When I was in business school in the late 1990’s, we learned about Total-Factor Productivity (TFP). That’s the factor or coefficient that, when combined with labor and capital, equates to total output. TFP is an intangible, but it is thought to be anything from better human capital skills to technology (IT).
I bring up this old memory because there was a debate at the time among economists as to how big a role IT played in overall productivity gains and thereby total output for an entity or even GDP. I’m no economist, but I think the answer is pretty obvious today. Again, without anything to cite other than common sense and simple observation, I think future historians and economists will look back and consider the information age as every bit as important as the industrial revolution. When you think about the ability to process information rapidly, to store and retrieve data, to communicate instantaneously, and to optimize manufacturing processes (or, for that matter, to optimize nearly any business process though the application of IT), is it really possible to view the past 30 years as other than revolutionary?
Nearly every aspect of our lives has changed for the better because of technology. Whether it be a GPS-guided car ride, the rapid check-out at the grocery store (today it is self-check out!), or purchasing an airline ticket, nearly everything is more efficient. I won’t even get into how Apple alone has enhanced our everyday lives with the iPhone and iPad and the related apps! The fact is, the more we invest in technology, and the quicker we can harness its power, the more productive we can become.
As I recall, the debate about how much technology contributed to productivity was related to the cost of IT and the ramp-up related to deploying new technology. While these factors may prolong the return-on-investment, there can be no doubt to the eventual gains in productivity. Organizations are highly optimized today because of technology. On balance, they are more profitable because of technology and the related productivity gains.
To be sure, IT has also led to lost jobs. IT automation and globalization have eliminated the need for millions of jobs in the U.S. and elsewhere–but the same observation could be made about the industrial revolution: Think of how many weavers and tailors were forced to reinvent themselves when the mills optimized the production of textiles. The nature of revolutions is that societies change; old ways are abandoned and new ways are adopted. While some industries, manufacturing in particular, have suffered (in terms of net jobs) as a result of IT, I do believe that other industries–particularly the IT sector–have flourished. Still others will flourish too as more entrepreneurs find new ways to use IT to do new things – but, that is another blog!
In the early days of the technology revolution (1980’s – 1990’s), the cost of adopting and deploying technology were high. The technology needed to mature. Economies of scale, which could drive down technology costs and make technology more mainstream, had yet to be achieved. And, keep in mind that back in the ‘80s people spoke of “business re-engineering” projects in terms of months and years of effort–and this was the conversation among the technically savvy people. Back in the ‘80s and ‘90s, it took a long time for productivity to improve because it took a long time to deploy the technology. Some people didn’t want to embrace technology, so that complicated factors and could, in some cases, increase the costs and delays of deploying technology.
So much of that is different today. We can deploy technology faster and at far lower costs. People are far more accustomed to using technology–particularly younger workers, who have grown up in a world where technology is common. Indeed, we’re fast approaching the point where the users of technology are moving ahead of the IT organizations tasked with managing and maintaining the technology. In more and more organizations, people are walking through the doors with iPhones and iPads; they’re connecting and collaborating in ways that their IT organizations have no control over. From a personal productivity standpoint, that’s exciting. Moreover, it’s exciting from an overall organizational standpoint: the more productive the people within the organization are, the more productive the organization can be.
But it’s all maddening for the IT organization. They’re the o
nes who are struggling to keep up. They’re the ones that feel like they’re falling behind. They, who used to define what it meant to be cutting edge, are feeling dull.
What’s the solution for an IT organization? Do what you really do best: Use technology to better harness the power of technology. IT organizations need to find ways to make use of the lean, cutting-edge tools and service delivery modalities to facilitate the delivery of IT services. Once you can figure out how to improve the productivity of the IT organization itself, you have more time to focus on how you can use IT to improve the productivity of the broader organization.
In the end, IT is all about boosting TFP — at the personal level, at the level of the IT organization, and, ultimately, at the level of the enterprise itself.
Raj
