If IT really does increase productivity, why aren’t more companies embracing it?

For the BC 2009 World Police & Fire Games, the connection between technology and productivity is a no-brainer. But for many other organizations, the benefits aren’t always as clear cut. For example, if it’s increased profits you’re expecting, perhaps you’re looking in the wrong place. Come July 31, participants in the BC 2009 World Police & Fire Games will converge on Burnaby to compete in various events – track and field, cycling, hockey, as well as sports designed to test emergency-services skills, such as pistol shooting. While the participants race each other, the tiny team putting the games together will have already raced the clock to coordinate all of the venues and volunteers behind the scenes. To suggest that technology helped this intrepid crew would be a serious understatement. “We started this about 18 months ago with a dozen or so folks,” says Don Hardman, vice-president and general manager, sport and venues for BC 2009. “Here in the office we’ve grown to 27 full-time staff and about 100 senior volunteers....We’re well underway with our recruitment efforts for another 2,500 to 2,700.” Communicating across this fast-growing group would be impossible without a sophisticated ICT system. BC 2009 partnered with Telus Corp, which offers hosted e-mail, calendaring, and collaboration technology based on Microsoft Corp products – Exchange Server for messaging and SharePoint for document sharing. The services let BC 2009 add new users quickly, and no need for strong IT skills. “Our expertise is not backroom stuff like servers and maintenance,” Hardman says. For this organization, the connection between technology and productivity is straightforward. Lacking technology, BC 2009 would find it difficult to share documents with volunteers and service providers, and the group would also have trouble ensuring everyone stays in touch. That would translate into challenges regarding task completion, collaboration and venue readiness. But for many other organizations, IT productivity isn’t as cut and dried. Measuring productivity – and its benefits – is a persistent issue. What do we mean by productivity? How do we know it’s improving? And so what if productivity improves – does that necessarily spell better business processes, a healthier bottom line? Questions like that are all the more common in this sort of economy. “Everyone’s looking to do more with less today,” notes Rebecca Wettermann, VP of research at Boston-based IT analysis firm Nucleus Research Inc. “If I have layoffs, how am I going to use my existing staff?” Would real productivity please stand up Most technology and business professionals have a good idea of what “productivity” means: essentially, we’re discussing the ways in which businesses improve their processes for time or cost savings. Concise terms such as “measure of output per unit of input”, “the rate at which goods are produced”, and “output per hour” come up in definition-searches online. But so does this: “a critical indicator of a nation’s economic health”. And on a macro level, productivity measurements across Canada as a whole prove disquieting. In April, the Institute for Competitiveness and Prosperity – a not-for-profit group funded by the Ontario government – released its latest research on Canadian competiveness versus that of the US and found Canada wanting. Despite having the world’s second-best gross domestic product (GDP) per capita, Canada continues to fall behind the US in terms of prosperity. Back in 1981, Canada’s per-capita GDP was less than 10% behind that of the US. Now, Canada trails by 17%. If Canada closed the gap, people in this country would gain nearly $9,000 in disposable income. What does this have to do with productivity? “Lagging productivity continues to be the biggest barrier to closing the gap,” the Institute says in a press statement, adding: “productivity growth comes from innovation, not just efficiency improvements.” Of course, innovation and efficiency are the hallmarks of IT sales. Software vendors, hardware makers and ICT specialists have long argued that high-tech investments pave the way for lower costs, time savings, and innovative business practices. Among the remedies, the Institute recommends “business investments in information and communication technology.” And yet many an IT specialist has heard about the “productivity paradox” (a.k.a., the “Solow paradox” or the “Solow computer paradox”). Attributed to US economist Robert Solow, it denotes a discrepancy between IT investments and productivity improvements: new high-tech solutions don’t necessarily translate into better productivity. In a 1999 paper for the Canadian Journal of Economics, Jack Triplett from the Brookings Institution (a Washington, DC-based public policy organization) argued that IT and productivity don’t always clearly connect. He noted that technology is often used to enhance information-worker-type organizations, such as banks, insurance companies and other financial institutions. It’s difficult to measure output increases in these sorts of organizations, compared to, say, factories and other businesses in the manufacturing sector, where increased output results from increased production. In other words, for some businesses it might be tough to measure the productivity impact of technology. But that wouldn’t satisfy savvy CFOs who – now more than ever – need to justify all expenditures. Modern research puts a different spin on the connection between productivity and technology – a new perspective that might give businesses a new appreciation for IT. The indirect benefits can be just as important Dr. Barrie R. Nault is the director of the Information Research Centre at the University of Calgary’s Haskayne School of Business. With Dr. Neeraj Mittal, he developed an article titled “Investments in Information Technology: Indirect Effects and Information Technology Intensity” identifying two key aspects of productivity measurements as they relate to IT in the manufacturing sector specifically. First, it’s important to distinguish between “direct” and “indirect” benefits. A direct benefit would demonstrate an obvious connection between IT and productivity – software speeds up cheque processing, resulting in faster work in the accounts payable and receivable department, paving the way for reduced late-payment penalties to suppliers. An indirect benefit wouldn’t demonstrate such a clear connection. Better information collection and dissemination, for instance, paves the way for better productivity, but doesn’t in itself point to a direct productivity improvement. That distinction made, the Calgary researchers indicate that it’s also important to distinguish between “IT-intensive” and “non-IT-intensive” industries. Businesses in IT-intensive industries invest plenty of capital on technology, and businesses in non-IT-intensive industries don’t. Electronics, petroleum and primary metals manufacturers are IT intensive, while textiles, paper and transportation manufacturers are not, according to the researchers. “When we divided the industries up we found they behaved differently,” Nault says. Direct IT benefits seem more prevalent among non-IT-intensive industries, while indirect IT benefits are more important for IT-intensive industries. Why the difference? “The first applications you throw IT at are automation and other applications that have a direct effect,” Nault says. But over time, companies broaden their high-tech horizons and apply IT to support labour and non-IT capital. For instance, petroleum companies may begin their technology journeys using straightforward computer programs to analyze potential drill sites for a direct benefit. Now they might use presence software to facilitate research and communication – less direct, but a worthwhile investment that results in better business processes. In the article, Nault and Mittal cite many studies showing that IT investments do have positive productivity results, and they say the productivity paradox has largely been settled in favour of IT. And yet the paper brings into question the link between productivity and profits: a company may well exhibit enhanced productivity – but does that necessarily spell improved profits? The Calgary duo points to earlier research suggesting the answer might be “not always.” “There’s no real controlling for price,” Nault says, explaining that the market has a lot to do with profitability. If prices fall faster than the company’s productivity increases, profits will decrease. Still, “when the economy comes back, you’re going to be more efficient.” The productivity correction factor or “goofing off” Efficiency is the key – however, companies that give employees technology to boost efficiency might be kidding themselves if they think the tech is all that matters. Nucleus Research points out that the human factor is extremely important: if people don’t use the new software, ROI goes down the drain. The human side of the equation accounts for 50% of the benefit of IT, the Boston analysis firm figures. Nucleus has identified four barriers to productivity: Individual: It’s one thing to give people software that facilitates communication – but if the individual isn’t willing to share information with his peers, perhaps because he’s concerned doing so would diminish his status as the boss’s go-to guy for facts and figures, the benefits won’t come about. Ensuring employees understand how the new technology will benefit them as individuals could be the key to recognizing the benefits across the company. Structural: Sometimes companies are set up to thwart information-sharing between departments by design. Technology won’t fix that – a structural change would have to be part of the solution. Hierarchical: Business-line managers aren’t always open to the new collaborative style of work that web 2.0 affords, and they might undermine the value of the technology by trying to keep employees in line, essentially spoiling the free flow of information from person to person. A management-level attitude adjustment might be required before the business sees productivity improvements. Cultural: In multinational companies, cultural differences across the various operating regions are bound to appear. If the Americans don’t quite get the French and vice versa, they’ll have trouble benefiting from collaborative software between them. Establishing connections outside of the technological realm could go some way towards helping different cultural groups come together online. All of these things feed into what Nucleus calls the “productivity correction factor” – a measurement that accounts for “the inefficient transfer of time – that’s the technical term for people goofing off,” says Wettermann. The productivity correction factor indicates that time savings don’t always translate into productivity improvements. If an employee is super busy and receives new time-saving software, she might apply the clawed-back time to getting her work done quicker, improving her productivity. But a different employee, perhaps not quite so harried, could apply the time savings to a longer lunch break, or an even less-frenetic pace per task. But is downtime all that bad? “People are not machines,” writes Lydor Wyssocky, an Israel-based software development specialist, in a blog-post reaction to Nucleus’s productivity correction factor. “People, and especially people doing creative tasks, might spend much of the time on other things beside their primary task. This is not necessarily a waste of time. On the contrary, it’s probably an essential ingredient of the creative process.” Wettermann says downtime isn’t always the issue. “There’s a difference between time wasted and time focused on improving quality.” If the quality, rather than the speed, of an employee’s work improves thanks to time-savings, it’s another boon for the company. Productivity with your head in the cloud It’s important to consider all of the potential nuances and pitfalls of productivity and IT now that software vendors seem to be focused on shifting the way they deliver their offerings – always with an eye towards improving end-user productivity, of course. Google Inc and Microsoft are two of the more high-profile contestants for the cloud-computing crown. The latest twist on outsourcing, cloud computing sees companies sourcing at least some of their applications and number-crunching functions as hosted off-premise services, usually via virtual architectures. Google’s claim to fame in this realm might be Google Apps – web-accessible applications providing business-class word processing, messaging and collaboration functions. Meanwhile, Microsoft recently announced that its Business Productivity Online suite would now be available worldwide, providing messaging, collaboration, VoIP and other aspects of the Office platform via the internet. The point is better productivity. “These services open up new possibilities for businesses to control costs while continuing to enhance the productivity of their employees,” says Stephen Elop, president of Microsoft’s business division, in a press statement. “Customers can save between 10% and 50% in IT-related expenditures.” But how do companies know the technology is delivering the productivity improvements as promised? Wettermann says it’s a matter of doing your homework. Before implementing technology, businesses should consult with peers who have installed the solution before. What were their results? Learning from others, companies gain a deeper understanding of the potential benefits and pitfalls. It’s also a good idea to consider worst-productivity-case scenarios, Wettermann says. Think about the four barriers to IT-borne productivity (individual, structural, hierarchical, and cultural). Considering those, what’s the worst outcome of the project? If the business stands to improve productivity by a mere two percent, the project might not be as worthwhile as the vendor suggests. Finally, companies should set productivity milestones, so they know the improvements are happening step by step, facilitating project adjustments and improvements as the users dive into the technology. Do productivity improvements in the IT department spell impending layoffs for software and ICT professionals? Not necessarily. As U of Calgary’s Nault says, IT’s economic rhythm is somewhat unique. In good times, a business’s general labour force could double – but the number of IT people rarely jumps so much. And “when you shrink by 20 per cent, you don’t necessarily have to shrink the IT department by 20 per cent. Technology has a slightly different cadence than the economy.” Stefan Dubowski is a freelance writer in Ottawa. You can reach him via sdubowski@rogers.com.

If IT really does increase productivity, why aren’t more companies embracing it?

News | April 17, 2009

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