Information technology and its impact on productivity

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IT-information technology is one of the fastest developing branches of technology. It has become an important part of our every-day lives and doing serious business has become impossible without using IT. The question on everybody’s lips is: is it really improving workers’ productivity?

Basics:

IT is the area of managing technology and spans wide variety of areas that include but are not limited to things such as processes, computer software, information systems, computer hardware, programming languages, and data constructs. In short, anything that renders data, information or perceived knowledge in any visual format whatsoever, via any multimedia distribution mechanism, is considered part of the IT domain. IT provides businesses with four sets of core services to help execute the business strategy: business process automation, providing information, connecting with customers, and productivity tools.[1]

Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input. Productivity is a measure of output from a production process, per unit of input.[2]

The impact of information technology on work life has been one of the most talked about issues over the recent years. Chief executive officers spending millions of dollars on information technology face the critical issue of assessing the impact of this technology on work. Information system managers are increasingly required to justify technology investment in terms of its impact on the individual and his/her work. Measures of impact of information technology have narrowly focused on productivity impacts. This study uses a broader concept that is based on the impact of technology on the nature of work literature. This literature recognizes the multiple impacts of technology on work at the level of the individual. A review of the literature enabled us to generate thirty-nine items that were grouped into four constructs. In a pilot study, these constructs were assessed by observers in structured interviews with eighty-nine users to provide a criterion measure. Next, the users completed the thirty-nine item questionnaire. The unidimensionality, internal consistency and criterion-related validity of each construct were assessed. The pilot results suggest a four factor 12-item instrument that measures how extensively information technology applications impact task productivity, task innovation, customer satisfaction and management control. In a large scale study, a sample of 409 respondents was gathered to further explore this 12-item instrument and its relationships with other constructs (user involvement, user satisfaction, system usage). The results support the four factor model. Evidence of reliability and construct validity is presented for the hypothesized measurement model and future research is discussed.[3]

For over a decade, empirical studies in the information technology (IT) value literature have examined the impact of technology investments on various measures of performance. However, the results of these studies, especially those examining the contribution of IT to productivity, have been mixed. One reason for these mixed empirical findings may be that these studies have not effectively accounted for the impact of technology investments that increase production efficiency and improve product quality on firm productivity. In particular, it is commonly assumed that such investments should lead to gains in both profits and productivity. However, using a closed-form analytical model we challenge this underlying assumption and demonstrate that investments in certain efficiency-enhancing technologies may be expected to decrease the productivity of profit-maximizing firms. More specifically, we demonstrate that investments in technologies that reduce the firm’s fixed overhead costs do not affect the firm’s product quality and pricing decisions but do increase profits and improve productivity. In addition, we demonstrate that investments in technologies that reduce the variable costs of designing, developing, and manufacturing a product encourage the firm to improve product quality and to charge a higher price. Although this adjustment helps the firm to capture higher profits, we show that it will also increase total production costs and will, under a range of conditions, decrease firm productivity. Finally, we show that the direction of firm productivity following such investments depends upon the relationship between the fixed costs of the firm and the size of the market.[4]

257 studies met the inclusion criteria. Most studies addressed decision support systems or electronic health records. Approximately 25% of the studies were from 4 academic institutions that implemented internally developed systems; only 9 studies evaluated multifunctional, commercially developed systems. Three major benefits on quality were demonstrated: increased adherence to guideline-based care, enhanced surveillance and monitoring, and decreased medication errors. The primary domain of improvement was preventive health. The major efficiency benefit shown was decreased utilization of care. Data on another efficiency measure, time utilization, were mixed. Empirical cost data were limited.
Four benchmark institutions have demonstrated the efficacy of health information technologies in improving quality and efficiency. Whether and how other institutions can achieve similar benefits, and at what costs, are unclear.[5]

As more information technology (IT) is deployed in organizations, it is important to understand its impact on individual performance and organizational productivity. Most past research has concentrated on identifying determinants of computer acceptance. This may be inadequate in determining the value and return on investment due to IT. Organizations are able to deploy IT more effectively if the consequences of its acceptance are obviously valuable. This study seeks to investigate the implications and consequences of IT acceptance by examining the relationships between IT acceptance and its impact on the individual user. The research model involves three components: user satisfaction, system usage, and individual impact. It is hypothesized that user satisfaction and system usage affect individual impact and that usage partially mediates the effect of satisfaction on individual impact.
A comprehensive questionnaire on computer acceptance was used to collect data from 625 employees of a large organization in Singapore. The results suggest that user satisfaction is an important factor affecting system usage and that user satisfaction has the strongest direct effect on individual impact. The results also demonstrate the importance of system usage in mediating the relationship of user satisfaction on individual impact.[6]

Based on previous empirical research, there seems to be little relation between investment in information technology (IT) and financial performance (often referred to as the `productivity paradox’). We hypothesize that this is due to the fact that many companies implement IT projects ineffectively. Like any other asset, IT must be utilized effectively to result in increased financial performance. By comparing successful users of IT and less successful users of IT, we show that successful users of IT have superior financial performance relative to less successful users of IT. However, any financial performance advantage is short-lived, possibly due to the ability of competitors to copy IT projects.[7]

Technology products are a means to an end, not an end in themselves. When thinking about your IT needs, always begin by thinking about your strategy and business goals.
Ask: how can I improve my business? Where can I get the jump on competitors? What are my biggest costs and where would I benefit most from efficiency gains?
Remember that IT can be a powerful source of competitive advantage. Do with IT what your competitors can’t, and customers will take note.
Only once you’ve decided exactly what it is that your businesses wants to achieve with technology, should you start looking for the solutions themselves.

Conclusion:

It cannot be said that information technology has a direct impact on productivity. It does help iproductivity in many cases and improve it, however, it does not have a direct influence on it.

References:

[1] http://en.wikipedia.org/wiki/Information_technology
[2] http://en.wikipedia.org/wiki/Productivity
[3] “The development of a tool for measuring the perceived impact of information technology on work” by G Torkzadeh and W.J Doll
[4] “The Impact of Technology Investments on a Firm’s Production Efficiency, Product Quality, and Productivity” by Matt E. Thatcher and Jim R. Oliver
[5] “Systematic Review: Impact of Health Information Technology on Quality, Efficiency, and Costs of Medical Care” by: Basit Chaudhry, MD; Jerome Wang, MD; Shinyi Wu, PhD; Margaret Maglione, MPP; Walter Mojica, MD; Elizabeth Roth, MA; Sally C. Morton, PhD; and Paul G. Shekelle, MD, PhD
[6] “The consequences of information technology acceptance on subsequent individual performance” by M. Igbaria and M. Tan
[7] “Does successful investment in information technology solve the productivity paradox?” by Theophanis Stratopoulos and Bruce Dehning