The "Productivity Paradox" -- a Clash of Expectations and Statistics

Topics: Productivity, Economic growth, White-collar worker Pages: 21 (7270 words) Published: April 17, 2013
The Productivity Paradox of Information Technology: Review and Assessment

Erik Brynjolfsson
Copyright © 1993, 1994 Erik Brynjolfsson, All Rights Reserved Center for Coordination Science MIT Sloan School of Management Cambridge, Massachusetts

Previous version: December 1991 This Version: September 1992 Published in Communications of the ACM, December, 1993; and Japan Management Research, June, 1994 (in Japanese). Table of Contents The "Productivity Paradox" -- A Clash of Expectations and Statistics Dimensions of the Paradox Economy-wide Productivity and Information Worker Productivity The Productivity of Information Technology Capital in Manufacturing The Productivity of Information Technology Capital in Services Four Explanations for the Paradox Measurement Errors Lags Redistribution Mismanagement

Conclusion Summary Where Do We Go From Here? Acknowledgments Tables and Graphs Bibliography Footnotes

The "Productivity Paradox" -- A Clash of Expectations and Statistics The relationship between information technology (IT) and productivity is widely discussed but little understood. Delivered computing-power in the US economy has increased by more than two orders of magnitude since 1970 (figure 1) yet productivity, especially in the service sector, seems to have stagnated (figure 2). Given the enormous promise of IT to usher in "the biggest technological revolution men have known" (Snow, 1966), disillusionment and even frustration with the technology is increasingly evident in statements like "No, computers do not boost productivity, at least not most of the time" (Economist, 1990). The increased interest in the "productivity paradox," as it has become known, has engendered a significant amount of research, but, thus far, this has only deepened the mystery. Robert Solow, the Nobel Laureate economist, has aptly characterized the results: "we see computers everywhere except in the productivity statistics." Although similar conclusions are repeated by an alarming number of researchers in this area, we must be careful not to over interpret these findings; a shortfall of evidence is not necessarily evidence of a shortfall. In fact, many of the most widely cited aspects of the "paradox" do not stand up to closer scrutiny. This article summarizes what we know and don't know, distinguishes the central issues from diversions, and clarifies the questions that can be profitably explored in future research. After reviewing and assessing the research to date, it appears that the shortfall of IT productivity is as much due to deficiencies in our measurement and methodological tool kit as to mismanagement by developers and users of IT. The research considered in this review reflects the results of a computerized literature search of 30 of the leading journals in both information systems and economics[1], as well as discussions with leading researchers in the field. In what follows, I have highlighted the key findings and essential research references.

Dimensions of the Paradox Productivity is the fundamental economic measure of a technology's contribution. With this in mind, CEOs and line managers have increasingly begun to question their huge investments in computers and related technologies. While major success stories exist, so do equally impressive failures (see, for example (Kemerer & Sosa, 1990)). The lack of good quantitative measures for the output and value created by IT has made the MIS manager's job of justifying investments particularly difficult. Academics have had similar problems assessing the contributions of this critical new technology, and this has been generally interpreted as a negative signal of its value. The disappointment in IT has been chronicled in articles disclosing broad negative correlations with economy-wide productivity and information worker productivity. Econometric estimates have also indicated low IT capital productivity in a variety of manufacturing and service industries. The principal...
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