Running head: TECHNOLOGICAL CHANGE AND ITS IMPACT ON PRODUCTIVITY & EFFICIENCY 1

Technological Change and its Impact on Productivity & Efficiency Jeffrey A. Jewett California Lutheran University

TECHNOLOGICAL CHANGE AND ITS IMPACT ON PRODUCTIVITY & EFFICIENCY

Abstract The purpose of this study is to analyze the long and short term impacts that technological change has on employee efficiency and therefore productivity. In a time of exponential change, with new technologies being introduced daily, and the switch from technology being a competitive advantage to a tactical necessity, we have seen companies increasing their productivity through technological efficiency. This paper will analyze this increase in productivity by assessing the long and short term impacts that the implementation of new technologies has on the workforce. As these technologies continue to be implemented companies will experience short term decreases in productivity but as familiarity and training ensue so will efficiency and thus productivity. This period of decline followed by a boom has been supported through past data and we can only hope that this will continue into the future.

TECHNOLOGICAL CHANGE AND ITS IMPACT ON PRODUCTIVITY & EFFICIENCY

Introduction Technological change has been a catalyst for greater efficiency and productivity throughout history. Through the implementation of new technologies in the workplace, their influence on the business processes, and adoption by various business units, employees can use technologies to better accomplish their duties. Todays advanced technology is tomorrows a-track; we are at a period in history where technological advancement is at a forefront and the possibilities appear limitless. Advanced societies are becoming more and more reliant on these technologies, and businesses are no different. Dwindling profit margins, due to increased competition, are causing small business and global enterprises alike to seek greater efficiency and maximize productivity. These technologies are becoming a major factor in how even the smallest tasks are carried out and have become a pinnacle part to everyday business. From the time an employee punches into work, calls a client, sends an email, updates customer information, or gives a presentation, employees are utilizing technologies to make their work easier, efficient and more productive. We have all experienced the rapid development of technologies over the last decade, just think about your cell phone or your computers

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processing power (Cron 1983), these changes are happening exponentially and we can only guess what tomorrow has in store. We have seen the impact technology has been on increasing productivity and efficiency on outsourcing and in many areas of business (Siegak 1991). Today, through cellphones, mobile networking, and laptops the modern businessman has become more autonomous than ever before, but they will always be inundated by the infamous learning curve. As technology advances so will its functionality and ultimately the complexity. Encoded within the complexity is a means for greater efficiency and productivity, but not until the employees overcome the learning curve can the benefits be realized. Through the use of both primary and secondary research, this paper will evaluate the impact of technological change on employee productivity and efficiency and the respective timeline for which a decline is followed by an increase in both. Literature Review: In an effort to understand the various sides of the impact that technological change has on productivity and efficiency, this paper builds on the foundation of various literary analysis in an attempt to eliminate bias in the research. Without specifying the time period in which analysis is conducted and the various fluctuations in outcomes, the numbers can be manipulated in an attempt to create a basis for arguments both for and

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against technological change. Stating a correlation either way is a moot point without proper analysis of the corresponding time periods. Unlike ever before, the modern business relies more heavily on technology and how the benefits are leveraged from the simplistic to the most daunting of tasks. Technological innovation and implementation play a key catalyst in the development of new policies and procedures, and effect many facets of todays companies. The ever increasing strength of the global economy and the corresponding increases in efficiency have forced organizations to streamline both their processes and their technologies in order to better manage their businesses (Scott, 2000). This implementation, although commonplace, is not one with immediate results. However, in todays age of instant gratification, companies often find stockholders and executives expecting immediate improvement. This is the exception not the rule. While some authors have speculated or alluded to the laggard impact of technological investment, there have been few studies depicting the relationship between this type of investment and the relative increases in productivity within certain time periods. It is imperative that these variations in productivity are measured over various time periods in order for business to make educated decisions about implementation and its corresponding time line. Otherwise, new technologies can be abandoned or misused and not have the positive impact that the company had hoped for. This is

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because the period of decline can have a significant impact on both morale and profitability due to increased mistakes and employee resistance. Maurer (1996) stated that half of all technological change efforts fail, and both resistance and poor training are fundamental characteristic of that failure. Regardless of ones position on the impact of technological investment and implementation, it is important to recognize that the measurement of efficiency and productivity is not an exact science and the impacts can be interoperated very differently (Scott 2000). There are hidden variables and characteristics that must be taken into account which can greatly skew the results. One study may show a negative correlation between the two while another suggests the exact opposite. The various research results appear to be inconsistent on many levels, including performance, methodologies, and data sources (Brynjolfsson, 1996, par. 4). There are a substantial number of benefits that can be realized through the implementation of technologies and computerization within an organization (Cron 1983). As technology advances, and more companies digitize their processes, they can better share information and decrease human error, which leads to greater productivity and efficiency (Anderson 2006). Through the collection, storing, and increased accessibility of information, all aspects of business can be enhanced which is made possible through advancing technologies. Just think about todays CRM, ERP, or Accounting systems and the functionality they have. Companies and

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organizations are able to perform new types of analysis which can aid in the development of better policies, procedures, and reporting which can lead to extensive increases in efficiency and productivity (Cron 1983). Where inefficiency is found, developers and inventors are working on solutions and creating best practices through technology. Once a solution has been developed, competitors find ways to enhance it and the adopting company will become more and more productive and efficient in the long run. Processes that used to take days, now turn into hours, and hours into minutes, and so on. As the advancements continue, so does functionality, and ultimately, complexity. The level of complexity impacts the learning and training time and can delay the realization of greater efficiency and productivity (Snow 2007). No matter how large or how small a positive improvement may have in the long run, it is always preceded by a short-term decline. Industries in the late 80s that made large investments in the technologies such as computers, updated software, and advanced telecommunication equipment, experienced a short term decline in productivity while they implemented and trained employees on these technologies (Stiroh 2001). Shortly thereafter they experienced incremental improvement in productivity followed by large productivity gains after 1995. Furthermore, industries that invested heavily in IT in the early experienced

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significantly larger productivity gains than those that did not (Stiroh, 2001, pg. 12). A similar analysis was conducted by Basu (2003) which measured the implementation of information technology and compared the short and long term productivity across various companies. He found a correlation between short-term productivity declines followed by large upswings in productivity and the implementation of new technologies with and without organizational change. The importance of noting the organizational change is because technology is a catalyst for process and procedural changes, which add to the impact of the implementation. IT interacts with the organizational processes and alters the relationship of the firm with the external world by altering the competitive condition (Dietrich, 2004, pg. ii). Yet, Basu (2003) found that even companies that do not implement organizational changes still exhibit increases in productivity through technological change. There are a number of factors that play into the short-term decline in productivity. First there is implementation time, where employees may be utilizing both the new and old systems. Second there is training and acceptance time. Finally, there is a development of familiarity which increases efficiency. Once the workers were trained and became efficient with the new technologies, productivity took an upward turn, (Snow, 2007, pg. 18). This upward turn is realized after a leveling off period and results in greater long-term productivity. Eventually the implemented technology and

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human potential is maximized and newer technologies are released and implemented repeating this cycle. It is important to note that the time period for transition from one technology to the next is shrinking considerably. Over the last decade, technology has become more powerful with greater availability, and additionally easy to manage. Implementation of advanced technologies has become the norm, and yet, the implementation and realization of maximum efficiency and productivity (given that technology) is still a timely process. Even after a company has weathered the short term decline and reaped the benefits of long-term business improvement, there is still a lag time until the company maximizes their efficiency and productivity. According to Beaumaster (2003, pg. 4), even a reduction in lag time by 3/4 still leaves a delay of approximately five years an eternity in technological terms. Some researchers have found that although technology has contributed to industry restructuring and plays a substantial role in altering the competitive environment, it is not a primary source for productivity increase (Baily 2003). These proponents appear to account the correlation between productivity growth and technological implementation to process innovation. Other researchers have found that the positive benefit realized through technological implementation is not merely technology or technology coupled with process change, but instead, something much simpler. The

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positive association between technology and productivity must always be measured using technology and an omitted variable(s), such as the quality of the management or the companys capital (McGuckin 1996). These researchers feel that independent of these additional variables, technology alone will not create greater efficiency and/or productivity. Even if parallels can be found, the skeptics argue that a positive relationship does not imply causality. These researchers insist that when evaluating you must seek out these underlying, hidden, and often cryptic variables in order to truly understand the various aspects that enabled increased efficiency and productivity. Some prominent studies conducted to measure the relationship between investment in technology, organizational efficiency, and productivity, have reported positive and significant effects. Others question such results on the premise that the benefits of technological investment can be realized only over long periods of time. However, it is both probable and highly likely that benefits can be realized within the first year, given an organizational structure and culture are properly primed and managed (Mahmood 2000). In any event, these researchers often fail to differentiate between long and short term measurements on productivity and efficiency. There have been many research papers, journal articles, and reports from industry analysts which have supported the idea of leveraging technological change in an attempt to boost employee productivity and

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efficiency. From the boost across various industries in the 1990s (Stiroh, 2001) to the exponential increases in technology and efficiency in the 2000s businesses have experienced increases in both productivity and efficiency. Kevin Stiroh (2002) analyzed the elasticity of productivity with respect to IT by looking at the effects on the productivity increase if the use of technology was doubled. He found that when doubling the use of technology, businesses averaged an increase in productivity of about 5 percent. Although this percentage appears low it can have a major impact on an organization. This also supports the idea that as long as technology continues to advance at its exponential rate and implementation ensues, increases in productivity and efficiency will escalate. The bulk of this literature review has focused on the company or organization wide impact, however, it is also important to understand how the employees feel about technological change and how they view its impact on their productivity. In the 2007 Economic Report of the President, there is mention of a growing fear of skill-biased technological change that creates gaps in pay among employees and increases sabotage from less skilled and older workers. Technological advances increased the productivity of skilled workers more than the productivity of the less skilled leading employers to want to hire more skilled workers widening the difference in pay associated with skill (Economic Report for the President, 2007, pg. 53). This resistance and sabotage is causing increased failure rates and impact both long and short-term measurements in productivity and efficiency.

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Beyond the resistance and sabotage that is forming, there is also a schism between both the younger and older employees and their outlook on technological change. Laitner (2005, pg. 4-5) finds that older workers are less eager, or less adept, at taking advantage of new technologies. He also mentions that the effectiveness of the technological change diminishes as the work force ages, which can have a negative impact on productivity and efficiency in both the long and short term. This researcher goes on to discuss how younger workers are generally more open-minded about change but this diminishes as they age. The idea of age is also addressed by Burnmeister (1969) but in his findings he still considered technological change as being effective in increasing productivity and efficiency and thereby raising output for an organization. The importance of these findings is that it is leading organizations to invest more heavily in training their younger employees and neglecting the older workers. This neglect is also leading to sabotage and resistance which impacts both the morale and culture and ultimately impedes productivity and efficiency. Technology is expanding rapidly and affects all members of an organization both directly and/or indirectly. It is important for an organization to understand the impacts on the individual as well as the organization and to set realistic goals for implementation. Methodology:

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This paper will provide an in-depth look at technological change and both the long and short term impacts it has on employee productivity and efficiency. Past research indicates a strong correlation (although greater research must be done) between technological change and short-term decline followed by long term efficiency. This study will attempt to underline that claim and attempt to measure the period between decline and increased efficiency. The research will be conducted as a survey whereby the resulting data will measure the impact that technological change has had in currently employed professionals productivity and efficiency in the work place. A page of questions will be given to each qualified participant in the form of openended multiple choice questions. Once the data has been gathered, statistical analysis will be conducted and analyzed showing the various means (mean, median, and mode) as well as the standard deviation. The standard deviation will be used to measure the viability of the data and determine the overall credibility of the dataset. The survey is comprised of 5 demographic questions and 10 various relevant questions. Participants are qualified as first being employed full time and having been at their job for at least 3 years. The relevant questions are asked using the Likert Scale (Appendix 1). The questions will be completed by 30 participants whom meet the qualifications stated above.

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Study Results: The first demographic question asked participants to Choose the answer that best describes your role at work. This resulted in the majority of participants holding either a Low-level management or Mid-level management position. The second demographic question asked for the participants years of work experience. The mean or average work experience was about 8.5 years. The third question asked, How recently have you implemented or been subjected to a new technology in the work place? (Describe this new technology). This was an open-ended question and the answers varied. The fourth question of the survey asked the participant to select their gender. This resulted in 17 to 13 with more males having participated in the survey. The fifth question asked, Age. Each participant could choose one of 5 different age ranges that were applicable to them. The average (mean) age of the participants was approximately 28 years old. The first relevant question stated, Technology has increased productivity in the workplace. The answers resulted in a mean of 4.4, a median of 4 which is agree, a mode of both 4 and 5 which is agree and strongly agree. The standard deviation for this question resulted in 0.65.

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The second relevant question stated, Technology enables me/my employees to work more productively in the short run. The answers resulted in a mean of 1.6, a median of 2 which is disagree, and a mode of 2 which is disagree. The standard deviation for this question resulted in 0.72. The third relevant question stated, Technology enables me/my employees to work more productively in the long run. The answers resulted in a mean of 4.2, a median of 4.5 which is between agree and strongly agree, and mode of 5 which is strongly agree. The standard deviation for this question resulted in 0.68. The fourth question stated, There is a delay between the implementation of new technologies and increased productivity. The answers resulted in a mean of 4.3, a median of 4 which is agree, and mode of 4 which is agree. The standard deviation for this question resulted in 0.56. The fifth question stated, Technology makes me/my employees more autonomous. The answers resulted in a mean of 3.6, a median of 3.5 which is between neutral and agree, and mode of 4 which is agree. The standard deviation for this question resulted in 0.78. The sixth question stated, The benefits from new technologies are evident immediately. The answers resulted in a mean of 1.8, a median of 2 which is disagree, and a mode of 2 which is disagree. The standard deviation for this question resulted in 0.54.

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The seventh question stated, To realize the benefits of new technology, proper training and learning time are required. The answers resulted in a mean of 4.6, a median of 4.5 which is between neutral and agree, and mode of 5 which is strongly agree. The standard deviation for this question resulted in 0.47. The eighth question stated, Technology makes me/my employees more efficient in the short run. The answers resulted in a mean of 2.2, a median of 2 which is disagree and mode of 2 which is disagree. The standard deviation for this question resulted in 0.36. The ninth question stated, Technology makes me/my employees more efficient in the long run. The answers resulted in a mean of 4.2, a median of 4.5 which is between agree and strongly agree, and mode of 5 which is strongly agree. The standard deviation for this question resulted in 0.68. The tenth question stated, When upgrades to my technologies come out; they seem to slow down older employees more than younger ones. The answers resulted in a mean of 4.1, a median of 4 which is agree, a mode of both 4 agree. The standard deviation for this question resulted in 0.33. Analysis: This survey was conducted to determine the relationship between technological change and productivity and to determine the efficiency in both the short and long run. Even with a small sample size of only 30

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participants, the survey resulted in a low standard deviation, indicating a strong and viable response to the survey. The first relevant questions asked participants if they felt that technology increased productivity in the workplace. This resulted in the majority of the participants voting 4 or 5 and none giving a rating of either 1 or 2. That being said, it can be concluded that technology has had an impact on business based on past experiences. Stiroh (2001) touches on this in his article and discuss the increases in productivity throughout the 90s due to advances and greater investment in technology. From the survey responses we can see that employees do feel that technology has played a major role in the increasing productivity levels in the work place. The second question that participants were asked was, Technology enables me/my employees to work more productively in the short run. Surprisingly, the majority of participants recognized that technology does not immediately create increased efficiency and /or productivity. These results parallel Snows (2007) findings that productivity and efficiency do not result in greater productivity and/or efficiency until proper training and experience have taken place. This seems very intuitive but many executive and stockholders expect instant result which simply is not the case. The third question is the same as the second question but asking about productivity in the long run. Not surprisingly, this resulted in responses closely resembling those of the first question with the majority of

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participants either voting 4 or 5 and none giving a rating of either 1 or 2. These findings also correspond with Snows (2007) finding that there is a lag time in productivity and efficiency increase but in the long run technological change does increase productivity. Question four asked participants if there is a delay between the implementation of new technologies and increased productivity. The resulting answers correspond with the second question with the majority recognizing the lag time. The fifth question asked participants if they believed that Technology makes me/my employees more autonomous. This question was asked as a measure of accuracy for the first question; however, it resulted in a generally neutral response. This neutrality does not reflect the answers from the first question, which alludes to the fact that, participants did not consider autonomy a contributing factor for productivity and/or efficiency. The sixth question stated, The benefits from new technologies are evident immediately. This question was used as a measure for the validity of the data found in question 2. Fortunately, there was a significant parallel resulting in the majority of participants recognizing that technology does not result in immediate increases in productivity and/or efficiency. The seventh question stated, To realize the benefits of new technology, proper training and learning time are required. This resulted in

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an abundance of 4 and 5 ratings validates Mahmoods (2000) claim there is a decline which can be address through proper management and training. The eighth question asked participants if, Technology makes me/my employees more efficient in the short run. This question was asked to see if participants consider technology more or less beneficial to efficiency versus productivity in the short run. The resulting answers mirrored those of productivity in the short run. This directly correlates with the findings of Snow (2007) and builds on the idea that in order to combat the short term decline, proper measures must be taken to ensure long term increases in productivity and efficiency. The ninth question asked participants if, Technology makes me/my employees more efficient in the long run. This question was asked to see if participants consider technology more or less beneficial to efficiency versus productivity in the long run. The answers closely resembled those of productivity in the long run and aids in validating both Stiroh and Basu. The tenth question stated, When upgrades to my technologies come out; they seem to slow down older employees more than younger ones. This initial slowdown is a major cause for the short term loss in productivity and efficiency. The fact that most participants either agree or strongly agree with this statement is testament to the statements Burnmeister (1969) made about technologies impact on the elderly. This also gives insight into the short term decline in productivity.

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Conclusion: The modern world is facing a period of rapidly evolving technology, and its impacts are affecting all aspects of business. Technological change has transformed the businesses of today, which is made evident by many great scholars and researchers in the field (as noted in the Literature Review). In an effort to examine these impacts, specifically technological changes impact on short and long-term productivity and efficiency, a survey has been conducted on working professionals (who have recently undergone a technological change). When participants were asked if the implementation of new technology positively impacted productivity the overwhelming majority stated that it did. The majority also responded that there was no short term increase in productivity but there were long term benefits. This backs the idea that technological change results in increased productivity in the long run but only after a short-term decline in productivity. The reason that so many businesses are jumping on these advancing technologies is because many industries have seen a great ROI (Garretson 1999) thanks in part to the corresponding increases in productivity and efficiency. Stiroh (2001) uses the boom in productivity and efficiency in the 90s as an example of this and discusses the rewards that companies who invested heavily in technology received. This claim is also supported by the research conducted by Basu (2003). As one part of the business would experience an increase more technologies were implemented in other

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departments, in an attempt to duplicate the benefits. As the various departments increased in productivity and efficiency it had a synergistic effect on the company explaining the huge boom in productivity and efficiency in the 90s (Striroh 2001). As the survey suggests, employees and managers feel that both productivity and efficiency are greatly improved through technological change. In fact, the overwhelming majority of participants agreed or strongly agreed with the following statements: Technology has increased productivity in the workplace, The company I manage/work for increases in efficiency as technology advances, and The company I manage/work for increases in productivity as technology advances.. These statements resulted in mean responses of 4.4, 4.3, and 4.5 respectively out of a maximum positive score of 5. These correspond with the findings of both Basu and Stiroh and further supports the claim that technological change has a positive impact on both productivity and efficiency. Researchers have suggested that advances in technology have taken productivity and efficiency to a level never seen before (Stiroh, 2001). Just a few years ago employees were not as connected and accessible to both the company and their customers, information was not as easily transferred or shared, and machines were less reliable. All of these issues have been addressed by advancing technologies such as cell phones, cloud computing, upgraded hardware and advanced mechanics. Through greater efficiency

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and productivity these technology companies are able to better create and improve new technology which only adds to the productivity and efficiency, explaining the exponential growth of technology (Siegak 1991). One of the most profound technological advancements has been the internet and the search engine. Never before, have companies or employees had so much information at their fingertips. Through advanced laptops and smartphones this information is accessible everywhere. These are the types of innovations that are reshaping business and leading to long term increases in productivity and efficiency. (Brynjolfsson, 1996, par. 7) Both primary and secondary research suggests that technological change does in fact add to employee productivity and efficiency. This paper also supports the premise that this increase is preceded by a short term decline. More research must be done to measure the timelines based on the complexity of the technologies so that companies can better gauge the performance of implementation. Technology will continue to advance, productivity and efficiency will advance along with it, and this paper and literature review supports that statement.

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Appendix: Sample Survey 1. Choose the answer that best describes your role at work: Entry level Low-level management Mid-level management Upper Management Executive / Owner

2. Years of work experience: 3-5 6-10 11-20 21-30 31+

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3. How recently have you implemented or been subjected to a new technology in the work place? (Describe this new technology)

4. Gender (choose one) Male Female

5. Age 21 30 31 40 41 50 51-60 61+

Strongly Agree Agree Neutral Disagree Strongly Disagree

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1. Technology has increased productivity in the workplace. 2. Technology enables me/my employees to work more productively in the short run. 3. Technology enables me/my employees to work more productively in the long run. 4. There is a delay between the implementation of new technologies and increased productivity. 5. Technology makes me/my employees more autonomous. 6. The benefits from new technologies are evident immediately. 7. To realize the benefits of new technology, proper training and learning time are required. 8. Technology makes me/my employees more efficient in the short run. 9. Technology makes me/my employees more efficient in the long run. 10. When upgrades to my technologies come out; they seem to slow me/my employees down.

Work Cited: Anderson, C. (2006). The Long tail: How endless choice is creating unlimited demand. London: Random House.

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Baily, Neil (2003). Technology & Productivity: Recent Findings, Institute for International Economics. Presentation at AEA. Basu, S., Fernald, J.G., Oulton, N., Srinivasan, S. (2004). The case of the missing productivity growth, or does information technology explain why productivity accelerated in the United States but not in the United Kingdom?, in Gertler, M., Rogoff, K. (Eds.), NBER Macroeconomics Annual 2003, Cambridge, MA: The MIT Press. Brynjolfsson, Erik (1996) Information Technology and Productivity: A Review of the Literature, MIT Sloan School of Management, Academic Press, Vol. 43, pages 179214, 1996. Burmeister, Edwin, and Dobell, Rodney, Disembodied Technological Change with Several Factors, Journal of Economic Theory 1, no. 1 (June 1969): 1-8. Cron, W.L. & Sobol, M.G. (1983). The relationship Between computerization and Performance: A Strategy for Maximizing the Economic Benefits of computerization, Journal of Information and Management, Vol. 6, pp.171-181 Economic Report of the President February 2007. Washington: Government Printing Office, 2007. R. Garretson, Greenspan hails technology spending, InfoWorld 21 (21) (1999) 32. Laitner, John (2005). Technological Progress and Worker Productivity at Different Ages, http://www.mrrc.isr.umich.edu/publications/papers/pdf/wp107.pdf (pg. 5). Mahmood, M. Adam (2000) Special Issue: Impacts of Information Technology Investment on Organizational Performance, Journal of Management Information Systems. Vol. 16 No. 4, Spring 2000 pp. 3 10.

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Maurer, R. (1996). Using resistance to build support for change, Journal for Quality & Participation, 56-63. McGuckin H. Robert (1996) The effect of technolgy use o productivity growth, Center for Economic Studies, U.S. Census Bureau, No. 96-2.

Scott, T. (2000) A framework for measuring the efficiency of organizational investments in information technology using data envelopment analysis, Omega, Vol. 28, No. 2, pp.125141. Siegak, D. & Griliches, Z. (April, 1991). Purchased Services, Outsourcing, Computers and Productivity in Manufacturing, National Bureau of Economic Research WP #3678. Stiroh, K. (2001). Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say, American Economic Review 92, no. 5 (December 2002): 1559-76. Stiroh, K. (2002). Reassessing the Role of IT in the Production Function: A Meta analysis, presentation to Federal Reserve Bank of New York. Snow, Frank (2007). Does investing in technology increase productivity? http://faculty.ed.umuc.edu/~sdean/ProfPaps/Bowie/T4-0607/Snow.pdf.