Building Organizational Capital

An MIT study has found that while IT can improve a company's productivity, the real gains come from combining IT investments with "organizational capital"--the investments companies make in corporate culture and organizational practices. The study, presented Friday at an E-business conference in Cambridge, Mass., found that companies that invest in both IT and organizational capital are more productive and have much larger market capitalizations than those that don't.

"Productivity growth comes from new technologies and new ways of doing business," said Erik Brynjolfsson, MIT Sloan School of Management professor, who, as co-director of MIT's Center for E-business, led the study. While the study found a slight correlation between IT investments and productivity, spending levels were of little importance. "It was how they used technology. It was what they were doing with it. And it was their corporate culture, their attitudes towards a whole set of information-related decisions," Brynjolfsson said.

The study identified seven practices that are key to building organizational capital. Fostering information access and open communication through IT such as groupware and business-intelligence tools is critical, as is empowering workers to make more decisions with less supervision. Companies need to invest in promoting a corporate culture and offer workers strong performance-linked incentives and rewards. Companies must effectively focus and communicate their strategic and financial goals on a regular basis, hire top-quality employees, and invest in "human capital" through training.

The study found that these actions are complementary. In fact, when companies take only some of these steps, such as providing workers with more information but not empowering them to act on it, productivity can take a hit, Brynjolfsson said.

The study was based on data gathered from 1,167 large companies in 41 industries. The research included data about companies' revenue, market value, and IT expenditures, combined with the results of surveys of company CIOs and human-resource managers, conducted in 1995-1996 and earlier this year, about organizational practices. The study is part of a five-year, $5 million project at MIT.