Study: IT investments pay off in productivity increases

March 14, 2007 at 7:37 am | Posted in Technical | Leave a comment

The Information Technology & Innovation foundation released a report yesterday which finds (surprise, surprise) that IT is a critical area ignored or undermined by too many economic policies. I felt the report had a rather political spin. Sure, it starts out with a general premise that IT is useful and good for productivity; but the entire paper is focused on five jabs at policymakers:

“1) Give the Digital Economy Its Due: Economic policymakers need to view IT issues not just as narrow IT policy, but as the centerpiece of economic policy. This means putting issues of digital transformation at the front and center  of economic policy.

2) Actively Encourage Digital Innovation and Transformation of Economic Sectors: The private sector will drive much of digital transformation, but government can play a supportive role. Government should support  research in emerging IT areas. IT should also use a wide array of policy levers, including tax, regulatory, and procurement policies, to spur greater IT innovation and transformation, particularly in key sectors like health care, education, transportation, and others influenced by public policy. Moreover, government should lead by example by leveraging their own IT efforts to achieve more effective and productive public sector management and administration.

3) Use the Tax Code to Spur IT Investment: Investment is how IT innovations are diffused throughout the economy. Because IT seems have a much larger impact on productivity, tax policies should focus on spurring additional investment in newer generations of IT.

4) Encourage Universal Digital Literacy and Digital Technology Adoption: Ensuring that societies take full advantage of the IT revolution will require that the large majority of citizens participate in the digital economy. National governments need to work in partnership with the for-profit, non-profit, and state and local government sectors to help citizens use and access technology.

5) Do No Harm: Making digital transformation the center of economic policy means not just supporting IT, just as importantly it means avoiding harming the digital engine of growth. All too often well-intentioned policymakers consider laws and regulations that would slow digital transformation.”

I agree with these ideas in spirit, but I was disappointed that this paper is more a promotional piece than an informative one. I would have preferred to see the study focused more carefully on helping firms and industries understand the benefits and drawbacks of IT investments. It is so very difficult for organizations to predict and depend on a solid ROI for IT dollars! This study could have been very useful had it focused on that, rather than coming off as a lobbying tool. 

There is a section entitled “Productivity in Firms”, but it is mostly a literature review, recalling studies of some academic heavyweights. Of particular interest to me:

MIT economist Eric Brynjolfsson (2003).

Firms with the highest levels of IT investment per worker also had the highest levels of productivity.

For every dollar invested in computer capital, market valuation of the firm rises over $10 (Brynjolfsson, Hitt, and Yang 2002, 5-6)

Varian, Litan, Elder, and Shutter (2002).

Looking at the adoption of Internet-based business practices,  found that between 1998 and 2001 firms in the United States saved $155 billion, and by 2010 are expected to cumulatively save $528 billion.

Mostly, though, what this study can offer to IT decisionmakers is a new perspective. A lot of us are considering the ROI of our IT investments only in terms of short-term measurables. If this study tells us anything, it’s that we should really factor in the increased productivity of everyone who interfaces with that system over a longer period of time. That increased productivity is a factor in the short-term metrics, like patient outcomes in health care or annual sales in business; but it will have a much greater influence on your long-term picture. If staff are increasingly able to perform multiple tasks at once without tripping over their gear’s limitations, their work will naturally be more efficient, and their IT infrastructure becomes a part of the corporate culture that they embrace. At the same time, good IT systems can help prevent workers from making errors, take the most menial and repetitive tasks off their plates entirely, and liberate them to use their uniquely human strengths to your firm’s advantage. [Read this Study]

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