Is the Verdict Finally in on the Value of IT on Productivity and High Performance?

By Gary A. Curtis, partner;

Deepak K. Goyal, associate partner;

and Bernhard Holtschke, partner

Last year, the business press reported the news of dramatic increases in productivity with some wonderment. After more than 20 years of mostly narrow annual gains, the kind of spectacular productivity numbers once reserved for young industries or emerging economies are now being posted by developed economies. In the third quarter of 2003 alone, the United States saw an 8.7 percent gain in productivity.

Changes in economic productivity in any large economy are driven by a complex interplay of influences-some well understood, some less so. Accenture believes that part of the excitement that has greeted recent productivity gains is fueled by the sense that what Erik Brynjolfsson, economist and director of the Center for eBusiness at MIT, and others have called “the productivity paradox” has finally been laid to rest. For years, it seemed that cumulative investment in information technology, which has been going on for decades, through every global business cycle (including the most recent one), should have produced economywide productivity results. But it didn’t. Brynjolfsson called this a “clash of expectations and statistics.”

At the individual company level, the good news about IT and productivity also is supported by a recent Accenture survey of 300 IT executives and business managers in the United States with median revenue of $10 billion. The survey found that business managers and IT executives agree that company productivity has increased in the past few years primarily due to four factors: better use of technology, the right amount of investment in technology, cost-cutting measures and business process re-engineering (see sidebar for more results).

However, the business executives are less convinced than the IT executives of the direct link between IT investment and business value. This is, of course, an old problem for CIOs. The difference is that today a CIO probably has more evidence than ever before to make a convincing case for the business value of IT investments.

A key objective of Accenture’s High Performance Business initiative is to glean lessons from top performers across several industries, with performance defined and measured by widely accepted financial metrics, particularly total return to shareholders. Measuring the connection between IT investment and productivity improvement is one of a number of ways that Accenture evaluates high performance. We are committed to augmenting a substantial body of productivity-related field experience with insight gained from continuous research. And that research will inform Accenture’s goal of making that insight actionable.

Three powerful forces joined together

At Accenture, we have anticipated this dramatic jump in IT-driven productivity for some time. Our expectations have been based on three factors that have long been integral to the IT value equation, factors that we believe have become sufficiently large and powerful today to have significant impact on business productivity, on both economywide and organization-specific scales.

The first factor is the scale and ubiquity of the installed base of current technology, an aggregate investment now worth trillions of dollars. Second is the continual functional evolution of technology itself, which enables IT-based solutions for more complex and sophisticated tasks. The third factor is IT-driven business process integration-at both the business-unit and enterprise levels.

None of these factors is new, and they typically operate together. What is new is that the steady improvement of each and the sometimes spectacular way in which all three interact are having a broad and deep impact on business productivity and performance.

Revving up performance

Some recent examples of what private companies and public sector institutions have accomplished clearly illustrate the link between our three IT-based factors – IT scale and ubiquity, technology evolution and process integration and productivity improvement. Although the proportional mix of the three factors varies, they are all present in each case.

Citizen self-service. With a surge in unemployment in Kansas in December 2000, claims filed with the state’s Department of Human Resources’ unemployment insurance program tripled. The sudden explosion in activity-as many as 7,500 claims per week-threatened to overwhelm the agency’s IT infrastructure, which still included 30-year-old legacy applications.

The solution lay in the development and delivery of three IT-driven productivity improvements: a new web-based service channel, improved call routing and the integration of a comprehensive customer relationship management application with back-end legacy systems. Routine functions were simplified for citizen self-service through a system dubbed TABS (the Tax, Appeals and Benefits Self-Service System). Program staff, who were retrained to service more complex claims, were armed with new workflow support tools for scheduling, case management and file sharing. Off-the-shelf software was customized to integrate with the insurance program’s existing technology platform.

Within three years, the systemwide average time required to process claims dropped by nearly 80 percent, from 47 minutes in 1999 to 11 minutes in 2002. Internet functionality expanded the program’s effective hours of operation by more than 250 percent, to 109 hours per week, while the agency’s annual claims-processing capacity grew by 81 percent. Without any reduction in staff, Kansas’s unemployment insurance system leveraged its existing IT infrastructure with new work processes to become a national model of citizen service. Citizens got what they needed much faster, while department productivity was greatly increased.

Field tested. RWE Thames Water, with 70 million customers in 23 countries, is the world’s third largest water utility. (The company, which is private, is a subsidiary of multi-utility RWE, Germany’s fifth largest industrial company.) When Thames’s senior management committed itself to increasing the productivity and efficiency of its UK field force, it targeted the system used to transfer customer information between headquarters and the field. Providing real-time information to 1,000 field employees was cumbersome, done either via mobile computers with dial-up connections or with paper-based systems.

Thames developed and deployed wireless handheld devices expressly designed for rugged field use. A robust wireless infrastructure insured that information could be available anywhere. A new scheduling application and its integration with mainframe-based customer management systems created a foundation for the rapid integration of wireless technologies.

As a result, productive time in the field increased by 25 percent, with significant improvements in customer service. With job instructions and job-support information dispatched electronically, the need to visit Thames Water supply depots for schedules, directions and documents was significantly reduced. Further, field staff members were able to get off to a faster start each day, move from job to job more quickly, coordinate work with other teams more efficiently and avoid repeat work.

By taking advantage of wireless technology unavailable just two years earlier, and by leveraging its legacy systems, Thames Water recast its field-service model with substantial productivity benefits for the company and its customers.

Quicker discovery. In the mid-1990s, one pharmaceuticals giant found itself lagging behind its competitors in the deployment of R&D-related information management processes, known as “informatics.” In the all-important area of drug development, this meant clinical-process bottlenecks and a consequent stretching out of the typical 10- to 15-year development pipeline.

The company targeted three areas for investment: drug discovery, the drug-candidate decision-making process and clinical development. The overall objectives were clear: to shorten drug-development pipelines, and to increase the number of drugs sent annually to national regulatory authorities for approval.

The company developed and implemented a standardized, centralized and integrated capability for global trial planning and management. A redesigned data analysis system helped improve decision making earlier in the drug-discovery process. The company combined business process redesign with new functional applications that were quickly integrated into an already capable, but underleveraged, technology base. Today, it processes compounds nine times faster than it did before the transformation, while the design test primary screening results process has been reduced from one year to three months. In 2003 alone, this resulted in a net savings of 10,000 labor days, which freed up resources to focus on additional drug discovery.

Expect the impact of IT on productivity to accelerate

As Brynjolfsson and other productivity experts have noted, this is not the first time that excitement about IT-based productivity has surfaced in the business press-usually followed by disappointment. But we think this wave of productivity gains is different for a number of reasons. First, the latest increases seem to be taking place very broadly-across industry lines, in both the public and private sectors, and in organizations of all sizes.

Second-and from our perspective, more significantly-these increases go well beyond the wringing out of labor costs that is historically characteristic of cyclic downturns. We are confident that the recent increases in productivity are being driven as well by the technology-based factors, which we’ve illustrated here, that make existing labor forces far more productive by leveraging technology’s scale and ubiquity; capitalizing on technology’s continuing functional evolution; and putting to work more and better technology-driven process integration.

During the past three decades, the three IT-based productivity drivers we have cited have shown themselves immune to business conditions and economic cycles. The installed IT base will continue to grow. The pace of technology evolution will continue to accelerate. Organizations will continue to learn how to best improve business processes to leverage these IT developments. Having now perhaps established a productivity-gain “tipping point,” the three drivers are highly unlikely to falter. So the verdict does appear to be in: Only the pace will vary, not the direction.

This article is adapted with permission from “Paradox Lost”, Outlook, the journal for high-performance business, 2004, No. 2 © 2004 Accenture.

About the authors

Gary A. Curtis, a partner in the Accenture Strategy & Business Architecture service line, is the global head of the Accenture Strategic Information Technology Effectiveness group. He specializes in evaluating the business value of large-scale IT applications and infrastructure portfolios, as well as in creating programs to improve that value over time. Based in San Francisco, Curtis serves on the advisory boards of several companies that are developing new technologies. He can be reached at gary.a.curtis@accenture.com.

Deepak K. Goyal is an associate partner in the Accenture Strategic Information Technology Effectiveness group. Dr. Goyal has served clients in a broad array of IT consulting engagements, including strategy, post-merger integration and emerging technology utilization. In addition to his consulting experience, Dr. Goyal has more than 15 years of multifunctional line and staff management experience with several high-tech companies. He is based in Boston and can be reached at deepak.k.goyal@accenture.com.

Bernhard Holtschke, a Munich-based partner in the Accenture Strategy & Business Architecture service line, focuses on business-driven IT strategy formulation. For more than 14 years, Holtschke has conceived, structured and led multiple transformational initiatives in enterprise solutions; he specializes in manufacturing operations, product lifecycle management and project-based business operations. Recently, he co-authored the study “Business Value through IT” (Accenture 2003). He can be reached at bernhard.holtschke@accenture.com.

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