The Productivity Paradox

The Productivity Paradox of IT

Burbank, California; September 5, 2001; Joan Marques, MBA



“The Productivity Paradox of IT” (IT stands for Information Technology) is an issue that pertains to the fact that, in spite of all innovations and tremendous investments in automation during the past 20-30 years, there has been a very modest increase—and in some cases even a decrease-- in productivity.  Woodall (2000) states that spending on IT equipment and software now accounts for about half of all investment by American firms.


The main reasons for lack of the initially expected progress in productivity can be summarized in 4 points:

·         Mismeasurement: it is hard to measure inputs and outputs in IT, since some of the outputs are not measurable (service-increase, convenience, etc). It might be good to quote Prizewinning economist Bob Solow here when he said 15 years ago: “computers are everywhere except in the economic statistics” (Strassmann, 1999)

·         Lag: It takes years before benefits of IT-implication can be perceived because of the long learning lags that delay the productivity gains of the IT-revolution.

·         Redistribution: IT may be good for some companies’ growth, but it makes no difference in the growth of the industry as a whole. According to Brynjolfsson, professor of economics at the Mass. Inst. Of Technology’s Sloan School of Management, “government productivity-yardsticks are out of date because they look at the aggregate economy rather than individual companies’ performance”.

·         Mismanagement: implementing IT for the wrong reasons, or without right communication within the organization.


According to Strassmann (1999), every company can measure its own IT paradox number by comparing the company’s IT budget today with what it could have been if they had bought their computing capacity every year for 17.5% less.


It has repeatedly been proven, that IT only succeeds if the human factor is involved in the proper way. As long as top-management in a company keeps direct contact with the IT-department and makes sure that all departments get involved in the process; as long as the IT-implementation is treated as a tool to enhance the quality of performance of the company and the people that work in it, it has a bigger chance to become a success. True productivity-increases have come only when companies reinvented how they worked; the way WalMart did it, for instance, by changing their whole process through IT. Besides, companies that view technology as a continuing process instead of a one-time investment do much better!  Companies that use IT to improve outside communication, perform better as well.


It is hard to predict from the very start after IT-implementation in an organization, what will be right and where it can go wrong, since IT is an evolving, and not a fixed process: there are constant changes, and appropriately responding to those may be important for a firm, depending on its activities. The fact that there are no impressive positive numbers on productivity as a result of IT-investments, could be explained as follows:

·         Many progresses and profits from IT are impossible to calculate: we should stop trying to measure an intangible convenience in tangible terms.

·         People: we tend to play with new toys. The possibilities of IT are so broad; the people are fascinated by it and often forget to use it in an optimal efficient or appropriate way.  As a result to that, some of the reasons why productivity-increases in IT have been modest are:

1.      Memo’s with fancy fonts and elaborate formatting that takes longer than the simple typed ones from the past;

2.      Emails, used for nonessential messages;

3.      Equipment maintenance.

As stated by Woodall (2000), “New-paradigmers who suggest that rates of productivity growth of 3-4% a year are sustainable for the next decade or so are really saying that IT will have a far bigger economic impact than electricity, telephones and cars”. Woodall thinks this is very ambitious. “More likely, America's long-term trend rate of labor productivity and hence per capita growth might be lifted to an annual 2.596. That might not sound much, but it would make IT at least as significant as electricity.” (Woodall, 2000)

Nevertheless, it is apparent that IT has caused a paradigm-shattering leap in productivity; but it may be the way we treat it, which is the reason why this productivity has not been clear yet. After all, the technique and its profitability can only come out, if humans use it as they should. Goldsborough (1998) suggests some simple ways to increase our PC productivity:



The entire problem may lie in the fact that the profits from IT are sought in wrong corners. In the nineties, with the rise of the Internet, the real value of IT became clearer to a great number of peoples all over the world. Computers are proving their importance even more now, after several decades, because they are linked together through the Internet. Companies can get strategically necessary information in an instant. Costs on expensive business-trips can be reduced, because all information is available in the blink of an eye; global meetings can be attended from behind your desk.


Yet, to enhance IT-productivity, control on Internet-usage should be built in, for even though the web can be an invaluable informational resource, the temptation to surf from one site to another is almost irresistible. Important for companies to profit from IT is, an overall better communication from the very beginning, which in this particular case is the decision to implement IT. The how, when, and why of IT-implementation should, above all, be made clear and lectured throughout organizations. And last but not least an approach that encourages familiarity with, and optimal use of IT in every area of the organization, should be generally adapted. Once economists, top-management of companies and Government have come to that insight, IT-productivity will become visible in a very satisfying way.




                Brynjolfsson, E., & Hitt, L. M. (1998). Beyond The Productivity Paradox. Communications of The ACM, 41(8), 49-55.

                Goldsborough, R. (1998). Technology, overcoming the productivity paradox. Commercial Law Bulletin, 13(6), 22-23.

                Strassmann, P. (1999). IT paradox number. Computerworld, 33(18), 44.

                Woodall, P. (2000). Survey: The new economy: Solving the paradox. The Economist, 356(8189), S11-S19.