HOW SHOULD AN ORGANISATION MOVE BEYOND A PRODUCTIVITY PARADOX?

A N D R E A , J A M E S , T I M , S E Á N , A N D R E W . 2 5 / 1 0 / 1 2

WHAT IS A PRODUCTIVITY PARADOX?

“Discrepancy between IT investment and IT performance, between input and output.”

(MacDonald et al 2000)

FOUR MAIN FACTORS

• Mismanagement

• Mismeasurement

• Lag

• Redistribution

MISMANAGEMENT OF IT/IS AND THE MANAGERIAL PRACTICES TO MOVE BEYOND THE PRODUCTIVITY PARADOX

Investmentsin IT

Investmentsin IT

PerformancePerformance

This is a visualisation of the notion of It investments during the period of the Productivity Paradox.

Investmentsin IT

Investmentsin IT

ConversioneffectivenessConversion

effectiveness

Firmperformance

Firmperformance

This a visualisation of companies installations of new IS/IT after moving beyond the Productivity paradox.

A CHART FROM BRYNJOLFSSONS BEYOND THE PRODUCTIVITY PARADOX WHICH DEMONSTRATES MISMANAGEMENT OF IT/IS THROUGH THE TIME BEFORE IT IS PROFITABLE

MANAGERIAL PRACTICES WHICH HELP MOVE BEYOND THE PRODUCTIVITY PARADOX.1.IT Alignment with Business Strategy.

2.Decentralised Organisations.

3.Decentralised IT Organisations

4.Benchmarking against Other Companies.

5.Employee Involvement and empowerment.

6.Internal Measurement

• Brynjolfsson and Hitt identify a positive correlation between successful IT implementation and a decentralised organisational structure.

• Decentralised Decision making is spread across various outlets and lower level managers. Allows for greater empowerment

• Centralised Decision making power is kept at the top of the hierarchy. Decisions are not delegated to lower level managers.

FIRM A – LOW IT SPEND , BELOW THE TREND LINE, BELOW AVERAGE RETURN ON ITS IT INVESTMENT.

FIRM B – INCREASED IT INVESTMENT WITHOUT CHANGES TO MANAGEMENT PRACTICES. MOVES PARALLEL TO THE TREND LINE WITH ONLY MODEST GAINS.

FIRM C – IT INVESTMENT COUPLED WITH CHANGES IN THE FIRMS STRUCTURE = GREATER GAINS AT A LOWER COST.

(DEDRICK AND KRAEMER, 2001)

LAGGING BEHIND?

4 PATHS OF I.T. INVESTMENT• I.T. investment – Investment over time.

• Strategic I.T. investment – Support Management Decisions

• Transactional I.T. investment-- day-to-day operations

• Threshold I.T. investment– Help with medial tasks

A BALANCING ACT

• The intangible conundrum

• Hard data vs. soft data

WHAT IS REDISTRIBUTION?

• It is beneficial for the firm

• However, not for the industry.

• No output is created.

• Firms with inadequate IT budgets will lose out.

CONCLUSION

• Productivity paradox does exit.

• Canadian service sector spending increase by 64.2% during a 3 year period, with little gain.

• Organisations need to be patient.

CONCLUSION• Decision making needs to change.• Move to a more decentralised

organisation• True cost of new systems• Need employees on your side.

Thanks very much for listening.

Any Questions?