Isotupa Consulting Inc.
473 Oakfield Crt.
Waterloo, Ontario, N2T 1X5
tel. 519 885-5187






July 12th, 2004

The IT and Productivity Gains

"You can see the computer age everywhere but in the productivity statistics."
Robert Solow (1987)

A friend of mine (as an average end user) recently asked me if computers have ever contributed to productivity and increase in standard of living. My quick answer was not really yet… My curiosity got better of me and I started to look into why it is so. There are several excellent papers published about how it is almost impossible to measure productivity gains of computer age with financial or economical meters. However, I can easily see some other obvious reasons.

As a professional software developer I first looked into what is happening in my industry. Who can anymore learn to take advantage of all the features in the new Office applications? Nobody that I have met… Most new features only clutter the workspace for an average user. Most home users never configure their operating systems beyond the default settings, unless forced to – and usually end up spending endless hours doing that. Corporations standardize their software configurations and try their best to stop end users “tweaking” their own machines. It seems to me that a lot of new “productivity” features actually lower the productivity of an average user. Here industry has definitely gone past the diminishing returns to the territory of negative productivity growth with the excessive feature bloat. 

All is not bad though, a few of the new features actually make software more reliable, easier to use, easier to configure and maintain. But it is difficult to sell new versions if improvements are only in the area of reliability (It should work now – We paid for it), speed and ease of use (Why couldn’t those features be included in the version we have now!).

Most of the IT dollars are spent in office automation in one way or another. It is also easy to see that no real productivity gains can be achieved there. The office automation has not and will not lead to “paperless” offices where all business processes are automated and the remaining office staffers are only required to handle exceptions.

Today’s offices produce enormous amounts of data and even some business intelligence (BI). Offices before computer age produced standard financial records and maintained business processes set in the stone – no real-time BI nor adhoc business queries nor quick reorganizations were possible. So the computer age has brought a new level of BI and agility to the corporation. But as by itself, this added BI produces no productivity gain as at least same proportion of the corporate staff is needed to produce it and the overhead is higher than before the advent of computers. However, no corporation can survive in today’s world without real-time BI and the agility to instantaneously change direction brought by computerization of business processes. This new additional knowledge work has used up all the productivity gains that computers in manufacturing and the office automation has been able to bring to the table.

The corporate overhead is high in IT due to multiple factors. First and foremost is the constant need to upgrade systems and software. This creates negative productivity due to user retraining, integration needs, physical labour to affect the upgrade and due to the need to change business processes to fit the new technology. This happens at such a fast tempo today that ROI of these investments remains dismal. But this is again a part of the price for staying in business. Another significant factor is that IT investments are done with scant or occasionally non-existent business cases and plans when compared to other types of investments, such as building new manufacturing capability. I have known a CEO that argued in length with an architect about the number of electrical outlets (~$7 apiece) at the new office and then on the same day instructed his CIO to get one of those CRM systems (millions $$$) just because he read about them in a magazine and learned that the XYZ competitor has one of those systems… In short, following the current fads without a thorough understanding of the reasons behind them does not do much good for the productivity. 

The productivity gains of the computer age will show up and I believe have now started to show up, but it is due to several not so obvious factors. First and foremost the system maintenance cost has gone down due to automated software updates. The hardware and software upgrade cycles have gone longer (Windows 98 will be supported years longer than Microsoft hoped for). There is even a concept of “good enough computing”. The majority of the new updates today fix reliability and security issues, and do not provide new features. This trend will mean that we will start to see ease of use, reliability, maintainability and the hiding of the feature bloat as major new directions for software and hardware. This will increase the productivity. Also the dot-com boom is almost paid for and the corporations will be more vary of throwing billions of dollars into schemes that have no fathomable business case or achievable productivity gain.

Off-shoring will be a washout for the productivity as prices of these services will rise quickly and communication/control problems will kill the remaining gains. However, we will see demand for IT professionals and for other knowledge workers diminishing as their skills will be in less demand – this is real gain in productivity for the corporations.

I believe we will see more and more productivity gained by the use of computers in the near future. Does this really raise the standard of living here as millions of knowledge workers will be laid-off as a result, is a question that I will leave to economists. 

Personally I will be investing my time developing easy to use, simple (as in hiding the complexity), reliable, easily configurable and maintainable applications as well as software designs to support these trends. This allows my end users to get their job done quickly with the least widgets…

Yours Sincerely,

Peter Isotupa, M.Sc(Tech)
Isotupa Consulting Inc.

PS. My pet peeve – Internet business without brick and walls component or unique intellectual (patented/copyrighted) property is so easy to duplicate that only one business with the lowest prices and lowest level of acceptable service will survive in any business place. The companies will be under constant attack from many well funded wannabe’s. This automatically means very low profit margins compared to money invested or compared to turnover. Even the winners of this game will be very bad business investments as they will never be able to make a real profit. What do you think?