Portfolio
VII Pillars Of Productivity
Source: Optimize Published: May 2005
Professor Erik Brynjolfsson, holder of the Schussel Chair of Management Science at MIT, has been doing breakthrough research on how companies can achieve superior returns from their investments in information technology. This article summarizes the most recent research from his team. Some comments from the article follow:
It’s productivity growth, more than any other economic statistic, that determines our living standards. If productivity grows at 1% per year, living standards will double every 70 years. If productivity grows at 3% per year, living standards will double in less than 25 years. In the 1970s, ’80s, and early ’90s, government statistics indicated that productivity growth in the U.S. economy plodded along at barely 1% annually. Most economists thought it would stay at that level indefinitely, but remarkably, since 1995, annual productivity growth has averaged more than 3%.
What explains the soaring productivity in the United States? My research has found that IT-intensive companies tend to be more productive, and most economists now agree that growing investment in information technology has been the single most important reason for the resurgence in the past decade. However, it’s also true that, since 1995, thousands of IT projects have failed to deliver on their productivity promise each year. CEOs and CFOs are justifiably disappointed at CIOs’ inability to consistently document financial benefits from their IT budgets. In fact, they’ve been looking in the wrong place.
The key to IT productivity lies outside the CIO’s office. Our most recent research suggests that whether IT improves productivity depends primarily on the complementary organizational investments that companies make in addition to their IT investments. That is, innovation in IT alone is insufficient. Companies also need innovation in organizational practices to reap the promised boost in productivity growth. Considering that up to 70% of the work done in large companies can be classified as information-processing work, it would be remarkable if the effective use of IT didn’t require changes in the organization of production. Indeed, we found that the costs and benefits of IT-enabled organizational capital is typically many times larger than the direct IT investments themselves.
