Credit Where Credit Is Due

Credit Where Credit Is Due

Productivity has been increasing steadily for years and CIOs think IT deserves a lot of the credit. But proving that hasn't been easy. That's where MIT's Erik Brynjolfsson comes in.

Productivity gains have become a favourite statistic for business leaders to cite when describing the health of the economy. But what's meant by productivity is often glossed over. Productivity is simply this: output divided by input. When the dividend rises, productivity is increasing.

For close to a decade, business executives, academics and analysts have engaged in a vigorous debate over whether or not technology has driven the significant productivity gains recorded since the late 1990s. The question of what's behind this is not merely a matter of academic interest; CIO budgets and technology dollars often depend on how organizations view IT's contribution to productivity.

Most CIOs who have followed the IT-productivity debate naturally believe that investments in technology have been behind these gains, but a lack of data and research - hard numbers - has sabotaged their argument and often left them speechless, not to mention on the short end of the budgeting process.

MIT economist Erik Brynjolfsson, however, believes the terms of the debate must change. Technology has driven the productivity surge, and CIOs can prove it by measuring IT value across the whole organization, not just within the IT department. But there's a new debate CIOs need to pay attention to: What distinguishes the most-successful companies from the least-successful. Brynjolfsson, the Schussel Professor of Management and the Director of eBusiness at MIT, has been at the centre of the productivity debate for years. Speaking at IT conferences and publishing numerous papers on the subject, he has worked with some of the most high-powered firms in the world (including GE, Dell and Cisco, among others) to prove that technology drives productivity. In ongoing research that he shared with CIO, Brynjolfsson has devised metrics that will allow CIOs to demonstrate clearly how improvements in IT have fuelled the productivity gains at their companies.

Numbers, however, will only get you so far. Brynjolfsson insists the companies that have been most successful in developing and demonstrating IT value share certain characteristics and practices that lend transparency to IT's efforts. Some of these practices may seem elementary; some may seem impossible given the hurdles of age-encrusted company policies and culture. But they are necessary, Brynjolfsson believes, if you want to illustrate just how important IT is to the future of your organization.

Q: Why is the argument about IT productivity still a big deal today?

A: There's been a debate the past couple years about whether IT matters. Nick Carr and others have raised a lot of interesting questions about that. But the research I've been doing has really focused on IT's effect on productivity and some of the organizational factors that differentiate the more successful firms from the less successful firms. And we found a great deal of evidence that IT makes a big difference.

When I first started doing this research, productivity was bumping along at around 1 percent or 1.5 percent per year all through the 70s, 80s and early 90s. Most economists thought it was going to be stuck there forever. But the past few years, productivity's been doing much better. In fact, in the last quarter of 2005, [US] productivity growth was about 4.7 percent. And that wasn't an anomaly. Growth has been close to 4 percent per year on average since the year 2000.

To some extent, all companies are becoming more productive, but we're also seeing a population shift where the less productive companies are going out of business. And the combination of those two effects is leading to this productivity renaissance.

Then the debate is over? It's established? IT drives productivity?

I think that the debate has changed, or it should change. It's not so much about whether on average IT is productive; that, at least in the academic literature, is not much of a debate any more. I think the important question now is: What differentiates the more successful firms from the less successful firms? And that's going to be a debate for many years because, to some extent, the factors that lead to success will continue to evolve over time.

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