Quarterly Business Report: Do Computers Really Save Money?

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New York Presbyterian Healthcare System, product of the newly merged Columbia Presbyterian and New York-Cornell hospitals in Manhattan, is the very model of a modern medical establishment. Formed in January 1998, it brought together more than 25 health institutions and merged their operations to achieve economies of scale. The company has spent a cool $100 million just installing new computers in its facilities to get state-of-the-art performance--and cost-saving efficiencies. Has the network got its money's worth? That, says senior vice president Guy Scalzi, is not always easy to calculate.

Take an automated laboratory at New York Presbyterian Hospital. Conveyor belts transport blood or urine specimens in containers that resemble toy railroad cars from a collection point to a computerized analyzer. The machine takes a sample with a dipstick; the computer reads the results and flashes them to the monitor of the doctor in charge of the case. The lab will save the salaries of dozens of people who "used to move the specimens around by hand, read the test results on a screen and then telephone the doctor," says Scalzi. The lab cost $7 million to set up but is expected to save $2 million to $3 million a year.

O.K., that was easy. But the benefits of computerizing some nurse's duties are literally incalculable. Instead of writing charts by hand, a nurse can now type data into a computer. Or a nurse can press a button on a computer connected to the heart monitor of a patient down the hall and get up-to-the-second readings on heart rate, blood pressure and temperature without leaving her station. Yet the hospital has not reduced its nursing staff. Instead, nurses who once spent 60% of their time doing paperwork now spend that 60% at bedsides, giving patients personal attention. Sick people are better cared for, most nurses are happier in their jobs--but the hospital's saving is harder to measure.

As computers push their way further into every nook and cranny of America's complex economy, these experiences underline a paradox that has long puzzled almost everybody who comes into contact with thinking machines. Computers help all sorts of people do their jobs faster and more efficiently. Many enthusiasts expect the machines to transform the American economy and society as completely as the internal-combustion engine and electric power did, beginning roughly a century ago. But why is there so little hard numerical evidence that this is happening? In particular, if computers are sparking a new industrial revolution, why have the numbers that measure the growth in output per labor-hour of the U.S. economy been so persistently anemic? As Nobel prizewinner Robert Solow summarized in what economists now call the Solow Paradox, computers are everywhere--except in the productivity statistics.

This is not merely an academic issue. It cuts to the heart of a decision faced by businesses large and small: whether to go digital or not. No country has gone further than the U.S. in embracing the computer revolution; no country has a bigger stake in the productivity question. The issue: Are computers worth the billions we lavish on them?