example, economist Paul David did not approve Solow’s position on this paradox and claimed that the problem was a lag in productivity improvements since a new technology is introduced until it produces tangible results. He underlined his opinion by drawing analogy with introduction of electric motor in 1880. whose impact in statistics was negligible until 1913., Finally, it is possible that information capital and innovations do not significantly contribute to overall productivity of labor and capital. Some economists have proved that information technology related capital accounts for less than two percent of used capital in the world. Paul A. David: “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox”, The American Economic Review, Vol. 80, No. 2 , p.355-357

Innovation stagnation? Tyler Cowen: The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better

„When Ford and General Motors were growing in the early part of the twentieth century, they created millions of jobs and helped build Detroit into a top-tier U.S. city. Today, Facebook creates a lot of voyeuristic pleasure, but the company doesn’t employ many people and hasn’t done much for Palo Alto; a lot of the “work” is performed more or less automatically by the software and the servers. You could say that the real work is done by its users, in their spare time and as a form of leisure. Web 2.0 is not filling government coffers or supporting many families, even though it’s been great for users, programmers, and some information technology specialists. Everyone on the Web has heard of Twitter, but as of Fall 2010, only about three hundred people work there.” Let’s go down the list and look at the (approximate) employment figures for some of the top Web companies: Online Industry Employment Levels

Google—20,000 Facebook—1,700+ eBay—16,400 Twitter—300

A recent study found that the iPod—a nearly ubiquitous device—has created 13,920 jobs in the United States, including engineering and retail.”

„But what gives value to information?

Answer: it is traditionally a market that establishes the value as a price

Noticeable difference between Cost and Value of information!

Cost: is easy to measure: market price, man x hoursValue of information: is relative, variable and very hard to measure

There is no real argument to increase investments in Information Infrastructure if the value of information cannot be assessed”

The Value of Information, George A. Fodor, ABB AB, Sweden

"Impact of information capital on enterprise efficiency"

… for those still alive …