Beyond the productivity surge: Managers must do more with technology than just reduce labor costs, says MIT Sloan expert

Cambridge, Mass., Dec. 3, 2003 — Today's report of sizzling growth in productivity but tepid progress on job creation shows that while many firms are using technology to keep down labor costs, the real key to sustained growth and revived employment lies in whether they will successfully use technology to redesign the very way they operate, according to MIT Sloan Prof. Erik Brynjolfsson, director of the Center for eBusiness at MIT Sloan.

“Some companies only go part way,” said Brynjolfsson, an expert on information technologies and productivity. “They use technology to automate this function or to eliminate that job. But the most productive and highly valued companies do more than just take the hardware out of the box. They use IT to reinvent their business processes from top to bottom. Managers who sit back and assume that gains will come from technology alone are setting themselves up for failure.”

The U.S. Department of Labor announced today that non-farm business productivity rose at an upwardly revised 9.4 percent annual rate in the third quarter, the strongest surge since 1983. But the number of hours worked rose by less than one percent. The roots of this productivity surge lie in a “genuine revolution in how American companies are using information technology,” said Brynjolfsson. “Technological innovations of five years ago are now being harvested as better run, more efficient and more innovative operations. But to sustain this growth, managers must do more with IT: they must use it as the catalyst for a wave of complementary innovations throughout their organizations.”

In his research, Brynjolfsson found vastly different outcomes among companies that spend similar amounts on technology. The difference lies in what managers do once the new technology is in place. “Successful firms break down the silos that often exist between the technologists in the IT shop and the managers who run business operations,” said Brynjolfsson. Technology must be integrated at all levels of the business, he said. Mid-level managers and front-line workers must be encouraged to innovate their own ways to use technology to improve company operations, even if the innovation is as basic as improving the use of computerized inventory spreadsheets.

According to Brynjolfsson, business has often had a long learning curve on how to fully utilize new technologies. “A century ago, an exciting new technology called electricity was just being introduced,” he said. “But by itself, electricity did nothing for productivity. It took decades for firms to figure out how to redesign their factories and processes to deliver a productivity payoff.

“But today, managers cannot afford to wait decades to harness the potential for greater productivity from much faster, exponential improvements in information technology. The companies that succeed will be the ones that understand the importance of combining the digital organization with digital technologies.”

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MIT Sloan founder Alfred P. Sloan, Jr. was dedicated to the innovation ethic. “Too often,” he said, “we fail tribute to the creative spirit.”

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