Digital Economy as an Innovative Configuration of the Economy - Literature review Example

Literature Review on Digital Economy Digital economy is a latest as well as innovative configuration of the economy. It is the result of the digital revolution penetrating all over the society and economy. This economy fuelled by the “constant innovation of digital technology and escort with society knowledge, digital technology innovation hence ended with the development of the new economy” (Arthur, 2011, p. 92). As a result, one can afford the authentic stuff of the digital economy. Nonetheless, when consumers make a purchase by the internet, they think about several issues, these issues take account of costs, security, confidence and confidentiality. Online business dependability as well as conviction in the Internet medium revealed important link with overall trust in e-commerce. There have always been incredible prospects for the betterment of the world in the field of information technology. However, the full potential of IT is still untapped because many problems, linked with internet, took place in the last couple of years. It has been reported that the prospect of IT making a huge impact was considered thoroughly by the officials, but all of these consideration stayed unsuccessful (Waldfogel & Peitz, 2012). In 1990, when IT started to modernize the global economy, analysts witnessed another IT related blow with the “dot-bomb” implosion, the economic downturn in 2001, and the failure of NASDAQ1. These failures negatively affect the confidence that professionals have in the information technology and digital revolution. This technological tool was assessed by Nicholas Carr (2003, pp. 10) who declared that the enhancements that it could bring had been initiated already or in the process - it showed the general view of IT at that point, as people were calling it unimportant and irrelevant for individual businesses and also for the overall economy. However, this point was made impulsively and was wrong; because the technology continue to entirely transform the economy to great extent as compared to the preliminary estimates. This literature review examines the causes of this uncertain attitude; as it can be noticed at the moment that digital progress within the economy is on a point that goes far beyond what has been predicted previously. Nonetheless, this progress has not occurred because of an increase in e-commerce along with other aspects linked with internet; the key cause of this revolution was the approach by which IT was accepted and implemented in more or less all phases of personal as well as professional life. This digitally enabled financial system can attain enormous development as well as affluence in every field. The main cause of this hastened development was the amount businesses were spending and are ready to spend on software, hardware, besides other IT and communications related services. The enormous part that IT played in this huge economic progress is shown by the 67 percent of total factor productivity expansion from 1995 to 2002 because of the implementation of IT in USA (Jorgenson et al, 2005). It furthermore benefitted the labor efficiency in developing countries, and it is thought to be the major driver of modernization as well as efficiency at the moment. There has not been a lot of research looking at the extent of this involvement regardless of the huge IT contributions to the economy. This literature will help in looking into this topic thoroughly and will highlight the role of IT in the betterment of goods and services. Economic development and technology are inextricably connected (Orlikowski & Iacono, 2000). Existing economic situations are encouraging investment in technology as developing markets increase their demand for technology to stimulate development, and highly developed markets try to find innovative methods to reduce overheads and bring improvement (Brynjolfsson & Kahin, 2002). This turns out to be a lucrative circle, as digital technologies drive consumer earnings and demand, learning and schooling, and resourceful utilization of funds and resources - causing better economic progress, mainly in developing countries. A general misunderstanding is that the extent of digital economy is restricted to business dealings done by using internet; however, as a matter of fact, it incorporates every application of technology within the economy, together with that of hardware, applications, and telecommunications. All these IT related tools has significant use in intercompany operations, information handling, and retailer and customer dealings. Businesses are benefitted from these gains no matter whether they are in the public sector or the private sector. The development that economy witnessed after the addition of information technology is similar to the development witnessed by the economy when hardened steel was introduced in the industry and taught them the way to build steel tools (Shaw, 2006). It is tricky to get hold of the actual occurrence of IT around the globe. It is not merely present in PCs, mobiles, and digital cameras; it is also present in household goods as well as in engineering goods. The extent of IT application is evident by the fact that in the year 2006, around 70 percent of the microprocessors were sued in common, everyday stuff like TV and automobiles instead of PCs, providing these items with the practicality as well as connectivity of a PC, making them to develop network with similar tools by using a technological system. In addition, this technology is less costly and user friendly, therefore hastening the growth to a large extent. It has been revealed by the studies that these gains of technology in increasing economic efficiency were not easy to grasp at the start. This process was made simpler as well as easy by IT users after they discovered several methods in which technology could enhance the competence as well as efficiency of their practices. It becomes further easier as the rates of IT execution reduced year by year (Cohen et al, 2001). This awareness has as well been a great help in fuelling the progress during the past 40 years, taking it to the level where it is not possible to count every innovative use of technology around the globe. There were a number of societal, political, and economic aspects behind the increase in the application of IT but the key aspect, supporting this persistent growth of IT was the steady improvement of reasonably priced, original, and easy to use technology. In addition, the quality of life has enhanced significantly by IT and this does not include only the better competence in production, but the betterment in quality of goods and services as well by offering improved information regarding the quality and by enhancing the possibility of customization. It helped them to acquire data competently regarding the ways of making the quality of their products better, and told them to modify products in accordance with particular requirements of every consumer. By adopting these approaches, IT has significantly assisted the companies to have continuing and lucrative contact with their clientele. The influence of the Internet stays in its “ubiquitous presence” (Kim et al, 2014, p. 172) as well as capability to offer economical and standard way for content exchange, synchronization and cooperation. Quality Monitoring According to the analysis of literature, IT has facilitated businesses to control its production related processes, which, in turn, enhances the quality of the products by reducing incompetence and inaccuracies. For instance, it can be of immense help for hospitals; by using only a single control panel, one individual can check a number of rooms simultaneously. This sort of application helped two ICUs2 in Norfolk, and the hospital enhanced the quality of their services by cutting down their costs by 25 percents and reducing total deaths by 27 percent (Mullaney, 2006). Besides, proper use of IT reduces the time initial prep time for patients so that they can quick medical assistance (Gabor, 2004). This betterment of service quality, attained by IT application, also includes government. They are capable of evaluating their arrangements and assess themselves by means of programs like Baltimore’s City Stat program. Supported by the New York COPS program, it facilitates the government in classifying various forms of necessary information into functional form (Hill, 2006). Making executives responsible for their own divisions is among the major techniques by which City Stat improves effectiveness. These executives can then forward the responsibility to the front-line managers. In this way, not just the transparency of the government will increase, but it will support the citizens as well to reduce waste-credit Alert Interactive Voice Response System, is good example; it is a HUD3-initiated Federal government record and it facilitates lending agencies of the Federal government to do credit verifications about their clientele. By doing this, they can avoid permitting mortgages for FHA4 insurance to individuals who have a record of non-payment. In 2005, a survey was conducted which proved the significance of IT. This survey showed that yearly, 44000 to 98000 individuals expires as a result of unintended drug use. It also revealed the way IT implementation within the healthcare sector can save up to two million of such deaths (n.d, 2005). It also quite helpful for the after sales service; for instance, RFID5 tags are connected to parts that Boeing sells for its latest Dreamliner, which includes important facts and figures which are necessary for after-sales services (Hill, 2006). This information on tags consists of record of that part, its production places and the production date along with the last serviced date. This information makes it simpler for the client to use the after sales services accessible to them if the need arises. In addition, the inclusion of GPS6 facility helps companies with fleets to enhance the effectiveness of their systems. It assists them in staying updated constantly, and about the wasteful miles per gallon being utilized on every point, so that they can rectify any error in the system without delay (Singh & Kehal, 2005). IT also assists the clients in staying in touch with the quality of various products presented in the market for sale. This raises the level of competition between companies as they are then made to struggle against one another to make the better quality product. This benefit did not exist earlier than the application of technology on such a huge level. Businesses could market their products without trying to make them of the premier quality, since consumers did not have a sufficient level of information at all times regarding the quality that various businesses offer. They would only come to know about the poor quality of the product once they have made the purchase, and even then, would have no way to discuss their bad experience with that company’s goods with anybody they knew. Alternatively, the business would as well be powerless to get any response from its clientele (Stross, 2006). Nonetheless, IT has now made online surveys and forums feasible, by the help of which these clients can share their evaluations regarding product quality with not just with other clients, but with the company as well, who will make use of this comment successfully and avoid additional bad appraisals. It is because of this reason that merely two percent of firms told the European Union that IT has had a negative effect for them; with over half saying that, it has had a positive effect. Besides, in view of the fact that the clients can now talk about their views as well as experiences about the quality of products, it consequently facilitates other potential purchasers to be more responsive towards the negative and positive aspects of their purchase. This sort of rating methods can be seen on nearly all major websites, for instance, eBay, Amazon, and Netflix. They not just facilitate the customer in staying up to date regarding the number of products available in the market, but also inform about the company that provides the most excellent quality or the economically priced products. A very appropriate example of this was of a repair worker from Comsat was found to be in his working hours. The irritated client did not have to forward a formal letter of objection that would finally have no result. As an alternative, he wrote his opinion online, and within the matter of minutes, other customers knew about this and the company. Comsat started to rectify this immediately was soon able to overcome the damage that had been done to their reputation and status (Hill, 2006). In the same way, when a client is annoyed by AOL’s recorded telephone service, he wrote about his experience on the internet and almost immediately, the world was aware about the ineffectiveness and bas quality of AOL’s customer service, warning them to stay cautious in future and not to repeat the mistake (Stross, 2006). Mass Customization Economic specialists mostly identify standard of living by the amount of alternatives a customer has within the economy. More alternatives indicates that every customer has more of a possibility of getting a product within the market that will go well along with his or her personal preference as well as requirements (Schwartz 2004). IT is extremely helpful for an economy in expand the alternatives it provides to its clientele, by cutting down the cost of doing so and causing the “long tail”, as Chris Anderson from Wired Magazine termed it. In addition, Anderson (2004) indicates that because of internet, the marketplace now has potential for even the most incomprehensible and difficult to understand products. Brynjolfsson et al (2003) give details regarding this point, by talking about the way Amazon.com can include more or less 2.3 million books within its centralized record, while even an extremely huge physical shop can include 100,000 books at the most. As a result, Amazon can include even the books that are not sold for an entire year. Only this can assists them to get a further benefit of around 731 million dollars to 1.03 billion dollars. This trend can as well be found in music and film industries, in addition to any other product, which can be traded online. For instance, Posters.com holds more than 300,000 posters in collection and Ties.com includes over 2500 different ties in stock. Netflix includes more than 65,000 movies in DVD for online charge, while a physical video rental shop could contain 3000 movies at the most. Besides, Rhapsody is capable of selling music online, from which 40 percent cannot even be found in physical music shops. Online video viewing service YouTube has also increased viewership of videos to a significant extent. More or less 70 million videos are being watched everyday by online users; helping users to network with other customers to talk about their experiences or to market their products. An ideal example of people can be benefitted from this is an Indie band ‘Clap Your Hands Say Yeah’ (Anderson, 2004). They sold more than 0.1 million copies of their album and have not bought even a single record deal. Another example is a video of Chris Bliss in which he has given a terrific juggling performance. This video stayed unobserved until 2006; after someone shared it on YouTube it turns into a viral success with more than 20 million views. Although the Americans gained a lot from these aspects of the internet, more or less 60 million of these Americans are not even living in the big city centers; these customers would definitely be at a major drawback in the absence in internet because they would not many large stores in the vicinity, which limits their buying options. Nonetheless, by using the internet, these consumers have approximately 30 times greater shopping options as compared what the residents of even a large city New York have. A rancher living in Wyoming can view and buy the same collection of songs and books via iTunes and Amazon, as anyone else from around the globe. In addition, the internet has made it feasible for these customers to get benefit for the services without being actually visiting the shop. They can sign up for online education, and can even have telephonic discussions with physicians while living in secluded, rural regions. Moreover, IT is not just helpful in enhancing consumer choices, but it is also a great help for a mass manufacturer integrating customization into the production process. With no technological support, modifying a product that has been produced would require a great deal of time, effort and money. However, with the idea of ‘mass-customization’, a manufacturer can now mass produce the goods and can move forward by leaving one aspect of the product that has to be customized; making the customization process a lot more resourceful, as the remaining product can then be completed quickly in accordance with requirements of the customer. Earlier, it was considered necessary to remove and change machines whenever a fresh function has to be included in the process. Offices faced a lot of trouble in completely reprogramming their systems whenever a latest application required execution within the system. However, IT has solved this problem as well and made companies capable of putting up ‘flexible’ factories and offices that are helpful in dealing with these changes with minimal trouble. Some experts (Bartel et al, 2005) verified this benefit by conducting research on companies who had shifted from mass-production to production in comparatively smaller batches and noted that it enhanced customer feedback significantly. Clothing and shoes businesses can as well gain benefit from this by offering their consumers with outfits and footwear customized for their particular sizes as well as designs. Service sector companies can also be benefitted in the same way. A study by Edelberg (2003) revealed that lenders were capable of finding consumers according to individual risk evaluation, which allowed them to propose lower rates. This was only feasible because of the more storage space along with underwriting technology during 1990s. This feature gets a lot of appreciation from businesses around the globe, in introducing online payments and creating accounts for customer. Conclusion Conclusively, the literature review was an attempt to identify different academic sources to understand the notion of digital economy that is an innovative configuration of the economy and the analysis has indicated that it is continuing to flourish extensively, which justifies the recommendation of further detailed research into the topic that will enable a comprehensive understanding of it. In addition, the literature review found out that the progress of digital economy has not only been solely because e-commerce development but because of several other aspects with which internet connects humans with different paradigms personally and professionally. The literature review also identified an inextricable connection of technology with economic development that has resulted in a profitable circle where consumer earnings and demand are now determined by utilization of digital technologies rather than conventional modes of supply. Another misconception identified from the literature review was restriction of digital economy with business procedures and business transactions, whereas digital economy now entails every aspect of utilization of technology involving sectors of telecommunications, residential applications, education, health, etc. Moreover, the progress of digital economy has not been an easy one and was engulfed with lots of barriers and issues that were resolved gradually with the help of trained and competent experts from the IT sector. One of the major barriers was absence of simplicity in IT technologies that was not allowing easy access and utilization by the masses; however, resolution of such barrier has resulted in a rapid advancement of the digital economy in developed, as well as developing countries. As the result, studies have indicated significant enhancement in the overall quality of both personal and professional lives globally. Finally, it is anticipation that future researches in this regard will allow a more comprehensive and updated understanding of the digital economy. It is an expectation that the literature review will be beneficial for students and professionals in better understanding of the topic. References Anderson, C. 2004. “The Long Tail.” Wired Magazine. Retrieved on March 10, 2014: www.wired.com/wired/archive/12.10/tail.html Arthur, W. B. 2011. “The second economy.” McKinsey Quarterly, 4, 90-99. Retrieved on March 10, 2014: http://www.mckinsey.com/insights/strategy/the_second_economy Bartel, A. P., Ichniowski, C., and Shaw, K. L. 2005. “How does information technology really affect productivity?” Working paper 11773. New York: National Bureau of Economic Research. Retrieved on March 10, 2014: http://www.nber.org/papers/w11773 Brynjolfsson, E., & Kahin, B. (Eds.). 2002. Understanding the Digital Economy: data, tools, and research. MIT Press. Print. Brynjolfsson, E., Smith, M. D., and Hu, Y. 2003. “Consumer surplus in the digital economy.” Working Paper 4305-03. Massachusetts: MIT Sloan School. Retrieved on March 10, 2014: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=400940 Carr, N. G. 2003. “Does IT matter?” Harvard Business Review. Issue May 2003. Retrieved on March 10, 2014: http://www.johnseelybrown.com/Web_Letters.pdf Cohen, S. S., Delong, J. B., Weber, S. and Zysman, J. 2001. “Tracking a transformation.” BRIE-IGCC E-conomy Project Task Force. Washington, DC: Brookings Press. Print. Edelberg, Wendy. 2003. “Risk-Based pricing of interest rates in household loan markets.” Federal Reserve Board. Retrieved on March 10, 2014: www.federalreserve.gov/PUBS/feds/2003/200362/200362pap.pdf Gabor, A. 2004. “Running a hospital like a factory, in a good way.” The New York Times. Feb 22 Issue. Retrieved on March 10, 2014: http://www.nytimes.com/2004/02/22/business/business-running-a-hospital-like-a-factory-in-a-good-way.html Hill, M. 2006. “Asleep at the wheel.” The Philadelphia Inquirer. June 24 Issue. Print. Jorgenson, D. W., Ho, M. S. 2005. Productivity Volume 3. Cambridge: MIT Press. Print. Kim, T. Y., Kim, E., Park, J., & Hwang, J. 2014. The faster-accelerating digital economy. In Economic Growth (pp. 163-191). Springer Berlin Heidelberg. Print. Mullaney, T. J. 2006. “The Doctor is plugged in.” BusinessWeek. Retrieved on March 10, 2014: www.businessweek.com/magazine/content/06_26/b3990076.htm n.d. 2005. “The No-Computer Virus.” The Economist. April 28 Issue. Print. Orlikowski, W. J., & Iacono, C. S. 2000. The truth is not out there: An enacted view of the digital economy. Understanding the Digital Economy: Data, Tools, and Research, 352-80. Print. Schwartz, B. 2004. The Paradox of Choice. New York: Ecco. Print. Shaw, M. 2006. E-commerce and the Digital Economy. M. E. Sharpe. Print. Singh, V. P., Kehal, H. S. 2005. Digital Economy. Idea Group. Print. Stross, R. 2006. “AOL said, ‘If you leave me I’ll Do Something Crazy.’” Amherst Times. July 02 Issue. Print. Waldfogel, J., Peitz, M. 2012. The Oxford Handbook of the Digital Economy. Oxford: Oxford University Press. Print. Reflective Diary As a student of business studies, I can impossibly keep myself away from the role that technology has been playing in different processes of businesses globally. This project in the form of literature review on particularly ‘digital economy’ enabled me to learn about various aspects that were not in my knowledge earlier. I daily use different technological appliances and applications on daily basis, and I frequently see the way business organizations utilize different technologies in their day-to-day processes from hardware to software; still, my knowledge was limited before this task. In this regard, this literature review task allowed me to broaden my understanding and that really encouraged me to reflect on my own preconceptions about the role of technology in the business world, and subsequently in other aspects of human life directly and/or indirectly. Although this task was not easy at all but proper planning and my effective management skills helped me in completing this task before the time that gave me enough time to proofread and revise the task where needed. For fulfillment of requirements, I firstly carried out rough preview of the topic that helped me in grasping basic understanding of the topic, which then facilitated me in identifying different academic sources, such as books, online magazines, websites, journal articles, working papers, etc that were very useful in completion of this literature review. Particularly, I enjoyed learning about the current role of technology and the way digital economy is blooming on such an extensive spectrum. However, at the same time, I came across a huge number of resources related to digital economy, and the task became a challenging one in presence of several resources; some of which were useful, some were repetitive while a few were not useful but consumed my time. Briefly, I enjoyed carrying out the task that enhanced my understanding related to the topic and will be useful in the future as well. Read More