The Correlation Between IT Investment and Real Productivity Benefits

Let me save you some reading, at least tedious reading, while still giving you some rather profound if not obvious insight from a recently published business book called Wired for Innovation. In fairness, the authors, both professors at prestigious business schools, have done a very credible job of sifting through considerable IT and productivity data and studies to develop what is a fairly small book. It is just that the reading is fairly dry.

The authors were particularly interested in correlations between IT investment and real productivity benefit. They looked at the macro level more so than at individual companies. The results suggest that:

  1. The U.S. does better than other developed countries with their IT dollars.
  2. The reason technology played a larger role in the acceleration of productivity in the U.S. than in other industrialized countries is that American firms adopted productivity enhancing business practices along with their IT investments.
  3. The companies with the highest returns on their technology investments did more than just buy technology; they invested in organizational capital to become digital organizations.
  4. Their main conclusion is that clusters of workplace practices have significant and positive effects on productivity, whereas changes in individual work practices have little or no effect on productivity.

When they speak of clusters of workplace practices, they are referring to groups of related business processes. For construction, this means applying technology to transform the entire procurement and payment process say, not just one small component like issuing POs. This data also argues strongly for companies to balance their investment in IT with equal or at least commensurate investments in process improvement.

And when they speak of organizational capital, they are really referring to the employees of an organization. The investment would be in terms of training but also incentives to adopt new systems and processes.

Overall, the research seems to suggest what we already know: Investment in technology is good when done in conjunction with process change. Invest in people too through training, supporting those who adopt change readily. And finally, when re-engineering, consider an entire process or work area, not just a single step.