MIT Sloan Management Review

On average, investments in information technology are associated with greater productivity for companies — but why do some companies get greater productivity benefits from IT than others? That was one of the questions MIT Sloan Professor Erik Brynjolfsson addressed at a presentation at the MIT Center for Digital Business today.  (Brynjolfsson and Wharton’s Adam Saunders have a new book out, Wired for Innovation, that addresses this topic and others related to IT, innovation and productivity.)

Erik Brynjolfsson

As part of his presentation today, Brynjolfsson discussed findings from research that involved studying 1167 large firms over 10 years — and that concluded that business performance depends on both IT and organizational capital. The researchers found that there is a very measurably different set of management practices that are much more common in IT-intensive companies than in others. What’s more, these practices — which Brynolfsson calls practices of “the digital organization” — are correlated with generally higher productivity and higher market value in the companies that implement them.  

The downside? It’s possible to “spend a lot on IT without getting much of a return,” if you invest in IT without adopting digital organization practices, Brynjolfsson commented. A similar problem, he noted, can occur if you change a company’s work practices to adopt digital organization practices — but don’t make the corresponding IT investments.

What are the practices that characterize the “digital organization”? In Wired for Innovation, Brynjolfsson and Saunders write that digital organizations:

• move from analog to digital processes
• open information access
• empower the employees
• use performance-based incentives
• invest in corporate culture
• recruit the right people
• invest in human capital.

IT-intensive firms, Brynjolfsson observed in his presentation today, tended to put more effort into hiring and, once they hired, into training.

The Wall Street Journal today contains an interesting article about companies that map their organizations’ informal communication networks in an effort to improve communication and productivity.  Readers of MIT Sloan Management Review will be familiar with this line of research, known as social network analyis: Rob Cross, who was quoted in The Wall Street Journal article, coauthored an article on this topic (“How ‘Who You Know’ Affects What You Decide,” with Robert J. Thomas and David A. Light) in the Winter 2009 issue of MIT Sloan Management Review. 

Cross also was one of the authors of “Six Myths about Informal Networks — and How to Overcome Them,” a classic primer on using social network analysis in business that appeared in MIT Sloan Management Review in 2002.