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OM in the News: Why Does Productivity Remain Stuck?

June 10, 2016
Dr. Peter Sutherland says there are benefits to using electronic health records but grappling with the software and new reporting requirements has slowed him down. He sees fewer patients, and his income has slipped.

Dr. Peter Sutherland says there are benefits to using electronic health records, but grappling with the software and new reporting requirements has slowed him down. He sees fewer patients, and his income has slipped.

For several years, operations managers and economists have asked why all that technical wizardry seems to be having so little impact on their firms and the overall economy. The issue surfaced again recently, when the government reported disappointingly slow growth and continuing stagnation in productivity. The rate of productivity growth from 2011 to 2015 was the slowest since the 5-year period ending in 1982, reports The New York Times (June 6, 2016).

The most prominent pessimist is Northwestern U. Prof Robert J. Gordon, whose new book, The Rise and Fall of American Growth, contends that the current crop of digital innovations does not yield the big economic gains of breakthrough inventions of the past, like electricity, cars, planes and antibiotics. Optimists, however, say the gains from current tech trends like big-data analysis, artificial intelligence and robotics, will come. Just wait.

Technology spending has been robust, rising 54% over a decade to $727 billion last year. Despite all the smartphone sales to consumers, most of the spending is by companies investing in technology to increase growth and productivity. But a new report by McKinsey & Company found that the march of digital technology across the economy has a long way to go. Only 18% of the American economy is living up to its “digital potential,” the report concluded. And if lagging industries (like health care and hospitality) do not catch up, we will not see much of a change in national economic statistics.

Classroom discussion questions:

  1. Why is productivity such an important OM issue?
  2. Relate increased productivity to U.S. manufacturing’s resurgence.
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