Onslaught of technology hasn't paid off in significant productivity gains

March 08, 1992|By Jonathan Weber | Jonathan Weber,Los Angeles Times

SAN FRANCISCO -- Wells Fargo & Co., once a leader in the high-speed communications system known as the Pony Express, has more experience than most companies in managing technological change.

But nothing could have prepared it for the onslaught of technology that has transformed the financial services industry over the past two decades. Automated teller machines are now the centerpiece of Wells' retail banking operation. Checks that were once verified and logged by hand now whir through giant "reader-sorters" at the rate of several thousand per minute.

Wells has invested more than $1 billion on new technologies over the past decade, and the payoff seems obvious. The bank now handles more than twice as many checks, keeps its branches open twice as long, and offers a broader array of services than it did a decade ago -- with only 15 percent more people.

But Viewed from another angle, many of the apparent efficiencies at Wells Fargo and other banks are illusory. Banks can handle checks more cheaply, and that has encouraged people to write more checks, even though automated debit systems should be making checks obsolete.

Indeed, economists who analyze business efficiency have consistently found that the information technology revolution has had no measurable impact on the overall productivity of U.S. industry. While individual companies might be able to point out specific benefits, these efficiencies have failed to filter through to the economy as a whole.

"The cost of information technologies has fallen 15 percent a year for 20 years, and that's a remarkable opportunity," said Gary Loveman, an economist at the Harvard Business School. "You would expect to find lots of evidence of the economic

benefits and major, first-order improvements in productivity. But you don't."

Although productivity -- measured as output per worker -- remains better in the United States than in other countries, it has simply failed to improve significantly as a result of the computer revolution.

Computer professionals have greeted these findings with a mixture of derision and alarm. Some industry executives and analysts say that the "productivity paradox" reflects little more than an academic devotion to irrelevant statistics: The greater .. convenience now afforded Wells Fargo customers does not necessarily show up in productivity numbers.

Others worry that the lack of productivity gains from computer technology could be a factor in the severe slump that is gripping the computer industry. Even those who believe the issue has been overblown agree that the productivity paradox sheds light on some important issues about how computers are used and what they can be expected to accomplish.

"We tend simply to automate what was done by hand," said Paul R. Jones, head of computer operations for Unocal. "We need to ask: Why are we doing this faster? Do we need to do it at all? What we really need to be doing is re-engineering the business. That's where we'll see productivity gains."

Part of the explanation for the debate over computer efficiency lies in the way that productivity is calculated and defined. While there are several different ways of measuring productivity, all basically seek to gauge the value of output for a given level of input -- be it labor or cash for equipment.

The problem is that while the input part of the equation is easy to measure -- a certain number of people are employed at a given salary, a certain number of dollars are spent on computers -- the output side can be difficult to value.

"The types of things that information technologies make possible -- variety, quality, timeliness -- are exactly the things that don't show up in productivity statistics." said Eric Brynjolfsson, an assistant professor at the Massachusetts Institute of Technology's Sloan School of Management. "The productivity gains are there, but we're not measuring them."

Mr. Brynjolfsson cites the example of the banking industry, where customers now have access to ATMs, hundreds of new financial products, far more detailed account statements and other services that would have been unthinkable in the pre-computer era.

There are numerous examples where computers have produced seemingly substantive benefits that are almost impossible to measure. What is the value of a research report that features elegant page layouts and snazzy graphics rather than simple typewritten text? Or how about the ability to create a three-dimensional computer model of a building design, rather than rely on drawings? Or the opportunity to watch any of 50 TV stations at the touch of a button?

"The concept of productivity came out of a world organized around industrial manufacturing," said Stewart Alsop, editor of the P.C. Letter. "But what we should measure now is quality of life and quality of society, how you organize your life and how you interact with other people."

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