IT as a Driving Force

19 Mar
March 19, 2013

Information and communication technologies (ICT) are particularly crucial to this trend, because business processes revolve around them. Businesses exist as a type of organization to reduce frictional losses as much as possible and make transactions more concentrated in our economy based on a division of labor. A central accomplishment of ICT is that it reduces coordination and transaction costs.

Technological change and the spread of technology have a key role to play. Back in the 1960s, Gordon Moore predicted that semiconductor performance would double every 18 months with no increase in costs. This prediction, known as Moore’s law, highlights the dynamic speed at which IT develops. Robert Metcalfe posited the theory for a telephone network that the benefits of a network increase with the number of its participants – namely for every already existent user. By extension, a computer operating system is all the more valuable as more people opt for it, because there are all the more additional programs available for it. Every additional participant in a network increases its value, which, in turn, attracts additional users. This thesis vividly explains the success stories in the spread of information technologies such as phone, fax or the Internet.

As transaction costs for businesses decreased and continue decreasing, new more efficient forms of organization, business processes and value chains become possible – provided, of course, businesses always select a medium for their transactions that is the most cost effective and efficient.

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