Irving Wladawsky-Berger

IT, Productivity and Organizational Capital

As the US recovers from the financial crisis, economic policies that encourage capital investment and job creation must be our top near-term priorities.  But, to achieve long term economic growth, as well as gains in our standard of living, the US must also focus on innovation and productivity growth. 

US labor productivity - “the amount of goods and services that a laborer produces in a given amount of time” - grew at only 1.5% between 1973 and 1995.  This period of slow productivity coincided with the rapid growth in the use of computers in business, giving rise to the Solow productivity paradox, in reference to Robert Solow's 1987 quip: “You can see the computer age everywhere but in the productivity statistics.”

But, starting in the mid 1990s, US labor productivity surged to over 2.5%.  In an analysis of US labor productivity over the previous fifty years, Harvard economist Dale Jorgenson and his collaborators concluded that “the pessimism of the computer productivity paradox gave way to near-universal belief in a productivity resurgence led by information technology in the late 1990s.”

This IT-based productivity resurgence has continued, except for a short period that reflects the declining IT investment right after the bursting of the dot-com bubble, and the maturing of the global economic expansion in 2005 and 2006.  Even as economic growth has lagged in 2009 and 2010, productivity growth has remained robust.

This productivity growth was led by IT producing companies during the dot-com bubble years of the 1990s, e.g., developers of semiconductors, hardware and software.  But since 2001, the productivity growth has been led by IT-using industries, especially those industries that are intensive users of IT, like retail trade, scientific and technical services and financial services.  Given their fast declining prices, these companies have been able to acquire and deploy significantly more information technologies across all their operations.

In a recently published book, Wired for Innovation: How Information Technology is Reshaping the Economy, Erik Brynjolfsson and Adam Saunders explore the links between the current wave of IT-based business innovation and the productivity resurgence in the U.S. economy.  Erik Brynjolfsson is professor in MIT’s Sloan School of Management and Director of the MIT Center for Digital Business.  Adam Saunders is lecturer at the Wharton School of the University of Pennsylvania, as well as a doctorate candidate at MIT’s Sloan School.

Reflections on the “Post-Retirement” Phase of My Life

In June of 2007, I retired from IBM, where I had worked ever since completing my studies at the University of Chicago in 1970.  A number of friends and colleagues who are themselves contemplating retirement have asked me about my experiences.  So, let me please share what the first three years of my post-retirement life have been like.

I am no longer working full time in any one institution, but I also did not retire in the sense of not working at all.  I am still quite involved in a number of matters related to technology and business, but I am now doing so by working part-time with a few different institutions.  Roughly speaking, two thirds of my work is spent consulting on innovation and technical strategy, primarily with IBM and Citigroup, but now and then with other companies as well.  A quarter of my time is spent with universities, primarily MIT, Imperial College and SUNY’s Levin Institute.  The remaining time is spent in various other activities, including boards and government panels.

After 37 years of working full time for one company, I very much enjoy this new phase which I think of as distributed work, - being associated with several institutions instead of one primary one.  I particularly like the fact that I am now able to spend much more time with universities, in addition to continuing to be involved in business.  At this stage in my life, it feels right for me to have one foot in the private sector and one in academia, while also advising government as appropriate. 

This kind of flexible, distributed work model is one that I believe we will increasingly see, not just in the post-retirement phase of one’s career, as is the case with me, but throughout the careers of many so-called knowledge workers, that is, those “individuals who are valued for their ability to interpret information within a specific subject area,” - in analysis, design, research, strategy and development.

The Evolving Nature of the Corporation

What is a corporation?  In the aftermath of the financial crisis, the nature of the corporation has been the subject of considerable debate.  While this is a very complex topic, two major points of view seem to be emerging, which we can use to book-end the different ends of a spectrum, with many hybrid positions in-between.

At one end is the view that a corporation is an organization of individuals designed to provide goods and services to consumers, companies and other institutions.  Society benefits in a variety of ways, including the many goods and services that these corporations efficiently produce, as well as the many jobs that they create. 

At the other of the spectrum, is the view of the corporation as an organization that will use all lawful means for its single-minded objective of generating profit and wealth.  As we have seen with the financial crisis, that single-minded focus on wealth can degenerate into a behavior dominated by greed, where a relatively small number of people will do whatever they can to earn large sums of money without worrying about the impact of their actions on the larger society.

Which view of the corporation most applies today, and which best describes its likely evolution over time?  Does the overriding focus on wealth creation of the for-profit corporations create unique risks for democratic societies, and as a results their power must be carefully controlled by government and other societal interests?  Or is it a legal entity designed to promote the conduct of business and economic life in general, which should be entitled to many of the same rights and responsibilities of individuals in a well-functioning, civic society?

IT in the Age of the Cloud

IT is undergoing its biggest changes since the advent of client/server computing in the 1980s.  These changes are being driven by many factors, chief amongst them the emergence of a different model of computing, - cloud computing.  We are entering the Age of the Cloud.

For the IT industry, a new computing model is a very big deal.  In the fifty years or so since there has been an IT industry, this would be only the third such model, centralized and client-server computing being the two previous ones.  Not surprisingly, there are lots of discussions underway on the implications of this major transition to all aspects of the industry, from the technology and education requirements to the future roles of the corporate IT functions and the CIO position.

I recently came across a very interesting study on The Future of Corporate IT by The Corporate Executive Board, a consulting firm that provides research and analysis to business executives and professionals around the world.

The Executive Board study investigated the five-year outlook for corporate IT.  It interviewed and surveyed hundreds of IT and business leaders.  Its overall conclusion is that fundamental changes, already underway, will take place in how the IT function is organized and managed: 

“The IT function of 2015 will bear little resemblance to its current state.  Many activities will devolve to business units, be consolidated with other central functions such as HR and Finance, or be externally sourced.  Fewer than 25% of employees currently within IT will remain, while CIOs face the choice of expanding to lead a business shared service group, or seeing their position shrink to managing technology delivery . . . This study argues that the changes will be rapid, permanent, and radical.  We have advocated for a decade that IT leaders become demand shapers, not order takers.  Similarly, we now recommend that IT leaders devote the time, energy, and resources to actively shape the coming transition.”