The Productivity of Information Technology

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THE PRODUCTIVITY OF INFORMATION
TECHNOLOGY:
Review and Assessment
Erik Brynjolfsson
CCS TR #125
December, 1991
This research was sponsored by the MIT Center for Coordination Science, the MIT International Financial Services Research Center, and the Sloan Foundation. Special thanks are due Michael Dertouzos and Tom Malone for encouraging me to pursue this topic as part of a study group at the MIT Laboratory for Computer Science. I would like to thank Ernie Berndt, Geoffrey Brooke, and Chris Kemerer for valuable comments and Marshall Van Alstyne and Peter Perales for excellent research assistance. Only I am responsible for any remaining deficiencies

The Productivity of Information Technology:
Review and Assessment
Erik Brynjolfsson
Abstract
Productivity is the bottom line for any investment. The quandary of information technology (IT) is that, despite astonishing improvements in the underlying capabilities of the computer, its productivity has proven almost impossible to assess. There is an increasing perception that IT has not lived up to its promise, fueled in part by the fact that the existing empirical literature on IT productivity generally has not identified significant productivity improvements. However, a careful review, whether at the level of the economy as a whole, among information workers, or in specific manufacturing and service industries, indicates that the evidence must still be considered inconclusive. It is premature to surmise that computers have been a paradoxically unwise investment. A puzzle remains in the inability of both academics and managers to document unambiguously the performance effects of IT. Four possible explanations are reviewed in turn: mismeasurement, lags, redistribution and mismanagement. The paper concludes with recommendations for investigating each of these explanations using traditional methodologies, while also proposing alternative, broader metrics of welfare that ultimately may be required to assess, and enhance, the benefits of IT.

Keywords: Productivity, Computers, Performance measurement, Economic value, Investment justification.
CONTENTS
The "Productivity Paradox" -- A Clash of Expectations and Statistics ...................... 1 Dimensions of the Paradox ....................................................................... 5 Economy-wide Productivity and Information Worker Productivity . .............7.. The Productivity of Information Technology Capital in Manufacturing ............ 11 The Productivity of Information Technology Capital in Services .......... 15 Leading Explanations for the Paradox ........................................................... 19 Measurement Errors .................................................................. 20 Lags ........................................................................................ 25 Redistribution ................................................................. 28 Mismanagement ................... . ............... 229.............9............. Con clusio.n.. ......................................................... 32 Summary .................................. ................ ............................... 32 Where Do We Go From Here? .......................................................... 34 Tables and Graphs ................................................. .............................. 40 Bibliography .............................. .......... 4477................... Information Technology and Productivity

The "Productivity Paradox" -- A Clash of Expectations and Statistics The relationship between information technology (IT) and productivity is widely discussed but little understood. On one hand, delivered computing-power in the US economy has increased by more than two orders of magnitude in the past two decades (figure 1). On the other hand, productivity, especially in the service sector, seems to have stagnated (figure 2). Given the enormous promise of IT to usher in "the biggest...
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