Productivity paradox

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The productivity paradox (also known as the Solow computer paradox) is the observation made in computer-supported collaboration and other business process analysis that, as new information technology is introduced, worker productivity may go down, not up. It was especially common in the late 1980s and early 1990s. Secondly, the paradox is also often defined as the “discrepancy between measures of investment in information technology and measures of output at the national level.” (source: Turban, et. al, 2008.).

It was widely believed that office automation was boosting labour (or total factor) productivity, but the growth accounts didn't seem to confirm the idea, because the "computer-era" from the early 1970s to the time he was writing included a massive slow-down in growth as the machines were becoming ubiquitous. (Other variables in country's economies were changing simultaneously, growth accounting separates out the improvement in production output using the same capital and labour resources as input by calculating a "Solow residual".)

For understanding the paradox, different authors have identified different requirements; Turban, et. al (2008), mention that understanding the paradox requires an understanding of the concept of productivity. Pinsonneault et al. (1998) state that for untangling the paradox an “understanding of how IT usage is related to the nature of managerial work and the context in which it is deployed” is required.

Economists have done research in the productivity issue and concluded that there are three possible explanations for the paradox. The explanations can be divided in three categories:

  • Data and analytical problems hide ´´productivity-revenues´´. The ratios for input and output are sometimes difficult to measure, especially in the servicesector.
  • Revenues gained by a company through productivity will be hard to notice because there might be losses in other divisions/departments of the company. So it is again hard to measure the profits made only through investments in productivity.
  • Revenues are unnoticed because of losses and expenses: there might be a third possibility; information technology doesn’t raise the productivity. For example: the output can increase with 50%, but if the input increases with 60% there will be a decrease in productivity.

Another answer, from economists Stephen Oliner & Dan Sichel was to deny the significance of the (high-profile) IT-sector; they said that information technology accounted for no more than two percent of the capital stock in any country in the world.

Other economists have made a more controversial charge against the utility of computers: that they pale into insignificance as a source of productivity advantage when compared to the true industrial revolution, or the adoption of the motor car.

A number of explanations of this have been advanced, including:

  • The tendency - at least initially - of computer technology to be used for applications that have little impact on overall productivity, e.g. word processing.
  • inefficiencies arising from running manual paper-based and computer-based processes in parallel, requiring two separate sets of activities and human effort to mediate between them - usually considered a technology alignment problem
  • poor user interfaces that confuse users, prevent or slow access to time-saving facilities, are internally inconsistent both with each other and with terms used in work processes - a concern addressed in part by enterprise taxonomy
  • extremely poor hardware and related boot image control standards that forced users into endless "fixes" as operating systems and applications clashed - addressed in part by single board computers and simpler more automated re-install procedures, and the rise of software specifically to solve this problem, e.g. Norton Ghost
  • technology-driven change driven by companies such as Microsoft which profit directly from more rapid "upgrades"
  • an emphasis on presentation technology and even persuasion technology such as PowerPoint, at the direct expense of core business processes and learning - addressed in some companies including IBM and Sun Microsystems by creating a PowerPoint-Free Zone
  • the blind assumption that introducing new technology must be good

A paper by Triplett (1999) reviews Solow’s paradox from seven other often given explanations. They are:

  • You don’t see computers “everywhere,” in a meaningful economic sense
  • You only think you see computers everywhere
  • You may not see computers everywhere, but in the industrial sectors where you most see them, output is poorly measured
  • Whether or not you see computer everywhere, some of what they do is not counted in economic statistics
  • You don’t see computers in the productivity yet, but wait a bit and you will
  • You see computers everywhere but in the productivity statistics because computers are not as productive as you think
  • There is no paradox: some economists are counting innovations and new products on an arithmetic scale when they should count on a logarithmic scale

For the actual evaluations of the explanations, read the article (see references).

By the late 1990s there were some signs that productivity in the workplace had improved, especially in the United States. Furthermore, Erik Brynjolfsson and his colleagues found a significant positive relationship between IT investments and productivity in a series of studies.1

However, new problems had emerged, including:

[edit] See also

[edit] References

  • Landauer, T.K. (1995). The trouble with computers: Usefulness, usability and productivity. Cambridge, MA: MIT Press ISBN 0-262-62108-8
  • P.Magrassi, A.Panarella, B.Hayward, “The 'IT and Economy' Discussion: A Review”, GartnerGroup, Stamford (CT), USA, June 2002 [1]
  • Turban et al., Information Technology for management: transforming Organizations tin the digital Economy, 6th edition (John Wiley & Sons, 2008)
  • Alian Pinsonneault, Suzanne Rivard, “Information Technology and the Nature of Managerial Work: From the Productivity paradox to the Icarus Paradox”, MIS Quarterly (1998) Vol. 22, No. 3, 287-311
  • Jack E. Triplett, “The solow productivity paradox: what do computers do to productivity”, Canadian Journal of Economics (1999) Vol. 32, No. 2, 309-334