Computer Technology: The Impact On Productivity, Communication And How Firms Are Organised

Communication costs are a crucial link between investments in information and communication technology (ICT) and organisational structure. In many firms, the technology has substantially decreased the time needed for production, but rarely affected the time required for communication.

Consequently, this has become much more of a burden in processes of increased productivity. In an effort to reduce meetings and consultation, functions have been broadened to ensure that individual workers oversee more consequences of their actions. These findings, by Dutch economists Lex Borghans and Bas ter Weel, are published in the February 2006 issue of the Economic Journal. The authors argue that the trade-off between the costs of communication time and the advantages of the division of labour determines firms” organisational structure.

The authors estimate that in about 80% of the firms they examined, ICT mainly improved the efficiency of pure production work, while in 20% it benefited communication – for example, better access to dossiers and internal routing of individual claims in insurance companies.

In the first group, they observe an increase in hierarchical levels and a fall in both diversity of employees and team size. In the second group, quite the opposite occurred. Tasks here became more specialised and the required skill level decreased. These establishments typically belong to larger organisations, export part of their production, use more advanced technologies, face a higher degree of competition and compete in high-quality segments of the market.

The findings of this study also help to explain the recent increase in skill requirements in the workforce. It is estimated that during the years of rapid diffusion of computers, the demand for high-skilled workers has annually grown 3% faster than that for low-skilled workers. The former spend a much larger fraction of their time on communication. Productivity therefore especially increased in low-skilled jobs, reducing the demand for this group.

So a simple theory of the division of tasks among workers helps to illuminate the observed changes in the organisational structure and labour demand as a result of the adoption of computer technology.

”The Division of Labour, Worker Organisation and Technological Change” by Lex Borghans and Bas ter Weel is published in the February 2006 issue of the Economic Journal. The authors are at Maastricht University in the Netherlands.

Bas ter Weel

+31-43-388-3703/3821 | b.terweel@merit.unimaas.nl