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Unpacking the Productivity Paradox: Measuring Output, Input, and the Role of IT Investments

Explore the intricate relationship between productivity, technology, and IT investments in organizations. This comprehensive guide examines how productivity is defined as output/input, the methods available for measuring both output and input, and the impact of information technology on productivity gains. Analyzing decades of productivity statistics, we delve into the variations across industries and firms, the importance of strategic alignment between IT and business goals, and the factors that enable or inhibit productivity enhancements. Discover key criteria for successful IT-business alignment and the necessity of a collaborative approach to realize the full benefits of IT investments.

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Unpacking the Productivity Paradox: Measuring Output, Input, and the Role of IT Investments

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Presentation Transcript

  1. Strategy #4

  2. The Productivity Paradox • Productivity = Output/Input • How do you measure productivity? • How should output be measured? • How should input be measured? • What is the relationship between technology and productivity? • How about information technology?

  3. Does IT investment lead to increased productivity? • Robert Solow – “You can see the computer age everywhere but in the productivity statistics.” • US annual rate of increase in output per hour in the 1960s (2.6%) • 1973 – 1995 (1.5%), • 1995 – 2000 (2.5%), then dot.com bust, • 2002 to present (>5.3%)

  4. How Does IT Investment Affect Productivity? • Differences between national data, industry data, and firm level data • High level of variation between firms • Long term benefits from 2 to 8 times higher than short term benefits

  5. Complementary Activities • IT support is most likely to improve the productivity of knowledge workers, especially where they can take advantage of low cost communications and data analysis • IT investment include a number of technologies in addition to computer hardware and software – e.g. BPR, work redesign, organizational change • Factors associated with increased IT productivity: self-directed work teams, decentralized decision making, screening for education and training investment, systems that reward high team performance

  6. IT-Business Strategic Alignment • Ensuring that IT strategy is consistent with business strategy • Importance • Size of investment coupled with uncertain benefits • High cost of failure • Potential for IT to be transformative

  7. Enablers and Inhibitors of Alignment

  8. Strategic Alignment Maturity • Levels of maturity copied from Software Engineering Institute Capability Maturity Model • What are the assumptions? • Highly aligned relationships are better than those that are less aligned • A firm’s success is highly dependent on IT capability

  9. Alignment Criteria (Communication) • IT understands business • Business understands IT • Knowledge sharing

  10. Alignment Criteria (Measurement) • IT metrics • Business metrics • Balanced metrics • Service level agreements • Benchmarking • Formal assessment • Continuous improvement

  11. Alignment Criteria (Governance) • Business strategic planning • IT strategic planning • Budgetary control • IT investment management • Prioritization • Steering committees

  12. Alignment Criteria (Partnership) • Business perception of IT value • Role of IT in strategic planning process • Shared goals, risks, rewards/penalties • Program management • Relationship/trust style • Business sponsor/champion

  13. Alignment Criteria (Scope/Architecture) • Flexible transparent architecture • Emerging technology assessment • Standards • Ability to customize solutions • Ability to support enterprise wide business processes

  14. Alignment Criteria (Skills) • Innovation entrepreneurship • Management style • Change readiness • Career mobility • Education and training • Social political environment

  15. Realizing the Business Value of IT Investments • Importance • Amount at risk • Politically valuable • Necessary feedback for improving future IS delivery processes

  16. AIAC Framework

  17. Alignment Phase • Align Business-IT Strategy – Porter’s models, Resources – Competencies – Capabilities • Invest in complementary assets • Choose IT investment type

  18. Involvement • Involve customers – internal and external • Identify metrics for tangible and intangible costs and benefits • Make the business case

  19. Analysis • Establish analytics • Validate results • Interpret results

  20. Communication • Make actionable steps • Communicate results • Institutionalize payoff analysis

  21. Concluding Themes • IT payoffs are the responsibility of the entire organization, not just the IT department • Management of IT payoffs begins prior to investment and continues through post-implementation • IT payoffs are contingent on creating and exploiting complementary assets

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