Mckinsey research released a new study (free reg. req.)of 100 manufacturing companies in the United States, the United Kingdom, Germany, and France which shows that IT expenditures have little impact on productivity unless they are accompanied by first-rate management practices. From 1994 through 2002, the companies were rated on a scale of 0-5 on how well they used tools such as lean management, which cuts waste in the production process performance management which rewards employees who meet set goals and talent management,which attracts and retains high-caliber people. The research found that a one-point improvement on the scale was correlated with a 25 percent increase in a company's productivity. On the other hand, adding additional computer power alone resulted in a modest increase of just one-sixth the impact of a one-point improvement in management practices. Results indicate that a one-point improvement on the scale was correlated with a 25 percent increase in a company's total factor productivity (a measure that includes both labor and capital productivity). To put this into perspective, such an improvement has an effect comparable to that of raising capital investment by 70 percent, going from 10 manufacturing plants to 17, or increasing the workforce by 25 percent.How do IT investments stack up?- The top quartile of companies, as reckoned by the level of their IT deployment, had a total factor productivity just 4 percent higher, on average, than those in the bottom quartile—just one-sixth of the impact of a one-point improvement in management practices. Moreover, companies with more powerful IT didn't do better financially.Of course, managers shouldn't stop buying computers. Rather, the results show that companies can get the biggest benefit by combining IT investments with good management. For corporations scoring in the bottom quartile of management practices, the deployment of more powerful IT is associated with productivity improvements of just 2 percent. However, companies with increased computing power and improved management practices achieve 20 percent higher productivity. Good management is essential to squeeze productivity benefits from new investments in computers and software. Companies should therefore focus on improving their management practices before they embark on IT spending sprees. |
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