Gordon Brown and British business leaders alike have
jealously eyed the US "productivity miracle" for more than 10 years
- after 1995 US output per hour growth doubled compared to the
previous 20 years.
The US continues to lead in productivity, the measure of output
per employee. According to the
Office of
National Statistics, GDP per worker in the US was 27% higher
than in the UK in 2005.
Yet the UK is showing little sign of catching up. For the past
10 years, output per hour has grown at about 2%, while the US has
enjoyed long periods of productivity growth above 3%, although it
has dropped to about 2% in the past couple of years.
Many see the rapid adoption of IT in the US as the main cause
for its lead in productivity, but by now the UK should have caught
up on IT usage. So what explains the productivity gap?
Improving organisation
There are two possible explanations. First, there are some
"natural advantages" in the US which help companies get more from
IT investment. These could be tougher competition, lower
regulation, better access to risk capital, a larger market, more
space and so on.
The second explanation is that it is not just the US environment
that matters, but rather the internal organisation of US firms that
has enabled better exploitation of IT.
For example, US firms may be better managed or have adopted
organisational features - such as decentralisation - that are
better at exploiting IT.
It is an important question because the answer will have
implications for IT management alignment to business processes in
the UK.
To get an answer we looked at plants in the UK owned by US
companies, and compared their performance to UK-owned companies and
others owned by non-US multinationals.
We found US companies in the UK got significantly more
productivity out of their IT than the other firms, even in the
context of a UK environment.
Management and timing
This suggests that part of the IT-related productivity gains in
the US may be due to management and organisation, rather than
simply the "natural advantages" of the US environment.
We still have to find out why US firms are able to achieve these
"IT friendly" organisational forms and their European counterparts
cannot. It could be due to timing - US firms are closer to the
development of the new technology and can learn about them
first.
Maybe US firms are intrinsically quicker to adapt to new
technologies because of more intense competition in their home
markets.
Whatever the cause, there is no reason why firms in the UK
cannot learn from the US example. There is a lot of evidence that
IT spending increases productivity and that can help justify IT
budgets. But it is not just IT spending alone. It is about spending
smarter and making changes to the rest of the business.
John Van Reenen is a professor and director of the Centre
for Economic Performance, London School of Economics
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