Is IT spending the key to productivity?

Will increasing our investment in information and computing technologies (ICT) narrow the productivity gap between the U.S. and Canada? That question is at the heart of a recently released study from the Centre for the Study of Living Standards, commissioned by the Information Technology Association of Canada.

On the one hand, there definitely appears to be a link. As reported by ITWorldCanada:

The report concluded that in 2004, current dollar investment per worker in IT by Canadian businesses was 45.1 per cent of U.S. levels, and as a share of GDP just 61.1 per cent. By sector, companies in the information and cultural industries led the pack, investing US$ 12,244 per worker, while the accommodation and food services industry brought up the rear, investing just $98 per worker.

With Canadian productivity growth also lagging that of the U.S., CSLS president Andrew Sharpe said there is a link between lack of IT investment and the productivity gap. "Many people think [IT investment] is a key factor behind the Canada/U.S. labour productivity gap."

A recent study by University of Toronto economist Melvyn Fuss and London Business School chair of economics Leonard Waverman concluded IT spending accounts for 60 per cent of the productivity gap, but Sharpe said he would put the figure at closer to 20 per cent.

On the other hand, to conclude that more servers makes a more productive company appears not only to be an onversimplification, but a potentially dangerous one at that. As John Krpan, Executive VP at IT services firm RIS (DISCLAIMER: RIS is one of my clients), put it in a recent column penned for the Globe and Mail's online technology section:

IT has proven its value, both enhancing productivity on a macro level, and as an enabler of innovation at the company level...but there are those who will argue that there isn't even a correlation between IT spending and productivity.

In his still widely debated 2003 article IT Doesn't Matter, Harvard Business Review editor Nicholas Carr makes this argument based on a study of 2,500 U.S. firms. Carr explains that the most productive and successful firms spend less than a quarter on IT (0.8 per cent of revenue) than what is spent by the average company (3.7 per cent). Moreover, the companies that generated the lowest returns also spent only 0.8 per cent of revenue on IT.

For the sake of productivity, competitiveness and innovation, companies shouldn't just spend more on IT; they should spend smarter. In IT, the old adage that one size doesn't fit all couldn't be more valid.

Having the wisdom to draw the line — between spending more and getting more out of IT — is the key to more productive companies, and a more productive Canada.

So do more computers make for a more productive country? The techie side of me wants to say yes. But the still fresh memories of the dot-com days lead me to advise...be smart about how you interpret these findings.