What is the IT productivity paradox, and how the cloud will help solve it
In the 70s of the last century, companies began to use computers in their work. As noted by MIT professor Erik Brynjolfsson (Erik Brynjolfsson) in his study, from that time until the beginning of the 90s, the cost of purchasing computing systems increased by more than two orders of magnitude (see chart on page 40). It was expected that with an increase in investment in IT-technology will increase and productivity. However, this did not happen.
This phenomenon is called the “productivity paradox” ( productivity paradox ). And he shows his solvency even in our time - investments of companies in IT do not pay off. But there was an opinion that cloud technologies can solve the paradox once and for all.
Today we decided to look into the matter.
/ Flickr / chrstphre / CC
At different times, scientists and researchers involved in this issue, understood by productivity different things. Two popular metrics were return on investment and labor productivity.
In the first case we are talking about the return on invested capital (ROI), which is the ratio of the amount of profit or loss to the amount of investment. For example, economics professors Catherine Morrison and Ernst Berndt resorted to him when they conducted research for the US National Bureau of Economic Research. They studied the manufacturing sector and found that for every dollar invested by companies in IT-technology, on average, they accounted for 80 cents of profit.
As for labor productivity, the economist Gary Loveman used this method of evaluation. In his work, he studied the data of 60 large industrial enterprises for five years. Loveman found that, despite the fact that firms were increasing their investments in IT, the volume of their products remained at the same level.
One of the first thoughts about the economic inefficiency of computers was expressed by William Bowen in the article “The Insufficient Economic Efficiency of Computers in the Office” ( The Puny Payoff from Office Computers ). It was published by Fortune magazine in the mid-80s. Bowen wrote that the introduction of computers does not lead to an increase in productivity, since companies do not change the corresponding business processes — they do not make adjustments for new technologies.
For a while, only economists spoke about paradox, and their publications were distributed among a narrow circle of people. Because the problem did not cause a noticeable reaction. The impetus to the study of the paradox of IT productivity was the publication in the New York Times of 1987, made the Nobel Prize winner for fundamental research in the theory of economic growth Robert Solow (Robert Solow).
Soon, engineer Paul Strassmann, well-known in the USA for his research in the field of information technology economics, joined the discussion of the problem. While still working at Xerox, he conducted research among more than two hundred companies. Strassman estimated the IT costs of organizations in terms of per employee and compared them with the company's return on equity ( ROE). In his book “The Business Value of Computers ” ( Business Value of Computers ), he summed up - there is no statistical dependence between these two quantities.
Over time, Strassman supplemented the study and in 1996 published a new work. In it, he brought a new schedule, based on data from five hundred companies from America, Europe and Canada. The graph looks like an unstructured point cloud (the first graph in the first chapter).
During all this time — from 1975 to 1995 — in the United States, average annual productivity growth was 1.4% . This is not much, given the fact that the projected growthThe return on investment ratio describing productivity growth was 3–4% (by analogy with the indicators that were achieved by automating production on farms and factories).
In the period from 1996 to 2010 in the United States there were positive changes in productivity growth up to 2.9 and even 5.2%. However, as experts say, the jumps were caused solely by fluctuations in economic activity , and not by the growth of investment in IT. Since in 2010 this figure fell again - already to 0.9% .
/ The Flickr / Torkild Retvedt / CC
Thus, the resolution of the paradox requires changes at a fundamental level. It is necessary to improve not only the technologies themselves, but also to change the approaches to their use - William Bowen, about whom we spoke above, wrote about this.
One of the breakthroughs in this direction has become cloud technologies, whose popularity has significantly increased in recent years . And it is believed that they will allow to deal with the paradox of productivity once and for all.
One of the options for resolving the paradox is to increase profits on invested in IT capital. Cloud technologies are capable to help with it. Using a virtual server instead of “iron”, the company can reduce the cost of maintaining it by about a third (the exact figure varies depending on the desired hardware configuration).
Savings manifestdue to mass business processes occurring in the data center of the cloud provider. For example, due to the fact that the equipment in the data center is purchased in large quantities, the provider receives discounts from suppliers. And the cost of supporting infrastructure — air conditioning installations, uninterruptible power supplies, protection systems — are “shared” among all servers. You can reduce your electricity bill by redistributing the load and shutting off some of the low-load servers.
According to Fortune , 60% of employees of international companies, in order to simply do their job, are forced to daily seek help from at least ten colleagues. Over the past 15 years, the number of required approvals at work in some organizations has increased by 50–350%.
Thus, employees spend more time waiting for their questions to be resolved, and there is less and less time to complete tasks. Cloud technologies can solve this problem, simplify the exchange of information and increase productivity. According to the studyFrost & Sullivan, which was attended by more than 3.5 thousand businesses, investment in technologies that develop a "culture of communication and interaction", in some cases can double the productivity of employees.
These technologies can be cloud platforms for communication. When British Telecom, Best Buy and Dow Chemicals gave their employees the right to work remotely, their productivity increased by 35–40%.
According toIntuit, which develops corporate financial management software solutions, by 2020, freelancers in the US will make up 40% of the working population. Moreover, 80% of large companies will increasingly hire freelancers to work. The cloud simplifies the collaboration of colleagues working both remotely and on the ground. It acts as a kind of intermediary, providing a centralized working space.
In software development, this allows for the active use of practices such as continuous integration and pair programming. For example, at the beginning of this year, its joint development solution presentedMicrosoft company. This is an extension for Visual Studio - VS Live Share. One of the users sends an invitation link to a colleague (for example, via email, Skype or Slack), and they get into the software environment where you can share content and work on a common project.
Today, companies are increasingly paying attention to cloud services. Computer Economics, a research firm, interviewed representatives of more than 200 IT companies and found that 67% of organizations choose cloud applications and 52% choose cloud infrastructure. And now we can say that clouds can have a positive impact on the productivity of company employees. We can estimate the scale of this influence in the near future.
This phenomenon is called the “productivity paradox” ( productivity paradox ). And he shows his solvency even in our time - investments of companies in IT do not pay off. But there was an opinion that cloud technologies can solve the paradox once and for all.
Today we decided to look into the matter.
/ Flickr / chrstphre / CC
What is meant by productivity
At different times, scientists and researchers involved in this issue, understood by productivity different things. Two popular metrics were return on investment and labor productivity.
In the first case we are talking about the return on invested capital (ROI), which is the ratio of the amount of profit or loss to the amount of investment. For example, economics professors Catherine Morrison and Ernst Berndt resorted to him when they conducted research for the US National Bureau of Economic Research. They studied the manufacturing sector and found that for every dollar invested by companies in IT-technology, on average, they accounted for 80 cents of profit.
As for labor productivity, the economist Gary Loveman used this method of evaluation. In his work, he studied the data of 60 large industrial enterprises for five years. Loveman found that, despite the fact that firms were increasing their investments in IT, the volume of their products remained at the same level.
A couple of words about paradox
One of the first thoughts about the economic inefficiency of computers was expressed by William Bowen in the article “The Insufficient Economic Efficiency of Computers in the Office” ( The Puny Payoff from Office Computers ). It was published by Fortune magazine in the mid-80s. Bowen wrote that the introduction of computers does not lead to an increase in productivity, since companies do not change the corresponding business processes — they do not make adjustments for new technologies.
For a while, only economists spoke about paradox, and their publications were distributed among a narrow circle of people. Because the problem did not cause a noticeable reaction. The impetus to the study of the paradox of IT productivity was the publication in the New York Times of 1987, made the Nobel Prize winner for fundamental research in the theory of economic growth Robert Solow (Robert Solow).
Soon, engineer Paul Strassmann, well-known in the USA for his research in the field of information technology economics, joined the discussion of the problem. While still working at Xerox, he conducted research among more than two hundred companies. Strassman estimated the IT costs of organizations in terms of per employee and compared them with the company's return on equity ( ROE). In his book “The Business Value of Computers ” ( Business Value of Computers ), he summed up - there is no statistical dependence between these two quantities.
Over time, Strassman supplemented the study and in 1996 published a new work. In it, he brought a new schedule, based on data from five hundred companies from America, Europe and Canada. The graph looks like an unstructured point cloud (the first graph in the first chapter).
During all this time — from 1975 to 1995 — in the United States, average annual productivity growth was 1.4% . This is not much, given the fact that the projected growthThe return on investment ratio describing productivity growth was 3–4% (by analogy with the indicators that were achieved by automating production on farms and factories).
In the period from 1996 to 2010 in the United States there were positive changes in productivity growth up to 2.9 and even 5.2%. However, as experts say, the jumps were caused solely by fluctuations in economic activity , and not by the growth of investment in IT. Since in 2010 this figure fell again - already to 0.9% .
/ The Flickr / Torkild Retvedt / CC
How to solve the paradox?
Thus, the resolution of the paradox requires changes at a fundamental level. It is necessary to improve not only the technologies themselves, but also to change the approaches to their use - William Bowen, about whom we spoke above, wrote about this.
One of the breakthroughs in this direction has become cloud technologies, whose popularity has significantly increased in recent years . And it is believed that they will allow to deal with the paradox of productivity once and for all.
Optimize costs
One of the options for resolving the paradox is to increase profits on invested in IT capital. Cloud technologies are capable to help with it. Using a virtual server instead of “iron”, the company can reduce the cost of maintaining it by about a third (the exact figure varies depending on the desired hardware configuration).
Savings manifestdue to mass business processes occurring in the data center of the cloud provider. For example, due to the fact that the equipment in the data center is purchased in large quantities, the provider receives discounts from suppliers. And the cost of supporting infrastructure — air conditioning installations, uninterruptible power supplies, protection systems — are “shared” among all servers. You can reduce your electricity bill by redistributing the load and shutting off some of the low-load servers.
Improve collaboration
According to Fortune , 60% of employees of international companies, in order to simply do their job, are forced to daily seek help from at least ten colleagues. Over the past 15 years, the number of required approvals at work in some organizations has increased by 50–350%.
Thus, employees spend more time waiting for their questions to be resolved, and there is less and less time to complete tasks. Cloud technologies can solve this problem, simplify the exchange of information and increase productivity. According to the studyFrost & Sullivan, which was attended by more than 3.5 thousand businesses, investment in technologies that develop a "culture of communication and interaction", in some cases can double the productivity of employees.
These technologies can be cloud platforms for communication. When British Telecom, Best Buy and Dow Chemicals gave their employees the right to work remotely, their productivity increased by 35–40%.
According toIntuit, which develops corporate financial management software solutions, by 2020, freelancers in the US will make up 40% of the working population. Moreover, 80% of large companies will increasingly hire freelancers to work. The cloud simplifies the collaboration of colleagues working both remotely and on the ground. It acts as a kind of intermediary, providing a centralized working space.
In software development, this allows for the active use of practices such as continuous integration and pair programming. For example, at the beginning of this year, its joint development solution presentedMicrosoft company. This is an extension for Visual Studio - VS Live Share. One of the users sends an invitation link to a colleague (for example, via email, Skype or Slack), and they get into the software environment where you can share content and work on a common project.
Today, companies are increasingly paying attention to cloud services. Computer Economics, a research firm, interviewed representatives of more than 200 IT companies and found that 67% of organizations choose cloud applications and 52% choose cloud infrastructure. And now we can say that clouds can have a positive impact on the productivity of company employees. We can estimate the scale of this influence in the near future.