15.

566
Information Technology as an Integrating
Force in Manufacturing
Session 1 of 25

MASSACHUSETTS INSTITUTE OF TECHNOLOGY

Sloan School of Management

Prof. Brian Subirana

(*) Some of the transparencies used in these sessions are based on slides used by the IT group in previous years

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 RETURN ON INVESTMENT OF TECHNOLOGY
In manufacturing, computer capital ROI is 10 times bigger than other
capital ROI

• Manufacturing
– Computer capital 54.2%
– Other capital 4.1%
• Manufacturing and service
– Computer capital 68.7%
– Other capital 6.9%

Source: Study by Brynjolfsson over a four year period

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 The information value chain
Business Perspective

CONTENT
CONTENT PACKAGING
PACKAGING DISTRIBUTION
DISTRIBUTION
Storage
Storage Processing
Processing Networks
Networks

• Cosby-show • Movie studios • Satelite anthenas

• Actors • Editors (music, • Cable operators
• Directors movies, newspapers, • TVs
• Barney encyclopaedias etc.) • Telcos
• Writters • ESPN • VCRs
• MRI equipment • BBC • Newspapers distributors
• Fotographers • TVE • Bookstores
• Game producers • Multimedia studios • Internet

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 The information value chain
Technical Perspective

STORAGE
STORAGE PROCESSING
PROCESSING NETWORKS
NETWORKS

• RAM • ASP • Internet

• ROM • PDS • Satellite
• CD-ROM • Mainframe • ADSL
• Datawarehouse • PC Appliance • WLAN
• Memory stick • PC • UMTS
• Flash memory • Mobile phone • GPRS
• Removable media • GPS receptor • Infrared

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 The information value chain
Business Perspective Expanded
DISTRIBUTION
CONTENT PACKAGING
channel final user

ENTERTAINMENT
AIR TV

TRANSACTIONS

PHONE

INFORMATION EDITING NAVIGATION CABLE

ATM
PERS. COMMUNICATIONS

SURFACE COMPUTER
LEARNING

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 New Technologies change very rapidly (cont.)

“Moore’s Law”

Computers: Cost in $ of 1
instruction per second; 1975 = 100

IBM host
100

Digital VAX
10
Cray 1
1 Sun Micr. 2
IBM PC
0,1
Pentium
0,01
Pentium II
0,001 Pentium III
1975 1980 1985 1990 1995 2000

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 Expressing Memory Capacity

• Measured in bytes (=groups of 8 bits)

• Each byte can store a binary number from 00000000 to
11111111 (255 = 28-1)
• More generally: n binary digits can store numbers from 0
to 2n-1
• Frequently used multiples:
– Kilobyte (KB) = 1,024 (210) bytes
– Megabyte (MB) = 1,024 KB = 1,048,576 (220) bytes
– Gigabyte (GB) = 1,024 MB ~ 1 billion (230) bytes

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 Phone costs: Cost of a 3minute call
between New York and London
1990 constant $
250

200

150

100

50

1920 1940 1960 1980 2000

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 Growth in Internet Host Computers and Major
E-Commerce Developments

See: OECD, 1998

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 Evolution of the Internet

• 60’s:
– DARPA (Defense Advanced Research Projects Agency)
• 1969:
– ARPANET interconnected 4 large hosts
• Early 80’s:
– 100 hosts in ARPANET. Other networks appear
• 1982:
– Adoption of the TCP/IP as de facto standard
• 1983:
– Interconnection of several networks. The Internet is born
• 1986:
– NSFnet (network from the National Science Foundation)
interconnects 5 of the largest supercomputers in the USA
not to depend from the Defense Secretary. Use TCP/IP.

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 Size and Bandwidth for some applications

Mbps
Size Bandwidth
Mby Movie Mbps
10000 Symphony Fiber O. 10000
1000 Coaxial 1000
Newspaper with pic. HDTV
100 100
High resol. picture
10 Twisted Pair 10 TV
Novel
1 1
Newspaper (text) Voice
0.1 0.1
Bank statement Music
0.01 0.01 Videotext

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 How much space does your life take?

Storage
In other words, one hour “uses”
64Mbytes/28=2,29Mbytes or
Bandwidth 2,29X8=18,32Mbits
(this is similar to a single MP3 song)

Processing power

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 Internet Adoption Rates vs. Other Mediums

Internet as Mass Medium — North American Adoption Curves

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 TECHNOLOGY RATE OF CHANGE –
MANUFACTURING PERSPECTIVE

If Rolls-Royce product and manufacturing

progress 1950 - 2000 matched computer
progress, then a Rolls-Royce would:
– Cost $4
– Capacity 120,000
– Mileage 40,000,000 Miles Per Gallon
– Maximum speed 400,000 Miles Per Hour
– Size 1 Cubic Foot
– Weight 0.05 Pounds
– Repairs Once every 1000 Years

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra
 Difficulties to predict the future

All that can be invented has been invented

Charles Duell. Director U.S. Patent Office, 1899

This craziness for the radio will die soon

Thomas Edison, 1922

There is a world market for about five computers

Thomas Watson, IBM chairman, 1943

In the future, computers will not weight more than 1,5 tons
Popular Mechanics, 1949

There is no reason for anyone to have a computer at home

Ken Olsen, president of Digital, 1977

64K will be enough for anybody

Bill Gates, president of Microsoft, 1981

Prof. Brian Subirana, MIT Sloan School of Management and IESE Business School -University of Navarra