Measuring IT’s impact on productivity

MIT researcher Erik Brynjolfsson has long held that IT has had a significant effect on corporate productivity.

But “the real unsung heroes” behind the 4.5 per cent rise in U.S. productivity over the past three years are the business process changes that have accompanied new technology implementations across companies, said Brynjolfsson, who spoke at the inaugural MIT Sloan CIO Symposium held in Cambridge, Mass., last week.

Brynjolfsson, director of the MIT Center for eBusiness, pointed to a study of 1,167 large companies that he’s been conducting for the past 10 years. In an analysis of corporate revenues and market value, computer capital and other capital investments, Brynjolfsson has found that companies that invest heavily in IT and make corresponding changes to their business processes tend to have higher productivity and higher market values than other companies.

For instance, General Motors Corp. has conducted its own studies to gauge the impact of applying new business processes along with IT “but it’s very difficult to measure, so we do it at a macro level,” said Richard Taggart, director of enterprise architecture and IT standards for the automotive giant. One such analysis helped GM determine that its IT costs are the lowest among rival automakers as a percent of revenues, said Taggart.

An e-business initiative at Intel Corp. has helped the company slash US$1 billion in aggregate costs over the past few years, said vice-president and CIO Doug Busch. Intel measures these savings using “value dials” such as the number of days of inventory kept in its factories and the labour productivity of its sales force, said Busch.

“We’re trying to measure those opportunistic value captures,” said Busch.

For its part, SAS Institute Inc. doesn’t have solid metrics about the impact IT investments have had on its own productivity, said Keith Collins, senior vice-president and chief technology officer at the Cary, N.C.-based software maker. But like many companies, SAS does measure the return on investment anticipated from IT investments and the impact they’re expected to have on individual business units, said Collins.

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