How Does Information Technology Improve Business?

As we continue to evolve, the role of information technology in businesses will continue to change. In an age of globalization, information technology is creating interrelationships between different industries. Two notable examples are the merging of telecommunications and computers, which will have profound implications for both industries. For example, AT&T is using its position in the telecommunications industry as a staging point for entry into the computer industry, while IBM recently acquired telecommunications equipment maker Rolm. The growth of interrelationships among industries like office equipment and financial services is rooted in information technology.

In some industries, information technology has increased the power of buyers. The development of automated bills for materials and vendor quotation files makes it easier to evaluate sources of materials. However, some new information technologies have increased the barriers to entry in certain industries, including banks competing in cash management services. Banks using computer hardware and advanced software may need to improve their computer systems to compete with other financial institutions. Information technology can improve product performance by enhancing information content.

Another way that information technology improves business is by creating new businesses within existing industries. By enhancing the ability to coordinate with suppliers and buyers, companies can generate new revenue streams. One example is the large drug distributor McKesson, which equips drugstores with terminals so that customers can easily order and receive medications from different stores. Such an approach can improve a company’s competitive advantage by lowering its costs and increasing its scale.

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