Bachelor Thesis, 2013
71 Pages, Grade: B
1.3 Statement of the problem
1.4 Purpose of the research
1.5 Research Objectives
1.6 Importance of the Research
1.7 Research Questions
1.8 The contributions of this Research
1.9 Disposition of the Dissertation
2.0 Literature Review
2.1 Definition of productivity
2.2 Organizational Productivity and Information Technology
2.3 The Productivity Paradox
2.4 How IT promotes Productivity in an organization
2.5 IT prospects for growth in the production process
2.6. IT and Labor
2.7 The coordination of IT and how it promotes production/Firm Output
2.8 The Production Function Model
2.9.1 Business Process
2.9.2 Business Process Reengineering (BPR)
2.9.3 Role of IT in BPR
2.10 IT means for BPR
2.10.1 Enterpirise Resource Planning (ERP) systems
2.10.3 Enterprise Software
2.10.6 Electronic Data Interchange (EDI)
2.10.7 Knowledge Management (KM)
2.10.8 Legacy Systems
3.0 Research Methodology
3.1 Research Process
3.2 Research Design
3.3 Sample Selection
3.4 Classification of Data
3.5 Data collection: Questionnaire
3.7 Pilot Testing of the Questionnaire
4.0 Data Analysis
4.1 Telecommunication Companies in the US
4.1.1 Choice of Data and Information
4.2. Phase I Analysis
4.2.1 Sources of Data
4.3 Phase 2 Analysis
4.3.2 Sources of Data
4.3.4 2-Paired T-test
4.3.5. Data Analysis
4.3.6 Cross Analysis
188.8.131.52 Performance Quality
184.108.40.206 Information Technology
5.0 Conclusion and Future Suggestions
5.1 What is the Relationship between IT and Productivity in the Telecommunication Companies in the US?
5.2 Is there a Significant Distinction between the Current Circumstances and the Desired Circumstances in the Telecommuication Companies in the US with
Respect to the BPR approach
5.5 Recommendations for Future Research
In the modern business world, organizations and the people that form them are persuaded to perform better with less resources. Organizations are increasingly being confronted with the idea of lowering prices while improving quality. This has the effect of stimulating competition and in turn improving quality for cutomers. If an organization is not willing to offer satisfactory quality and prices for its customers, there will always be another one willing to do so. For an organization to maintain its competitiveness in the modern world, it has to improve in terms of efficiency, a factor that is very evident when examining the IT budgets of many organizations. According to Fox (2006), over 50% of IT managers have enough budget resources to run effective IT departments, but most of the top executives in those organizations do not understand the value of IT. In such situations therefore, employees are under pressure to do more in a short period of time to maintain the competitiveness of their organizations.
Produtivity can only be understood better when it is taken in the context of today’s standards of living because the standards of living in any country is a manifestation of the capabilities of consumers to spend less while consuming more. Productivity is therefore a way of determining the living standards for a country.
Organizations are increasingly turning to IT to help then in improving their services and goods at lower costs and this should in turn assist the organization in becoming more profitable. According to Brynjolfsson & Brown (2005), IT may be the key to growth in productivity in an organization, but it may require that organizations should change their business practices. Revolutionalizing business practices also enables organizations to take advantage of previous improvements in technology.
Apart from this, IT gives companies the power to change the ways they constitute their organizations. When teams of people that have differerent backgrounds of IT related business expertise come together, they can work to achieve the organization’s goals. In such organizations, IT becomes a tool for transferring tasks to lower level employees hence spreading out decision making processes. Improvements in IT also helps organizations in upholding independence in their constituent departments while at the same time controlling power in the larger conglomerate. The majority of expectations associated with IT investments don’t come to pass and this has seen a lot of research being done on the impacts of IT on productivity (Brynjolfsson & Brown, 2005 ; Hitt & Brynjolfsson, 1996 ; Dedrick & Gurbaxani, 2003). Mixed results have been achieved from most of the earlier researches that sought to attach IT investment to productivity with some of them finding that IT had modest or no consequence on productivity (Bryonjolfsson, 1993 ; Dedrick & Gurbaxani, 2003 ; Mahmood & Mann, 2005).
Competition is the main factor behind the upward rush in investment in new information technology as most organizations seek to increase their productivity. Productivity helps organizations to make more profits and is one of the most important factors in measuring the ecoonomic growth in any industry or company. Growth in productivity gives direction to companies to boost their market share (Pohjola, 2000). At its most fundamental, productivity is the relative amount of output to input. According to the neo classical model, productivity is very important to economic growth as it allows organizations to generate more in terms of products or services via specific production aspects and to maximize the application of it production needs. Improving productivity is a basic factor when it comes to the survival of a company in an environment that is highly competittive like today’s. All endeavours that companies go through to try to increase productivity are meant to make permanent enhancement of its performance. Productivity is also a tool when it comes to reducing joblessness, combating inflation, improving profits, diminishing costs, generating resources and prosperity and improving the value of working time. According to (Drucker, 2002), productivity gives bearing to a business.
Studies on productivity have also shown that productivity analysis involves judging the efficiency of resources and an assessment of how resources have been managed hence helping companies to assess the features that have an effect on the added investment in the organization such as innovation and IT among other such features. Business activities in the modern world are typified by powerful globalization, swift modernization in products and services and an upward surge in the use of computers, as well as major changes in organizational reaction to the creation and improvements of new technologies in manufacturing and IT (Dirks et al, 2005).
IT is one of the important assets in an organization when it comes to boosting trade and industry as well as economic growth and customer fulfillment. IT has the prospect of positively affecting the performance of any organization as well as the makeup of an organization. In the 1980s, IT was said to be a key component when it comes to gaining competitive improvement. Porter & Mille (1985) came to a conclusion that IT influences competition in three different means namely; it directs changes in the makeup of commerce and competition, it is at the center of the creation of new corporations and businesses, and that the use of IT helps companies to do better than their competition. Previous years have seen the certainty of the importance of IT dwindle in but many leaders of organizations have continued to consider it as an important factor in the continued existence and productivity of organizations.
This has particularly been a subject of great dilemma for top managers in all kinds of businesses because as much as IT holds great potential for transforming the competition game for organizations, investing in it calls for constant assessment of its value and especially where the size of investment is large. Many studies in the 1980s found no positive impacts of IT investment on productivity , a situation which came to be referred as the productivity paradox (Dedrick & Gurbaxani, 2003). However, further studies in the past two decades have indicated that IT investment does have a direct and positive effect on productivity and economic growth.
According to Albadvi & Keramati (2006), there is enough evidence to attest to the fact that IT investment does increase productivity when supported by balanced corresponding assets. The modern world poses greater challenges to organizations due to increase in pressures related to competition and trade and industry factors. Organizations are therefore being forced to review their basic unit of analysis from that of business purpose to business development. IT has a very diminutive effect on productivity unless it is merged with other corresponding investments such as organizational remodelling, human assets and business processes. Looking at the role of IT in Business Process Reengineering (BPR), and considering IT as a factor that enables BPR, it is worth noting that BPR is very important for organizations for improving the possible effects of IT on an organization’s achievement. It is also worth noting that both IT and BPR when used together can significantly boost productivity.
The patterns of productivity growth in the US have been contradictory since the 1990s and it particularly picked up speed from 1995 onward though it remained below that of Europe by about 10 percent. Many researches have sought to explain the productivity recovery in the US with most of them pointing to the fact that the acceleration in productivity growth can be attributed to an acceleration in the essential technologies. This research points to the fact that Information Technology has played a major role in this. The mid 1990s saw a burst of productivity in the companies producing IT equipment such as computer sofware an hardware as well as telecommunication equipment in the US. This led to the prices of these equipments falling hence an increase in IT investments in many organizations. IT assests and capital also intensified across the entire US economy (Jorgenson et al, 2008).
For IT investment to show a successful impact on productivity in an organization, there is a need for reorganization in the company or firm around new innovations in technology in terms of consultations, management and training (Brynjolfsson et al, 2002). Productivity growth in the US rose by great margins throughout mid 2004 but recent years have seen it slow down. The contribution of IT to this growth has remained high compared to the contribution of the relevance of production of ICTs in the US economy but both have been slow since the year 2000 and growth of productivity has also slowed down in both the sectors of the US economy that produce IT and those that use it. However, considering that an increase in TLF productivity is mainly depended on sectors that are intensive users of IT, the continual descend in the prices of IT equipment and services will be very critical in sustaining TLF productivity with time.
According to Jorgenson et al (2008), the increase in productivity in organizations in the US can be attributed to computer hardware which played a major role as a source of economic growth as well. They also state that labour productivity showed a significant growth during the priod spanning 1995-1999 because capital expanded due to the plummetting of costs of acquiring IT and an increase in TLF productivity. Colecchia & Schreyer (2002) found that IT made a contribution of between 0.2% and 0.5 % to the growth of the economy up to the year 2000 in nine Organization for Economic Co-operation and Development (OECD) countries but the contribuution depended on the country. This demonstrated that US was not the only country that was benefitting from the constructive effects of IT investment. However, the effects were shown to have been highest in the US as compared to other countries such as Finland, Australia and Canada. A research done by Oulton (2002) revealed that IT contributed to GDP growth in the US and the UK by 13.5% in the period spanning 1979-1989 and by 20.7% in the period spanning 1989-1998. The research also found that IT contributed to about 55% of investments in the period 1989-1998 and about 90%in the period spanning 1994-1998.
Globalization has made IT one of the key factors in the achievement of success for many organizations especially when it comes to the search new markets the provision of enhanced and quicker customer service and advancing value. Many studies in the recent past have talked about the impacts that IT has on productivity, service, competitiveness and labour institutionalization. (Satti & Nour, 2002). Productivity in organizations is also affected by the intensity of competition which makes other organizations increase the pace of their improvement of productivity (Dedrick & Gurbaxani, 2003). Improved productivity is however not always a sign of greater profitability. Lower prices due to high competition for instance wear down any chances of expansion in profit margins. The consumers in cases like this are always the beneficiaries as they are the ones who benefit from the value of the higher price paid (Dedrick & Gurbaxani, 2003), a situation commonly known as “consumer surplus”.
IT is said to be automational due to its feature to make the most of rationalization in organizations through the minimization of human participation. Enhanced contact with information as well as the ways of getting it, evaluating it, exchanging it and hoarding it is one way through which rationalization of information can be improved. These features are referred to as informational features and they are known to give employees in an organization power to improve their decisions and performance. A third type of feature of IT is known as transformational and it is characterized by change and modernization in an organization. Hitt & Brynjolfsson (1996) have talked about another feature pertaining to the importance of the increased value that consumers experience due to improvement in an organizational technological know-how, a situation known as consumer surplus.
IT has been said to be an industrious resource that can directly improve productivity and customer fulfillment. IT is very effective in the improvement of communication services whenever they are needed especially in the implementation of BPR in various sections of an organization (Luftman, 2003). Apart from this, the endurance of telecommunications services’ providing companies is largely depended on their capacity to get ready for any changes that may occur in the needs of their customers and any changes related to industry regulation and technology.
BPR normally begins with a development in reforming the organization which is usually the first step towards changing the basic steps in changing various features in an organization which inclde the structure of the organization, the characteristics of work, means of measuring performance as well as the systems of rewarding employees. BPR is highly depended on IT for the creation of the different methods of working to attain the improvements of the scales that are needed. BPR also smooths the progress of change and transformation in the way the management of an organization perceives technology. BPR is also a means through which the confirmation of any available substitute path of attaining IT solutions can be examined and decided upon.
Growth in the productivity of an organization emanates from developments in new ways of working based on innovative technology and new systems of production. As a result, the introduction of new IT technology in the working life of an organization has in previous years been expected to show growth in the work place. Computers in those years since 1970s were employed to situations where productivity growth was low and unemployment was high, a time when it was really hard to establish the constructive effects of IT. According to Solow (1987),it is a situation whereby computers were everywhere except in the productivity statistics, a situation that later translated into what came too be known as the “productivity paradox” (Horzella, 2005). By the year 2000 however, organizational based studies in both manufacturing and service industries had demonstrated noteworthy constructive contribution in the area of productivity which mostly emanated from IT
The modern world is full of competition among corporations which deal with communication services. These companies are being compelled to use the newest technology for purposes of satisfying their customers and for improoving the quality of their organizations as well. A lot of questions have been asked in the past as to whether IT improves productivity and business effectiveness. Many different opinions have been given both at the industry and at the organizational levels leading to different indulgent views regarding the experience. The Telecommunication Companies in the US are very powerful companies with some of them dealing in both communication services and communication infrastructure.
Many of these companies have taken various decisions related to the improvement of telecommunication systems and are making use of the currently available and most sophisticated equipments as well as services such as “mobile phones, data networks, satellite services, digital switching centers special telephone services and the internet”. Telecommunication companies in the US have a very important role to play in the growth of the economy of the US. Globalization has particularly provided the companies with a great opportunity to infiltrate even markets outside of the US. Additionally, competition has kept them on their toes and it has constantly sought to expand the quality of its services, customer satisfaction and productivity.
The main purpose of this research is to study the impact of IT on productivity in telecommunication companies in the US. The research will also seek to investigate the position of the companies’ BPR as a corresponding investment that enhances the sway of IT. The function model will be used in this study to evaluate the impacts of IT investment and organizational transformation.
Below are the main aims of this research:
- Examining the productivity measurement models
- Working out the productivity at a particular period in telecommunication companies in the US
- Examining the variations of area under discussion which is IT at the company level
- Evaluating and investigating the impact of IT investment on productivity in telecommunication companies in the US
- Studying BPR pointers at these companies to improve productivity
The growth of IT has led to a swift process of transmitting information, manufacturing of affordable IT equipment and making use of automation systems in all levels of the organization. The recent past has also witnessed a major shift in organizations as many continue to access updated information and knowledge effortlessly and rapidly. IT is driving the national economies of many countries universally and many countries both in the developing and the developed world are searching for ways of smoothing the progress of their development practices by organizing their activities around and exploiting the opportunities that IT can offer (Pourmirza, 2006).
More than eighty percent of Iran’s GDP is contributed to by the government sectors and the last one decade has seen a significant growth in IT investments in the US. Van ark et al (2002) carried out a research to try and explain the different impacts of IT on productivity in the US and Europe from data obtained from manufacturing and service industries between 1980 and 2000 and they found that the disseminattion of IT mainly Involved rapid expansion of office space and computing equipment followed later by a rapid increase of communication equipment, backed by increased investment in software. The research also shows that compared to Europe, the US started with bigger investment when it comes to IT.
Inklaar et al, (2008) give a comprehensive account of the sources of labour productivity in the service industry which is specifically very useful when it comes to studying the US not just because of the fact that theUS has shown the potential for significant growth but also because IT is very important in the services industry and also that the services industry is one of the broadest users of IT. The study particularly showed that IT coupled with skilled labour are some of the greatest contributors to labour productivity growth in the service industry in both the US and Europe. The study also alluded to the fact that efficiency is one of the greatest contributors to production due to the level of complexities that exist between these two factors. From these finding then it is clear that organizations need to make bigger complementary investments and improvements in quarters such as those of industry principles ethereal capital, human assets and business associations. Corrado et al (2006) have established that there is a lot too be gained by organizations in investing in these intangible factors and also that when these factors are incorporated into the processes of an organization then the rates of growth of the general output of the organization and the outputs per workers increase tremendously and more rapidly.
Questions have also been asked in many researches as to whether the growth in productivity in organizations in the US is sustainable because the mid 1990s were the beginning of the labour productivity growth in the US and from there this growth in productivity increased consistently upto 2004 but later dropped from 2004 to 2007 to a percentile of 1.3% which was similar to what was being experienced in the 1970s and 1980s.
Jorgenso et al (2008) have argued that the sources of productivity growth have altered for the past decade because since 1995 upto 2000, where the dot-com crash fell, much of the productivity growth across many ecoonomies was motivated by the dynamics of productivity in the IT producing sector and the massive investments in the IT sector. However, after the year 2000, TLF productivity growth in these sectors which are renowned as the major users of IT, became the main drivinG factor Of productivity growth and with time, TLF productivity has been supported by the increase in affordability of IT.
Jorgenson et al (2008) had three scenarios in their prediction about sustainability namely; predicting a continous fall in the cost of IT from the year 2010 yearly onwards by 30% which would contribute to a continuation of productivity growth. This first scenario was the more optimistic one. The second scenario that they predicted was the foundational one and it indicated a situation where 1995 to 2010 would be a one-off acceleration with the cost of IT falling at the normal rate that existed at that time of 15% per annum after 2010, causing the rate of growth of productivity to remain at 2.45% per annum. The third scenario and the pessimistic one at that was that the cost of IT would fall to a 5% per year past 2010 causing the rate of growth in productivity in the US to fall to levels that are below those 1973 to 1995. They also predicted a general slow down in productivity growth after 2020.
The general idea that seems to emerged is that a dazzling view of IT investment is one of the factors that contribute to organizations managing their resources and investments in a better way. Albadvi & Keramati (2006) were of the opinion that rational balancing of investments contributes to the general positive impact of IT investments. Many companies have carried out BPR approaches to reallocate the basic function unit of their scrutiny from business function to processes, in order to be able to attain positive progress in vital modern evaluations when it comes to performance and to apply the bona fide potential of IT investment in their organization.
An assessment of the impacts of IT on productivity in the US show at least some of the following outcomes: - Many evaluations at the organizationa level as well as industry levels show that value added is the main factor when it comes to measuring productivity growth
- There is a potential for improvement in future value level planning
- Organizations in the US should ease the management of their resources
- There is a clear view as to the future of IT investments and organizational change in most of the organizations in the US
The significant questions inside the possibility of this research are:
Research Question 1: What is the relationship between IT investment and productivity in organizations in the US?
Research Question 2: Is there a desire for any meaningful change when it comes to the present positions of Organizations in the US with regard to BPR approach?
Research Question 3: Does IT benefit productivity growth in organizations?
Research Question 4: Does IT enhance efficiency in the operations of an organization?
Research Question 5: Is it possible for IT to lead to a decline in the productivity of an organization?
This research contributes both in theory and practice. The research has two phases; the first phase which has the research problem seeks to theoretically investigate as well as depict the impact of IT investment on productivity while phase 2 investigates the BPR factors of the research. The practical data for this research was collected by means of a questionnaire. The following is a summary of the theoretical as well as the practical process that was engaged by the research from the start in order to get to the final outcomes of the research:
-A review of literature in order to get to comprehend the connection between IT and productivity in a deeper way and to find the pointers of BPR
-a study of different methods to establish an appropriate model for the analysis of phase
- Selection of a model and modification whose basis was the context of the characteristics of phase 2
Field work which involved collecting informaiton for phase 1 and the distribution of questionnaries to telecommunication company based in the US and Data analysis and presentation.
The entire Dissertation has five chapters as shown in figure 1 below:
illustration not visible in this excerpt
(Source: Research study)
The last few decades have seen organizations put a lot of resources into IT and the insinuation that this investment might have on productivity has long been the subject of many researches. In addition to this, the role that IT plays in Business Process Engineering which is very important for organizations to boost the possible effects of IT to its general performance have also been widely discussed.
Productivity was first used in the formal sense in the year 1766 in a piece of writing by Quensay, and in the year 1833, Littre gave a definition of the word as the “faculty to produce” or in other words the yearning to produce. A more precise definition was later offered by the Organizational European Economic Cooperaion (OEEC) in 1950 when it defined productivity as the measure attained by dividing amount produced by one of the dynamics of production. Therefore, it is possible to talk of different types of productivities such as productivity of investment, of principal or raw resources depending on which of the amount produced is being calculated. Afterwards many definitions were coined by economic specialists such as that offered by (Sumanth, 1984) which defines productivity as the ratio of corporeal yield to corporeal effort or input and the one offered by (Siegel, 1997).which defines productivity as a family of quantities which are related to output and input. The good news is that productivity can now be simply defined in a more definite way as; acquired yield /divided by spent effort.
Many recent studies have drawn attention to the opportunities as well as the challenges that Information Technology has been able to present to the world economy. Hitt & Brynjolfsson (1996) for instance have been able to evaluate the inferences that Information Technology has on productivity whereas authors such as (Pohjola, 2000 ; Stiroh, 2001) have mainly concentrated their studies on Growth and Development.
Establishing the significance of Information Technology on productivity at the organizational level has been one of the main apprehensions of Information Systems based research. The debate on whether Information Technology leads to improvements in productivity in an organization has been ongoing for a while now, with many firms said to have invested a lot in Information Technology for the last one decade.
Organizations in the US for instance are said to have spent over one hundred and thirty billion dollars on Information Technology for the period spanning two years before 2002 alone. Studies on the subject of how Information Technology impacts productivity in organizations have been inconclusive so far but empirical studies carried out in various organizations have shown that there is a constructive connection linking Information Technology with productivity in those organizations. It is worth noting that for many years researchers were not able to find any definite evidence with regard to the impacts of Information technology on productivity and that led to the emergence of what recently came to be known as “IT productivity Paradox”. Morrison (1997) was of the opinion that investment in Information Technology had negative impacts on productivity based on the argument that the approximate subsidiary profits to an organizations were often less than the approximate secondary expenditure on IT.
Barua et al (1995) were of the opinion that no irrefutable proof could be found to disprove the premise that investment in IT in organizational settings was trivial with regards to productivity, but according to Hitt & Brynjolfsson (1996), many researchers looking into the issue have been able to find that IT plays a considerable function and has been found to contribute towards productivity in organizations. However, many of the organizations upon which recent researh has been based are manufacturing companies due to the fact that there is a basic lack of information with respect to the service industry (Kaufman & Kriebel, 1988). According to (Hitt & Brynjolfsson, 1996), IT increases productivity in an organization in the following ways: by boosting the amount of resources used for every employee, by speeding up the development of the entire productivity aspect in an organization due to the existing developments in technology and also by speeding up the expansion of TFL productivity in organizations that use Information Technology (Hitt & Brynjolfsson, 1996). IT investment according to a definition by Dedrick & Gurbaxani (2003) comprises of investments in both computers and telecommunications and in other related components such as hardware and software as well as services such as repair and replacements.
The last few decades have seen many organizations make huge investments in IT and their inferences in productivity have in turn been extensively talked about in both business and academic circles (Horzella, 2005). The growth of an organization in terms of productivity is a key factor in measuring its nationalized as well as its organizational achievement and is one of those factors that many organizational management teams consider when making decisions. This is because whatever resources a nation consumes is directly connected to what it produces and the same applies to the achievement of the goals of an organization, which is also dependent on the capability that it possesses to be able to create more worth for its consumers on the same resource base. If an organization is not capable to show any significant constructive association between IT and improvement in productivity but still keeps on adding IT investment, then that is referred to as a “productivity paradox” and it is a subject that became the basis of much debate fo many years (Harker, 2000). The 1980s particularly saw many researches aimed at establishing the relationship between IT and productivity that showed no connection between the two while research that was done in the years succeeding the 1980s showed constructive and major outcomes of IT on productivity as well as economic growth (Dedrick & Gurbaxani, 2003). Many organizational researches finding it hard to gain any reasonable information at the industry and national level opted for the organizational level in the search for productivity paradox.
This research suggests that an organization that makes IT investments in equal measure of the level of the organization’s investment, is capable of exhibiting considerable differentiation when it comes to its growth in productivity (Briynolfsson, 2003). The reason for this is that every organization gains according to the conditions that are explicit to it when it comes to beneffiting from IT investment. Situations such as cost, market position and structures among others which are distinctive in nature, as well as corresponding ones such as development within an orgamization and strategy among others are very important for attaining the intended impacts in an organization. According to Horzella (2005) for instance, the level of education of workers can be linked directly to the productivity growth that organizations gain from investing in IT.
Productivity paradox has also been explained from the perspective of IT as a “General Purpose Technology (GPT)”, which is another factor that enables far-reaching growth. This means that, for the effects of a newly introduced Information Technology investment to be felt within an organization, it takes time because structures related to information and modes of operation need to be put in place and regulations related to new technology must also be established within the organization. Other factors that describe productivity paradox include; negligence of input and output factors, delay in implementation emanating from learning and adjusting to new technology, reallocation of revenues and mishandling of IT and the improper application of long-established productivity processes (Briynolfsson, 2003). Some researchers have also reported that the exchange of terms related to both productivity and financial growth are other factors that have often led to productivity paradox. Current studies have however declared productivity paradox to be no longer in existence and also that now more than ever the proper application of IT in organizations is showing a positive result on economic growth.
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