Technology and innovation drive productivity, but transaction costs arising from technology implementation limit gains. Analytics and decision science could provide the means to tame transaction costs and improve productivity. Transaction costs were defined by Ronald Coase in “The Nature of the Firm,” published in 1937 and who earned a Nobel Memorial Prize in Economics in 1991.
Access to and sharing of information drives competitive advantage. Businesses often require global sourcing of physical and digital resources and collaborative workgroups often span several nations across the globe. Information flow is an integral aspect of collaborative workflows and global supply chains. Data serves as the foundation for business models where competencies are achieved through analytics. To achieve visibility and granularity into business processes, greater amounts of data are generated.
By reducing transaction costs, advances in technology and innovation can translate into higher productivity; lower operating costs, and a greater supply curve shift. At the same time, the network effect, enhanced consumer utility found with increasing number of users, may push demand.
The takeaways are: 1) analytics provide a process to reduce costs and improve productivity; 2) a process to monitor, measure, and benchmark performance; and 3) enable a firm to assimilate new technologies and manage uncertanties.
How Analytics can Improve Productivity