How The Internet Affects Productivity

Abstract

During the past decade, there has been a lot of research focusing on the Internets effects on productivity. One of the central themes of this research has been the productivity paradox. Productivity paradox is a phenomenon in which investments in the use of information technology have not resulted in productivity improvements. The objective of this paper is to present the conclusions that this extensive research of the past few years has arrived at concerning the Internets effects on productivity. This paper also includes a practical example which illustrates how the use of the Internet might result in very high productivity improvements by redesigning the entire business model.

In the literature, the research results on the issue are conflicting. Some researchers have not found any evidence that would suggest that the use of the Internet increases productivity. However, there are several success stories that imply that the Internet could be an important tool in improving productivity or overall performance of a firm. In addition, it seems that in some cases the productivity paradox has occurred because of defective or unsuitable productivity measures, or even because of conceptual confusions.

The key finding of this paper is that the use of the Internet may or may not increase productivity, depending on the way it is used. From the managerial perspective, there are also many other reasons for using the Internet, such as improved customer service or competitive pressure. However, a better customer service means better value for a customer. For a firm this usually means better productivity. To conclude, it seems evident that successful investments in internet technology should lead to better productivity and the greatest productivity improvements are attainable when the Internet is used to create entirely new business models.