The Power of Prediction: Predictive Analytics, Workplace Complements, and Business Performance

42 Pages Posted: 23 May 2021

See all articles by Erik Brynjolfsson

Erik Brynjolfsson

National Bureau of Economic Research (NBER); Stanford

Wang Jin

Stanford Digital Economy Lab

Kristina McElheran

University of Toronto - Strategic Management

Date Written: April 30, 2021

Abstract

Anecdotes abound suggesting that the use of predictive analytics boosts firm performance. However, large-scale representative data on this phenomenon have been lacking. Working with the Census Bureau, we surveyed over 30,000 American manufacturing establishments on their use of predictive analytics and detailed workplace characteristics. We find that productivity is significantly higher among plants that use predictive analytics—up to $918,000 higher sales compared to similar competitors. Furthermore, both instrumental variables estimates and timing of gains suggest a causal relationship. However, we find that the productivity pay-off only occurs when predictive analytics are combined with at least one of three workplace complements: significant accumulation of IT capital, educated workers, or workplaces designed for high flow-efficiency production. Our findings support claims that predictive analytics can substantially boost performance, while also explaining why some firms see no benefits at all.

Keywords: digitization, data, predictive analytics, productivity, complementarities

JEL Classification: M2, L2, O32, O33, D2

Suggested Citation

Brynjolfsson, Erik and Jin, Wang and McElheran, Kristina Steffenson, The Power of Prediction: Predictive Analytics, Workplace Complements, and Business Performance (April 30, 2021). Available at SSRN: https://ssrn.com/abstract=3849716 or http://dx.doi.org/10.2139/ssrn.3849716

Erik Brynjolfsson

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stanford ( email )

366 Galvez St
Stanford, CA 94305
United States

HOME PAGE: http://brynjolfsson.com

Wang Jin

Stanford Digital Economy Lab ( email )

Stanford, CA 94305
United States

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