And a lot more is known about the technological side than the management side. When engineers design bridges, they’ve got software tools that allow them to visualize exactly where the stresses will be and how to put the beams together. When you design an organizational process, it’s much more abstract; there are fewer tools to help you visualize what you’re doing, and the effects are much more uncertain. (At MIT, we developed our own tool, called the matrix of change, to help with this process.)
The science of management and economics lags way behind physical engineering, and we should be focusing more of our innovation resources on the former. That’s where the real payoffs will be in the coming decade. In fact, I believe that if something catastrophic happened and all computer technology froze for the next decade, we would still continue to see a tremendous amount of business innovation just trying to catch up with the technology that already exists.
S+B: In the most successful companies you’ve studied, which type of innovation comes first? Does new IT lead to better management — or does more creative management make it easier for IT innovation to take hold?
BRYNJOLFSSON: In the short run, better management practices come first, and information technology adapts to them. We found that the demand for IT was higher in firms that already had some of these practices in place, and they benefited disproportionately.
But management practices also evolve to keep up with technology — just over a much longer sweep of time. I have a book called Scientific Management, a collection of articles edited by Clarence Bertrand Thompson, published in 1914. The authors include Frederick Taylor and other early management experts, describing the optimal work practices of the early 1900s. The book’s ambitiously named First Law of Scientific Management says that “the worker must never need to stop and think.”
You could see how that might make sense at the time, but it’s 180 degrees from what we teach today. And the book contains many other similarly outdated principles. Never cross-train your workers, hold very high levels of inventory to make sure you never run out, and so on. We’re both laughing, even as I mention them. But in fairness, I’m sure they were very successful practices. Henry Ford built a tremendously successful company and industry, and so did many other companies, by emulating those principles.
S+B: And they made Taylor into the first modern management guru.
BRYNJOLFSSON: Exactly. It was very costly to invent and create these principles. Taylor conducted all those time and motion studies, and his methods created value for many, many years. I don’t think those principles were innately wrong or right. Rather, they were well matched to the situation of that era, including the relatively inflexible machinery and the workforce skills of the time.
Back then, for instance, there was no information about what customers really wanted. Henry Ford famously offered his cars in any color, “as long as it was black.” That was because he had no way of communicating with his dealers and knowing about demand, and he couldn’t suddenly shift his assembly lines to paint different colors on every car. It was either black or out of his cost range.
But now you can get real-time information on sales trends and have that information disaggregated by different geographies and demographic groups, and you can adjust your factories accordingly. Given today’s technology, a different set of principles makes sense. And because technology and management practices evolve together, productivity keeps growing.
Measuring Economic Health
S+B: Is productivity growth a reliable metric with which to measure society’s ability to provide the good life?
BRYNJOLFSSON: Yes and no. On one hand, productivity correlates well with standard of living. If it grows at about 1 percent per year, then it takes about 70 years for living standards to double. If productivity grows at, say, 4 percent per year, it takes only 17 years for living standards to double, and after 70 years they would be 16 times higher than at the 1 percent rate. That’s a big difference. Look at recent history. The difference between 1 or 2 percent, like the U.S. had in the 1970s, and 4 percent, as we’ve had recently, can have a huge impact when compounded over time.