Research Shows Technology Revolutionizing Business Practices
A new study from the Cornell SC Johnson College of Business advances understanding of the U.S. production chain evolution amidst technological progress in information technology (IT), shedding light on the complex connections between business IT investments and organizational design. Advances in IT have sparked significant changes in how companies design their production processes. In the paper “Production Chain Organization in the Digital Age: Information Technology Use and Vertical Integration in U.S. Manufacturing,” which published April 30 in Management Science, Chris Forman, the Peter and Stephanie Nolan Professor in the Dyson School of Applied Economics and Management, and his co-author delved into what these changes mean for businesses and consumers.
Forman and Kristina McElheran, assistant professor of strategic management at University of Toronto, analyzed U.S. Census Bureau data of over 5,600 manufacturing plants to see how the production chains of businesses were affected by the internet revolution. Their use of census data allowed them to look inside the relationships among production units within and between companies and how transaction flows changed after companies invested in internet-enabled technology that facilitated coordination between them. The production units of many of the companies in their study concurrently sold to internal and external customers, a mix they refer to as plural selling. They found that the reduction in communication costs enabled by the internet shifted the mix toward more sales outside of the firm, or less vertical integration.
The research highlights the importance of staying ahead of the curve in technology. Companies that embrace digital technologies now are likely to be the ones that thrive in the future. And while there are still many unanswered questions about how these changes will play out, one thing is clear: The relationship between technology and business is only going to become more and more intertwined in the future.