IT: The Productivity Equalizer - InformationWeek

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IT: The Productivity Equalizer

European business technologists see higher spending on IT as helping narrow the productivity gap between the United States and Europe, survey finds.

Few would disagree that IT plays a significant role in worker productivity. And many experts have credited growing worker productivity in the United States, in part, to smart deployment of IT by American companies. Indeed, much of the so-called jobless expansion of the U.S. economy this decade came from American companies exploiting their IT investments

European business technologists see their businesses trailing their American-based competitors in the global marketplace when it comes to productivity, and most contend that increased investments in IT will help close that gap.

According to a survey released Monday by the IT services firm Siemens Business Services, more than half -- 53% -- of surveyed European CIOs and chief technology officers say they need to increase spending on IT to catch up with American productivity levels. One in four contend their companies need to outspend Americans on IT to equal U.S. productivity levels.

"We're falling behind, and if we don't invest more than the U.S., we will never catch them," the Siemens report quotes a Spanish insurance business-technologist as saying. "We need to do that in order to recover lost ground."

Citing research by the International Monetary Fund and IT research firm IDC, Siemens says investments in IT accounted for 2.3% of the gross domestic product, the value of goods and services produced, among "old Europe" -- the 15 original European Union nations, known as the EU-15, in 2004. U.S. IT investments amounted to 3.4% of U.S. GDP last year.

Productivity in Europe is improving, albeit at a slower pace than in the U.S. Productivity in the EU-15 rose 1.3% in 2004, up from an anemic 0.9% in 2003. U.S. nonfarm productivity rose 4% last year, according to the U.S. Labor Department. On average, an analysis by the Conference Board shows, the productivity level of the EU-15 was at 92% of the U.S. level in 2004.

Among the CIOs and CEOs surveyed by Siemens, one-quarter said they would need to increase IT investments by 10% or more for their companies to match U.S. productivity levels. Another 39% said investments of between 5% and 10% would help narrow the productivity chasm.

Not all of the executives surveyed see IT as magically enhancing European productivity, according to Siemens. "Matching or exceeding U.S. investment will [not] close the productivity gap," a Danish energy-utility executive said. "There are huge differences in the business culture and cost base in Europe. For instance, labor-market regulation is more stringent in the EU." A Norwegian retail banker who sees advantages to higher IT spending nonetheless expresses caution: "IT is only a component of the investment that is needed. Processes need to be tightened and training improved."

But an IT executive at a British agriculture-food production company sees the value in IT investments. "Our products are of higher quality than those produced by equivalent U.S. manufacturers," the British executive told Siemens. "To reach U.S. productivity levels whilst maintaining product quality would require a huge increase in automation."

Siemens says it conducted in-depth interviews with CIOs and CTOs at 100 of Europe's largest companies. Participants were from companies with at least $1 billion in revenue or a staff of at least 1,500. The research took place between January and March, and covered companies based in Benelux -- an economic union between Belgium, the Netherlands, and Luxembourg; Britain; France; Germany; Italy; Scandinavia; and Spain.

Siemens presented the results as it introduced a new European service, SieQuence, which it says is aimed at helping clients increase productivity and business value from IT.

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