Improvisations

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.

Are performance reviews passé? At the very least, they are a hot discussion topic  –  judging from reactions to the lead story in this week’s edition of Business Insight, which we at SMR produce in collaboration with The Wall Street Journal.  The article’s author, UCLA management professor Samuel Culbert, opines that performance reviews are  “little more than a dysfunctional pretense,” with bosses out to justify predetermined compensation ranges. Meanwhile, Culbert argues, subordinates become unwilling to admit vulnerabilities because they know such admissions may come back to haunt them at future performance reviews.   

Culbert’s article garnered dozens of comments. Many readers agreed with Culbert that performance reviews need improvement. Wrote one: “As a knowledge worker, performance reviews feel like some anachronistic, industrial-era tool designed to assert dominance in employee relationships… It is hard for me to imagine a motivated professional who benefits from this type of defined periodic review instead of ongoing trusted communication.”  Others disagreed, with some noting that formal performance reviews help managers avoid litigation if they need to later fire a poor performer.

What’s your experience? Are performance reviews worthwhile — or not? How can they be improved?

Today’s Wall Street Journal features an article that highlights a subtle but interesting difference in management style between Toyota Motor Corp. and Detroit’s Big Three. Toyota in the U.S. currently finds itself with excess capacity for models such as pickup trucks. Rather than paying its workers but not requiring them to show up when they are not needed on the factory floor — as the big U.S.-based auto companies often do — Toyota is, yes, paying those workers not needed on the production line – but is using the down time to send them to classes to improve their productivity and quality skills and generate new ideas for improving production.  For example, during this down time, one assembly worker has developed a Teflon ring that may help avoid damage to vehicles’ paint that can occur during one phase of production. 

The article brings to mind an essay by MIT Sloan School professor Thomas Kochan in the Summer 2006 issue of MIT Sloan Management Review. Kochan argued that U.S. companies face a choice.   One option is what he called “taking the managerial high road” and investing in becoming a “knowledge-based, high-trust organization — which requires training and empowering employees and harnessing their full motivation and talents to generate innovative solutions that drive productivity and service quality.” The alternative? Focusing on controlling labor costs.  Kochan cited Toyota as an example of a company that has competed successfully by taking a cooperative approach to working with its U.S. workforce.

What kind of team works together most effectively? The kind that keeps some distance ” between one member and the rest of the team. So suggests a new study on geographically dispersed teams, which finds that it is beneficial for a group to include one member who is at a different location. That “isolate” prompts the group to be more disciplined in its coordination and communication ” yielding a better and more productive experience for all members.

The study, conducted by Michael Boyer O’Leary of Boston College’s Carroll School of Management and Mark Mortenson of the MIT Sloan School of Management, will be appearing in a forthcoming article in the academic journal Organization Science.  Brief highlights of the study’s findings are featured in the just-released Summer 2008 issue of MIT Sloan Management Review.