How Does Information Technology Really Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement and Worker Skills

53 Pages Posted: 16 Feb 2006 Last revised: 3 Sep 2010

See all articles by Ann P. Bartel

Ann P. Bartel

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Casey Ichniowski

Columbia Business School - Management; National Bureau of Economic Research (NBER)

Kathryn L. Shaw

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: November 2005

Abstract

This study presents new empirical evidence on the relationship between investments in new computer-based information technology (IT) and productivity by investigating several plant-level mechanisms through which IT could promote productivity growth. We have assembled a data set on plants with a common production technology in a narrowly defined industry - valve manufacturing - to study the effects of new IT on product innovation, production process improvements, employee skills and work practices. The homogeneity of the plants' production processes within this narrowly defined industry together with the estimation of longitudinal models eliminate many sources of unmeasured heterogeneity that could confound productivity comparisons in more aggregate data and in broader samples. The three main results of this study highlight how the adoption of new IT-enhanced machinery involves much more than just the installation of new equipment on the factory floor. We find that adoption of new IT-enhanced equipment (1)alters business strategies, moving valve manufacturers away from commodity production based on long production runs to customized production in smaller batches; (2)improves the efficiency of all stages of the production process with reductions in setup times supporting the change in business strategy and (3)increases the skill requirements of workers while promoting the adoption of new human resource practices.

Suggested Citation

Bartel, Ann P. and Ichniowski, Bernard E. (Casey) and Shaw, Kathryn L., How Does Information Technology Really Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement and Worker Skills (November 2005). NBER Working Paper No. w11773. Available at SSRN: https://ssrn.com/abstract=847045

Ann P. Bartel (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bernard E. (Casey) Ichniowski

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kathryn L. Shaw

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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