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Business Competitiveness
The business world is possibly the area in which reflections on the use of knowledge and information will have the broadest application and development. Since the mid-1970s, large industrial groups around the world have responded to diminishing rates of return with efforts to retool their productive processes and implement the concept of "intelligent organizations", knowledge management, and other changes. Industries such as the Toyota group and Volvo have been leaders in this process, and today are some of the many businesses whose productivity increases are largely due to ongoing reengineering efforts based on knowledge management. By the same token, the role of information carries considerable weight in the financial sector, and major decisions are made with the help of complex, instantaneous information flows.
The rapid decline in the cost of information and communications technologies (ICTs) allows more generalized access to information, and simultaneously transforms an organization’s ability to process and disseminate it as an important source of progress. Thus, we can foresee that in the short term, the large majority of productive units will utilize the capture and internal management of information and knowledge as the key to their competitive advantage, as important as labor productivity or natural resources. Therefore it is important –and to a certain extent urgent– to analyze priorities for the Salvadoran business sector in terms of the use of information and knowledge.
Reducing transaction and intermediation costs
Inefficient markets require a broad array of intermediaries to transport, store, collect payments, guarantee, oversee, report, and so forth. Computers and connectivity allow for significant improvements in market flows, by facilitating the following functions:
These advances allow for better, cheaper, and more secure business procedures. At the same time, as computerized systems become increasingly involved in certain functions, the role of intermediaries tends to decline or change; we can expect to see the gradual disappearance of a significant proportion of traditional, non-productive intermediaries in terms of paperwork, payment collection, and others. At the same time, reduced transaction and intermediation costs will make products more competitive and diverse, as barriers to market entry decrease.
Electronic commerce
One of the preferred instruments of these market transformations is electronic commerce[3], which offers a considerable potential for growth, as well as business opportunities for a broad range of productive sectors.
Internationally, the businesses which have most benefited from retail electronic commerce are computer-related goods and services[4]; tourism, entertainment, and leisure (purchase of books and music); clothing (replacing catalogue sales); and gifts (because the Internet makes it easy to separate the billing from the shipping address). The total volume of Internet sales projected for 1999 is approximately $18 billion for retail alone, and will probably be four times higher for business-to-business commerce.
Of course, setting up a complete marketing chain using the Internet[5] could become costly and requires heavy investments in areas such as secure payments, on-line transaction processing, just-in-time production and delivery, inventory management, and mail and messaging. This type of investment is still out of reach for most Salvadoran businesses, and can probably not be justified at this time.
However, there are crucial links in the electronic marketing chain in which even small and medium-sized business can invest rapidly, and which will help boost volume of sales. A business related to tourism, for example, could post a descriptive Website, and the addition of on-line reservations would not be too costly. Craft associations could work together to find distributors for their products on line. More generally, Web-based publicity for products and services is more economical and flexible than designing, printing, and mailing out expensive catalogues which go out of date in a short time.
Market intelligence
Access to information on external markets, and analysis of those markets, is another fundamental component of competitiveness. Connectivity allows businesses to follow demand trends, regulatory markets, and the quality of supply and competitors’ prices without intermediaries, and in an up-to-date fashion. This is very important for marketing goals, but it can also be used to support strategic planning at the enterprise level, by helping define a series of indicators to compare an individual business with the competition and find ways to close eventual gaps or maintain a competitive advantage.
Service to the public and the client
Diminishing transaction costs in different markets allow not only closer contact with the source of demand, and thereby an opportunity to better match the product or service to the customer’s expectations, but also better service to the client. In computer products and services, for example, on-line help, distance configuration, or frequently asked questions (FAQ) help solve more consumer problems without the need to return the product to the vendor for service. These types of offerings can be developed quickly and applied to many sectors.
In the service sector, consumer information is growing on Websites, and the possibility of on-line transactions is also increasingly at a swift pace, as seen in the case of financial institutions.
Economies of scale in support activities for small and medium businesses
Most activities to support the small and medium enterprise sector are expensive, making it difficult for service centers to sustain their operations. Support is expensive chiefly because the unit cost of each service is high. In this context, reduced transaction and intermediation costs based on connectivity will permit lower service costs per client in these centers, which will allow them to increase their coverage to include smaller-scale clients who were formerly not considered a source of revenue.
New alliances based on knowledge-sharing
Emergence of intelligent enterprises
The use of computers not only improves market functions, but also allows for greater business productivity, through a variety of mechanisms:
But the most interesting and promising area has to do with knowledge management at the enterprise level. The growing complexity of industrial processes over approximately the past two decades has led managers to question traditional modes of production, in which industrial engineers were in charge of organizing both physical flows of products in the factory and the information flows necessary for production. The gradual obsolescence of this organizational model has often given way to experienes in which different hierarchical levels participate in the overall productive process in the enterprise: the traditional dichotomy between those who think and those who execute tends to be replaced by a model of shared and growing responsibility in the organization of the work process.
One of the consequences of this model is the need to design information flows in accordance with the distribution of responsibilities in the company. These flows could be translated into workgroup meetings (quality circles, for example), increased contacts between clients and suppliers, and the massive use of the Internet and other means of communication, both within the enterprise and with the outside world, in order to share and systematize knowledge and thus avoid the cost of constantly reinventing processes, contents, or techniques.
New forms of collaboration among businesses: clusters, alliances, research centers, etc.
The ICT revolution has facilitated better communication with the marketplace and within enterprises, but it has also improved potential relationships among businesses within a same sector or value chain. Knowledge-sharing in an environment of "co-opetition" strengthens the individual members of such alliances or clusters.
Lower transaction costs facilitate the outsourcing of certain portions of processes which were formerly executed within the enterprise, which reduces the incidence of redundant investments in an industry or sector –for example, in the manufacturing of a particular part used by all businesses in the sector. The growing sophistication of different segments of production requires a higher level of specialization which can best be achieved through productive alliances.
The search for enhanced productivity by increasing the mass of information and knowledge which circulates within an enterprise could bring businesses closer to research centers, which are often associated with transformations in forms of production. It is easier today to develop technologies through a collaborative relationship between businesses and academics.
New knowledge-based enterprises
The growing role of information and knowledge in business affairs has also led to the emergence of new productive activities. The technology sector is undoubtedly the fastest-growing result of these changes, with increasingly diversified functions among different businesses in the sector: Website designers, list managers, Webmasters, and the like did not exist just a few years ago. In the same fashion, "search engines" and "brokers" (electronic intermediaries) are proliferating rapidly on the Web. In general, the immense quantity of available information requires people skilled in filtering, processing, and analyzing it. Not only will businesses emerge who specialize in developing knowledge-based products such as software and high-technology components, but there will also be a surge in services dedicated to organizing and systematizing information and knowledge at the organizational, sectorial, and national level.
Notes:
1. Based principally on bar codes. [return]
2. The worldwide credit card network, which has revolutionized retail trade, could never have been possible without connectivity. [return]
3. Electronic commerce is understood in its broadest sense, as commercial transactions using the Internet or other forms of connectivity in marketing (not necessarily the actual sale). See Appendix – "General State of Preparedness for Electronic Commerce." [return]
4. Sale of computer equipment and programs over the Internet. [return]
5. For example, through a virtual bookstore such as Amazon.com. [return]
All rights reserved. Permission is granted to reproduce all or part of this publication as long as the complete source is cited: Conectándonos al Futuro de El Salvador, "Strategy for Building a Learning Society", San Salvador, 1999, http://www.conectando.org.sv/English/Strategy/
