Quarterly Business Report: Do Computers Really Save Money?

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Another problem is the endless updating of electronic technology, which makes many a computer supposedly obsolete just when its user has finally learned how to handle it. "I think the technology gets churned too frequently," says Alan Blinder, former vice chairman of the Federal Reserve. "Every time we have to learn a new system, there is a decline in productivity."

Stanford economist Timothy Bresnahan argues that this is more a problem with PCs than with large business computers, where upgrades are handled by professional managers. But changing systems can be a serious problem for medium-size businesses too. Insurance Management Associates, a commercial insurance brokerage firm, has just laid out more than $1 million to install a new computer operating system. In the Denver office alone, says president Robert Cohen, "we had 2,500 hours of training for 70 employees and kept the business running while handling the usual glitches and two-hour breakdowns, as well as the three days the system was down entirely while it was being installed." Cohen nonetheless expects to see an increase in productivity--in about six months.

Some employers fall victim to an electronic version of Parkinson's Law: Work expands to fill the digitized time available for its completion. In many graphics departments, says New York consultant Reppen, employees use their computers to try so many different images that "they spend more and more money to get things done at the last minute." And, of course, employees often spend some of their work time idly surfing the Net or playing games. Clifford Stoll, an astronomer and systems manager in California and author of Silicon Snake Oil, draws this analogy: "Suppose a business said everyone on the sales force was getting a free deck of cards so that when they get bored they can play solitaire. Not going to happen, right? But if you give everyone on the sales force a $2,000 computer, you know they're going to play some solitaire because it's the second or third most common program run."

In short, you need to think before you spend. Before going back to the abacus, however, know that the skeptics are still outnumbered by economists and executives who insist that business on the whole is more productive. Economist Allen Sinai of Primark Decision Economics points out that the U.S. has lately enjoyed "superstrong growth, superlow inflation and a superlow unemployment rate." That could not happen if productivity were really as low as the official figures indicate, he says; the numbers--er, do not compute. So productivity must be increasing faster than calculated, and one likely reason is computerization. Maybe the experts need somebody who can design a computer program to measure that elusive productivity increase once and for all.

--Reported by Dan Cray/Los Angeles, William Dowell/New York, Maureen Harrington/Denver, Marc Hequet/St. Paul and Timothy Roche/Pensacola