IT Productivity: Measuring the Immeasurable

The productivity numbers released by the U.S. Bureau of Labor Statistics in October 2006 sent a shock wave around the country: After showing robust increases for several years, productivity growth had slowed to an annualized 0.0 percent (though that was later revised up to 0.2 percent). Meanwhile, the trailing 12-month figure sat at a paltry 1.3 percent, the slowest growth since 1997.

What happened? The news of the slowdown, or near halt, to productivity growth brought with it fears that the rapid gains of the past five years were over, and that IT’s contribution to productivity growth was perhaps overstated. But wasn’t information technology supposed to fuel never-ending productivity increases? Isn’t that why we spent all that money on the stuff?

The answer, not surprisingly, is complicated. It’s so complicated, in fact, that in the ongoing debate over the impact of technology on productivity, Accenture Ltd., Microsoft Corp. and Hewlett-Packard Co. have created a new trade association dedicated to defending IT’s honor. Their Institute for Innovation and Information Productivity, or IIIP, is a nonprofit group endeavoring to redefine how productivity is calculated and measured in an information-based service economy, a critical issue for technology and IT services vendors of all stripes.

Karen Lojeski, the research director for the IIIP, puts the problem in strong terms. “The way productivity is measured today just doesn’t make any sense. All these productivity measures are based on manufacturing models, and there’s no accurate calculation at the macro level of how to capture productivity in the service sector. And when you have an economy that’s 80 percent service, you’ve got a problem. The idea of trying to understand it as the number of people working times the number of hours worked equals X number of widgets doesn’t make any sense in a knowledge-based environment.”

The questions that the IIIP is asking—and trying to answer—are ones that have vexed the business community for decades. And they are fueling a revival of the classic debate over IT productivity. What is IT’s contribution to productivity? Is productivity even the proper way to measure the potential for economic growth and increases in the nation’s standard of living? The answers depend on whom you ask, and on what it is you’re really trying to measure. And the answers are critical, as they hold the key to understanding the true value of IT investments.