October 3, 2007

The Not-So-Obvious Power of Information Technology

New computer and information technologies not only increase productivity, they can transform entire organizations and industries.


From the most modest pencil to flashiest handheld PDA, all forms of technology change the way people work when first introduced. Ideally, new tools increase efficiency and productivity and improve the workplace. The enormous rise in American productivity in the 1990s, for example, was attributed to a number of factors, including the rise of information technology (IT).

Around that time, market observers noted an increasingly skewed wage distribution. Because wage distribution correlates closely with productivity, economists theorized that the increase in IT might have demanded that some workers develop new skills, which in turn pushed up their wages relative to the wages of workers with fewer IT-related skills. But no hard data had been gathered comparing productivity or worker skills before and after the widespread introduction of IT. Whether IT was the force behind the trends in productivity and wages remained an open question.

Professors Ann Bartel and Casey Ichniowski, with their coinvestigator Kathryn Shaw of Stanford University, sought to conclusively demonstrate the links among IT, productivity and worker skills. Following an approach they term insider econometrics, the researchers gathered rich data from one industry — valve manufacturing — by conducting a survey and making field visits to manufacturing plants to understand what IT the industry was using, how productivity was best measured and where the effects of worker skills were most important.

Like many industries in the 1990s, valve manufacturers had begun replacing old machining equipment with new, IT-embedded machines. The new equipment looked very similar to the old machines but, as the researchers were about to find, had radically changed the industry.

Focusing on a single industry allowed the researchers to make very detailed productivity comparisons. “We had to compare apples to apples, measuring seconds of run time and minutes of setup time on the same product before and after new IT-enhanced equipment was installed,” Ichniowski explains. “We had to make sure that if machinists at one plant say more programming skills are required, that machinists at the other plants are talking about the same kind of programming skills.” The researchers talked with manufacturers, human resources managers and workers, asking survey participants about the kinds of technologies in plants, their impacts, how products had changed, what kinds of work people were doing and how people worked together differently, if at all.

In plants that adopted newer, IT-embedded machines, the setup, manufacturing and inspection times all became faster, allowing manufacturers to make more products in any given time period.

But increased productivity wasn’t the only change — process improvement begat product innovation. Decreases in the time it took to switch a machine from making one kind of valve to making a different valve permitted manufacturers more flexibility in the production process. “The less-time-consuming and less-costly product switchovers made smaller batch production more profitable, so the new IT enhancements enabled more custom features. Now customers can indicate online the exact way they want a product,” explains Ichniowski.

The new IT-embedded machines also changed the way machinists worked. “At the simplest level, IT required different skills from the workers and changed the way workers interact,” Ichniowski says. Machine operators used more math, problem-solving and teamwork skills when compared with workers in plants that had not adopted newer machines. “These plants now compete differently, adopting new business strategies favoring more customized production. Production speeds are faster, operators needs new kinds of skills, and new human resources practices redefine work organization to promote greater problem solving.”

“These changes mean that investments in new IT confront managers and workers with the challenges of running fundamentally different organizations,” explains Ichniowski. “It’s not just installing new equipment.”

And, IT is not just in personal computers and PDAs, he notes. Ichniowski points out that IT is almost everywhere but that we often don’t see it. “IT in large-scale manufacturing equipment still looks a lot like the old machines on the outside. In other industries we’ve visited, IT is in a laparoscopic knife that cauterizes a wound a millisecond after a doctor makes a surgical cut or it generates a customized script for your call center operator in response to a customer profile or it is a program that constantly adjusts the prices and features of tickets to entertainment events. I’m not sure that we appreciate just how pervasive IT is.”

Ann Bartel is the A. Barton Hepburn Professor of Economics and director of the Human Resource Management Program at Columbia Business School.

Casey Ichniowski is the Carson Family Professor of Business in the Management Division at Columbia Business School.

Read the Research

Ann Bartel, Kathryn Shaw

"How Does Information Technology Really Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement and Worker Skills"

View abstract/citation  Download PDF  

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