Productivity Paradox

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BA 471 - Productivity Paradox - Business Process Reengineering

1990: IS in trouble; poor software engineering:

Yourdon, E. (1992) Decline and Fall of the American Programmer.

Decline and fall of the American Programmer

Gibbs, W. (1994): Software's Chronic Crisis:

U.S. software industry: total 1990: $100B; off-the-shelf (10%).

75% of all software are operational failures.

25% of all large development initiatives canceled.

Average schedule overshoot 50%.

Avison et al. (2006): ...still lots of problems.

Why?

Software is different and difficult: continuous vs. discrete: it breaks rather than bends.

Software development is a young discipline.

SEI (Carnegie Mellon) Capability Maturity Model (CMM):
CMM scores Gibbs (1994):

261 teams rated.

Level 1 Initial: 75%.

Level 2 Repeatable + Stage 3: Defined: 24%.

Level 5: Optimized: 2 (< 1%).

CMM scores 2002:

1345 organizations; 508 companies.

Level 1 Initial: 16.9%.

Level 2 Repeatable: 43.2%.

Level 3 Defined: 24.6%.

Level 4 Managed: 8%.

Level 5: Optimized 7.3%.

US vs. Offshore:

Initial
Repeatable
Defined
Managed
Optimized
Total

US
155
335
164
39
19
712

Offshore
72
246
167
69
79
633

Total
227
581
331
108
98
1345

(Solow) Productivity Paradox (Stair & Reynolds, p. 68):

Solow, R. (1987) "We see computers everywhere except in the productivity statistics."

Roach, S. (1987) America's White-collar Productivity Dilemma;

Cap. investments per information worker up.

Number of information workers up.

Output per information worker down (6.6%).

"We have in essence isolated America's productivity shortfall and shown it to be concentrated in that portion of the economy that is the largest employer of white-collar workers and the most heavily endowed with high tech capital."

Brynjolfsson, E. (1993) The Productivity Paradox of Information Technology:

IT investments small relatively.

At 10% GNP 1993.

Took 30 years to grow to 10% of GNP.

==> contributions to GNP growth small.

Measuring IT productivity (input and output) is difficult, both in manufacturing and service industries.

IT Investments take time to generate returns (adjustment, learning, etc.).

IT implementations have suffered from mismanagement.

Statistics are based on aggregates rather than collections of individual firms.

Brynjolfsson, E. & Hitt, L. (1998) Beyond the Productivity Paradox:

Productivity (input/output) is hard to define/measure.

Firm-level studies:

Firm-level studies do show productivity gains.

Large variation in degree of success (Figure 2).

50% of IT benefit variation unexplained by overall trend.

Long term returns better than short term returns (Fig. 3).

Problem: Why are the returns high in the long run? What happens in the mean time? (Stair & Reynolds, p. 48-68):

Organizational structure changes (towards horizontal (flat), project/team/matrix-based, virtual, etc.)

Drucker, P. (1909 - 2005): IT ==> flatter organizations; i.e., less hierarchy and more decision responsibility among workers.
Huber, G. (1990) Theory of the Effects of Advanced Information Technologies on Organizational Design, Intelligence, and Decision Making:

More people will function as information sources in the making of decisions.

Decrease in face-to-face contacts.

Less time in meetings.

Increased distribution of decision-making responsibilities.

Increased decentralization

Fewer levels in decision-making process.

Better information (higher precision & reliability and more timely).

Earlier detection of problems.

Better and quicker decisions.

Problem: What do you think has come of these predictions?

Business process reengineering:

High performance work systems.

Flexible/JIT manufacturing.

Technology diffusion.

Total Quality Management (TQM).

Productivity increases mostly result from "working smarter."

Introduction new technologies and methods; e.g., steam engine and electric loom.

Interesting example: replacement of steam by electricity at first did not dramatically increase productivity.

IT combined with organizational and process changes enables working smarter.

"Organize in ways that leverage the value of IT."

Kraemer, K., & Dedrick, J. (2001) The Productivity Paradox: Is it Resolved? Is There a New One? What Does it All Mean for Managers?:

Paradox is resolved. IT pays, but only if you use it wisely.

Combine IT investments with better business processes.

Align IT with business strategy.

Decentralization seems to work.

Decentralization combined with strong (centralized) IT leadership seems to work.

Measure!!!

Stair & Reynolds (p. 67): Overall: three major stages in IS development and use:

pre 1980s: cost reduction & productivity (mostly mechanization/automation).

mid 1980s - late 1990s: competitive advantage (Porter).

post 2000: performance-based management (strategic advantages as well as cost).

	Initial	Repeatable	Defined	Managed	Optimized	Total
US	155	335	164	39	19	712
Offshore	72	246	167	69	79	633
Total	227	581	331	108	98	1345