MIT study better defines how computers benefit corporations

Rohit Khare (
Wed, 14 Feb 96 15:59:36 -0500

MIT study better defines how computers benefit corporations

By Ron Condon
InfoWorld Electric

Posted at 7:27 PM PT, Feb 13, 1996

The computer industry can breathe easily and hold their heads high. According
to a seven-year study by the Massachusetts Institute of Technology,
information systems really do make companies more efficient. What's more, IS
people have twice the impact on company efficiency as other staff, and
investment in IS systems can yield up to six times the return of any other
kind of capital investment.

This may be what IS professionals have known -- or hoped for -- for years,
but most of the research up to the early 1990s seemed to point in the opposite
direction, said Erik Brynjolfsson, a professor at MIT's Sloan School of
Management in Cambridge, Mass.

This so-called "productivity paradox," he said, had indicated that despite
companies pouring millions of dollars into IS systems, they did not appear to
increase efficiency by very much.

Brynjolfsson and his team have studied the performance of 367 large U.S.
companies since 1987, and have concluded that IS has become a positive
influence on company efficiency.

"There is significant evidence that the 'productivity paradox' disappeared by
1991, at least in our sample of firms," reports Brynjolfsson, in a paper due
to be published in the journal Management Science in April.

But he recently told a group of journalists at MIT: "Some firms don't get the
full returns -- Only if information systems are combined with new
organizational structures, then you can get the big payoff."

This does not just mean going through a superficial re-engineering exercise,
which Brynjolfsson said was often only used as an excuse to lay off staff.

"We need to change our mind sets," he asserted. This means that companies
must realize that a fundamental change has taken place. "Before, information
was a scarce resource -- now the scarce resource is management attention. With
new, cheap information, organizations have become dysfunctional," he said.

He said that companies that focused their attention on customer service,
rather than on strong managerial control, had made best use of information
systems. "IS is most effective when used in handling cheap information about
your customers," he said.

Shopkeepers and craftsmen of the last century knew their customers well, but
mass production broke the link with the customer, he said. Now companies are
trying to re-establish by using IS. One example he gave was of Levi Strauss,
the jeans manufacturer, which now offers a made-to-measure service based on
the use of IS and automation.

The by-product of this trend is that companies need more workers who can
handle the glut of information.

"Creativity and insight in humans will now be more valuable," said Brynjolfsson.

At the same time, groupware products are making it possible for
decision-making to be decentralized, and for companies to have a much flatter
management structure, with fewer layers of management.

Brynjolfsson's conclusion is that companies making investment decisions will
get a far higher return for their money by investing in IS staff and
information systems. But those gains will only take place if the company
re-organizes to take full advantage of them.

Ron Condon is a correspondent for the IDG News Service, an InfoWorld