Management Information Systems, 13TH ED.
MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon
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Learning Track 2: Information Technology Investments and
Productivity
Information technology now accounts for about 35 to 50 percent of total business capital investment
in the United States. Whether this investment has translated into genuine productivity gains remains
open to debate, although most of the evidence suggests that the answer is positive. Productivity is a
measure of the firm’s eciency in converting inputs to outputs. It refers to the amount of capital and
labor required to produce a unit of output. For more than a decade, researchers have been trying to
quantify the bene fits from information technology investments by analyzing data collected at the
economy level, industry level, firm level, and information systems application level. e results of these
studies have been mixed and the term productivity paradox was coined to describe such findings.
However, the extent to which computers have enhanced the productivity of the service sector
remains unclear. Some studies show that investment in information technology has not led to any
appreciable growth in productivity among oce workers. e banking industry, which has been one
of the most intensive users of information technology, did not experience any gains in productivity
throughout the 1990s and 2000s. Corporate downsizings and cost–reduction measures have increased
worker eciency but have not yet led to sustained enhancements signifying genuine productivity
gains. Cell phones, tablet and laptop computers, and information appliances like smartphones enable
highly paid knowledge workers to get more work done by working longer hours and bringing their
work home, but these workers are not necessarily getting more work done in a specified unit of time.
Researchers have not made a systematic eort to measure the impact of these devices on unit
output or quality of product or service. For instance, university professors who answer their
students’ e–mail, text, or Facebook queries within set oce hours are clearly communicating
with their students more than in the past, and in that sense the service of higher education has
improved. Measuring the value of this improvement is a challenge.
Chapter 14: Managing Projects
Chapter 14 Learning Track 2 2
e contribution of information technology to productivity in information and knowledge indus–
tries may be dicult to measure because of the problems of identifying suitable units of output
for information work. How do you measure the output of a law oce? Should productivity be
measured by examining the number of forms completed per employee (a measure of physical unit
productivity) or by examining the amount of revenue produced per employee (a measure of finan-
cial unit productivity) in an information– and knowledge–intense industry?
Other studies have focused on the value of outputs (essentially revenues), profits, ROI, and stock
market capitalization as the ultimate measures of firm eciency. A number of researchers have
found that information technology investments have resulted in increased productivity and better
financial performance, including higher stock valuations.
In addition to reducing costs, computers may increase the quality of products and services for
consumers or may create entirely new products and revenue streams. ese intangible benefits are
dicult to measure and consequently are not addressed by conventional productivity measures.
Moreover, because of competition, the value created by computers may primarily ow to customers
rather than to the company making the investments.