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Should Enterprises Be Skeptical of UC Productivity Claims?

January 11, 2010 Leave a comment Go to comments
Should enterprises and large organizations be more skeptical about the benefits of unified communications, or “UC,” and collaboration? In some cases, probably.
The relationship between information technology and productivity is a matter of serious debate. In the 1980s and early 1990s, empirical research generally did not significant productivity improvements associated with IT investments, Erik Brynjolfsson and Shinkyu Yang, professors of the MIT Sloan School of Management, said.
Over the past decade – 1986 to 1996 – both academics and the business press have periodically revisited the so-called ‘productivity paradox’ of computers: while delivered computing-power in the United States has increased by more than two orders of magnitude since the early 1970s, productivity, especially in the service sector, seems to have stagnated,” Brynjolfsson and Yang said.
The economy’s productivity record in the 1970s and 1980s cannot be blamed solely on the investment in information technology since many other factors also affect productivity and, until recently, computing technology was not a major share of the economy.
Looking at this from a different angel, most of the productivity slowdown is concentrated in the service sector, which is the driver for IT investments.
Before 1970, service and manufacturing productivity growth rates were comparable, but since then the trends have diverged significantly. Services also have dramatically increased as a share of total employment and to a lesser extent, as a share of total output.
What’s more, because services use up to 80 percent of computer capital, the slow growth of productivity in the service sector has been taken as indirect evidence of poor information technology productivity.
But some studies of manufacturing say computers may not increase productivity, and may, in fact, produce negative returns. According to U.S. Bureau of Economic Analysis data, some researchers have found evidence that every dollar spent on IT delivered, on average, only about $0.80 of value on the margin.
Other studies have found very small returns. A 1982 study of banking found productivity benefits of 1.3 percent a year. A 1987 study found an actual decrease in productivity.
Studies in 1992 and 1995 found no correlation between IT investments in most industries.
That broad historical record suggests that investments in advanced computing technology did not produce unambiguous financial returns.
Quantifying the return from communication investments might be even tougher. With almost any IT purchase, the expected return on investment is typically 15 percent in the first year or 75 percent in five years.
When a new IP communications investment is made, it sometimes is not possible to get an actual positive return in the first year. It often is easier to demonstrate savings when one service is substituted for another.
Over the last two years, it is likely that hurdle rates have been raised, given the general caution about new capital investments. The higher ROI target makes it harder to define savings or other benefits that can launch a new UC commitment or expand a current effort.
Perhaps the clearest quantifiable business case is when high-quality videoconferencing is a direct substitute for physical travel. Still, that only produces measurable operating cost savings. Demonstrating a direct link between sales, revenue or profit margin is more difficult.
Another growing issue is that UC is fusing with collaboration, which is more than communications, but logically embraces knowledge management; ways of discovering and using unstructured information, for example. Wikis and blogs in an enterprise setting are collaboration tools more than communications tools, allowing people to find skills and expertise they might not have known was available.
Some industry players include visual and audio conferencing in the “collaboration” bucket. But even that is only part of the collaboration function.
Beyond that, collaboration and UC tasks are changing as mobility services and dispersed workers, as well as cloud-based applications are becoming more important. One therefore wonders whether cloud computing initiatives will sap some of the budget support that might otherwise have gone to either UC or other collaboration projects.
On the other hand, better cloud-based unified communications should allow affordable experimentation. Still, it is hard to document the actual return from a major UC or collaboration investment, just as it has often proven difficult to document the returns from major computing investments.
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