Does Technology Leadership Lead to Financial Outperformance? Maybe Not

High achievers exist in virtually every sphere of life and business. Leaders and laggards often are differentiated by heavy use of digital technologies, so many equate profiency with digital technology and outperformance. 

But profits and technology use do not seem to correlate all that closely. Financial results often do not correlate with digital technology spending. Some studies show a small percentage of firms with high profits also are digital technology leaders. 

It is always possible that the expected correlation between digital investment--”digital transformation or digitalization”--exists only weakly. That suggests organizational high performance is not necessarily and directly caused by the investment.

Some firms might have been better at thinking through how the technology could boost performance. Those firms might have other assets and levers to pull to maximize the impact and return. 

High-performing firms (probably measured by revenue growth or profit margins and growth) that excel with technology might also tend to be firms that manage people, operations, acquisitions, product development, logistics or other functions unusually well. Perhaps high-performing organizations also have unique intellectual property, marketing prowess, better distribution network skills. 

In fact, digital technology success appears relatively random, where it comes to producing desired outcomes. In part, that is because it will be devilishly difficult to determine the technology impact on knowledge work or office work productivity at all. 

So productivity measurement is an issue. To be sure, most of us assume that higher investment and use of technology improves productivity. That might not be true, or true only under some circumstances. 

Nor is this a new problem. Investing in more information technology has often and consistently failed to boost productivity.  Others would argue the gains are there; just hard to measure.  There is evidence to support either conclusion. 

If the productivity paradox exists, then digital transformation benefits also should lag investment. Before investment in IT became widespread, the expected return on investment in terms of productivity was three percent to four percent, in line with what was seen in mechanization and automation of the farm and factory sectors.

When IT was applied over two decades from 1970 to 1990, the normal return on investment was only one percent.

So this productivity paradox is not new. Information technology investments did not measurably help improve white collar job productivity for decades. In fact, it can be argued that researchers have failed to measure any improvement in productivity. So some might argue nearly all the investment has been wasted.

We have seen in the past that  there is a lag between the massive introduction of new information technology and measurable productivity results, and that this lag might conceivably take a decade or two decades to emerge.

The Solow productivity paradox suggests that technology can boost--or harm--productivity. Though perhaps shocking, it appears that technology adoption productivity impact can be negative. 

That there are leaders and laggards should not surprise. That there are higher performers and trailing performers in business should not surprise. Perhaps leaders outperform for reasons other than technology.