The Payoff From Information Technology

Productivity is the holy grail of American business. For the past decade, U.S. corporations have spent a staggering sum in search of it, only to be disappointed time and time again. Despite an enormous investment of $1 trillion in information technology alone, productivity gains have crawled along at about 1% a year.

Until now. During 1992, productivity jumped by 3%--and over the past eight quarters of economic recovery, it has risen at an average annual rate of 2.3%. Best of all, service-sector productivity is finally beginning to take off and approach manufacturing's recent gains.

The great surprise behind the statistics is in why productivity is picking up. It isn't simply cost-cutting or because corporations have thrown huge sums of money at technology. The productivity lesson of the 1990s is that technology is necessary but not sufficient for productivity growth. The big gains come about through the reorganization of work.

It is now clear that technology is capable of generating enormous amounts of information, but the trick is getting that data to people who can best use it. That turns out to be production, service, supply, and sales people, not managers. The "reengineering" of organizational structures is vital. Decentralizing old corporate hierarchies and empmwering employees making and selling products are the first steps to improving productivity. Providing them with the right kinds of technology is the critical next step.

Thanks to a new generation of user-friendly software, handheld wireless computers, and PC networks, information can now flow right to the front lines. New systems also connect companies to suppliers and distributors electronically and instantaneously. That's why reengineered corporations can actually do more with less--why downsizing works. The total impact is not just to reduce costs but to increase revenues. It's the top line that benefits from rising productivity.

But what about jobs, jobs, jobs? The short-term result of the productivity revolution is pain. Improved technology allows the same number of employees to do much more work, alleviating the pressure to hire.

Yet this technological revolution, like all the others before it, is laying the groundwork for a new generation of jobs--for those skilled enough to perform them. New industries--multimedia, for one--new markets--such as the one for personal digital assistants--and a slew of new companies will increase demand in the job markets. Companies enjoying higher productivity-generated profits will invest more, export more, and boost the incomes of their stockholders and employees. If history is a reliable guide, the new productivity gains will lift the living standards of all Americans.