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Running head: TECHNOLOGICAL CHANGE AND ITS IMPACT ON PRODUCTIVITY & EFFICIENCY 1 Technological Change and its Impact on Productivity & Efficiency Jeffrey A. Jewett California Lutheran University

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Page 1: Technological Change and Its Impact on Productivity

Running head: TECHNOLOGICAL CHANGE AND ITS IMPACT ON PRODUCTIVITY & EFFICIENCY 1

Technological Change and its Impact on Productivity & Efficiency

Jeffrey A. Jewett

California Lutheran University

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Abstract

The purpose of this study is to analyze the long and short term impacts that technological change has on employee efficiency and therefore productivity. In a time of exponential change, with new technologies being introduced daily, and the switch from technology being a competitive advantage to a tactical necessity, we have seen companies increasing their productivity through technological efficiency. This paper will analyze this increase in productivity by assessing the long and short term impacts that the implementation of new technologies has on the workforce. As these technologies continue to be implemented companies will experience short term decreases in productivity but as familiarity and training ensue so will efficiency and thus productivity. This period of decline followed by a boom has been supported through past data and we can only hope that this will continue into the future.

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Introduction

Technological change has been a catalyst for greater efficiency and productivity

throughout history. Through the implementation of new technologies in the workplace, their

influence on the business processes, and adoption by various business units, employees can use

technologies to better accomplish their duties.

Todays advanced technology is tomorrow’s “a-track”; we are at a period in history

where technological advancement is at a forefront and the possibilities appear limitless.

Advanced societies are becoming more and more reliant on these technologies, and businesses

are no different. Dwindling profit margins, due to increased competition, are causing small

business and global enterprises alike to seek greater efficiency and maximize productivity.

These technologies are becoming a major factor in how even the smallest tasks are

carried out and have become a pinnacle part to everyday business. From the time an employee

punches into work, calls a client, sends an email, updates customer information, or gives a

presentation, employees are utilizing technologies to make their work easier, efficient and

more productive.

We have all experienced the rapid development of technologies over the last decade,

just think about your cell phone or your computers processing power (Cron 1983), these

changes are happening exponentially and we can only guess what tomorrow has in store. We

have seen the impact technology has been on increasing productivity and efficiency on

outsourcing and in many areas of business (Siegak 1991). Today, through cellphones, mobile

networking, and laptops the modern businessman has become more autonomous than ever

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before, but they will always be inundated by the infamous learning curve. As technology

advances so will its functionality and ultimately the complexity. Encoded within the complexity

is a means for greater efficiency and productivity, but not until the employees overcome the

learning curve can the benefits be realized.

Through the use of both primary and secondary research, this paper will evaluate the

impact of technological change on employee productivity and efficiency and the respective

timeline for which a decline is followed by an increase in both.

Literature Review:

In an effort to understand the various sides of the impact that technological change has

on productivity and efficiency, this paper builds on the foundation of various literary analysis in

an attempt to eliminate bias in the research. Without specifying the time period in which

analysis is conducted and the various fluctuations in outcomes, the numbers can be

manipulated in an attempt to create a basis for arguments both for and against technological

change. Stating a correlation either way is a moot point without proper analysis of the

corresponding time periods.

Unlike ever before, the modern business relies more heavily on technology and how the

benefits are leveraged from the simplistic to the most daunting of tasks. Technological

innovation and implementation play a key catalyst in the development of new policies and

procedures, and effect many facets of today’s companies. The ever increasing strength of the

global economy and the corresponding increases in efficiency have forced organizations to

streamline both their processes and their technologies in order to better manage their

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businesses (Scott, 2000). This implementation, although commonplace, is not one with

immediate results. However, in today’s age of instant gratification, companies often find

stockholders and executives expecting immediate improvement. This is the exception not the

rule.

While some authors have speculated or alluded to the laggard impact of technological

investment, there have been few studies depicting the relationship between this type of

investment and the relative increases in productivity within certain time periods. It is

imperative that these variations in productivity are measured over various time periods in order

for business to make educated decisions about implementation and its corresponding time line.

Otherwise, new technologies can be abandoned or misused and not have the positive impact

that the company had hoped for. This is because the period of decline can have a significant

impact on both morale and profitability due to increased mistakes and employee resistance.

Maurer (1996) stated that half of all technological change efforts fail, and both resistance and

poor training are fundamental characteristic of that failure.

Regardless of one’s position on the impact of technological investment and

implementation, it is important to recognize that the measurement of efficiency and

productivity is not an exact science and the impacts can be interoperated very differently (Scott

2000). There are hidden variables and characteristics that must be taken into account which

can greatly skew the results. One study may show a negative correlation between the two while

another suggests the exact opposite. The various research results appear to be inconsistent on

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many levels, including “performance, methodologies, and data sources” (Brynjolfsson, 1996,

par. 4).

There are a substantial number of benefits that can be realized through the

implementation of technologies and computerization within an organization (Cron 1983). As

technology advances, and more companies digitize their processes, they can better share

information and decrease human error, which leads to greater productivity and efficiency

(Anderson 2006). Through the collection, storing, and increased accessibility of information, all

aspects of business can be enhanced which is made possible through advancing technologies.

Just think about today’s CRM, ERP, or Accounting systems and the functionality they have.

Companies and organizations are able to perform new types of analysis which can aid in the

development of better policies, procedures, and reporting which can lead to extensive

increases in efficiency and productivity (Cron 1983).

Where inefficiency is found, developers and inventors are working on solutions and

creating best practices through technology. Once a solution has been developed, competitors

find ways to enhance it and the adopting company will become more and more productive and

efficient in the long run. Processes that used to take days, now turn into hours, and hours into

minutes, and so on. As the advancements continue, so does functionality, and ultimately,

complexity. The level of complexity impacts the learning and training time and can delay the

realization of greater efficiency and productivity (Snow 2007). No matter how large or how

small a positive improvement may have in the long run, it is always preceded by a short-term

decline.

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Industries in the late 80’s that made large investments in the technologies such as

computers, updated software, and advanced telecommunication equipment, experienced a

short term decline in productivity while they implemented and trained employees on these

technologies (Stiroh 2001). Shortly thereafter they experienced incremental improvement in

productivity followed by large productivity gains after 1995. Furthermore, “industries that

invested heavily in IT in the early experienced significantly larger productivity gains than those

that did not” (Stiroh, 2001, pg. 12).

A similar analysis was conducted by Basu (2003) which measured the implementation of

information technology and compared the short and long term productivity across various

companies. He found a correlation between short-term productivity declines followed by large

upswings in productivity and the implementation of new technologies with and without

organizational change. The importance of noting the organizational change is because

technology is a catalyst for process and procedural changes, which add to the impact of the

implementation. “IT interacts with the organizational processes and alters the relationship of

the firm with the external world by altering the competitive condition” (Dietrich, 2004, pg. ii).

Yet, Basu (2003) found that even companies that do not implement organizational changes still

exhibit increases in productivity through technological change.

There are a number of factors that play into the short-term decline in productivity. First

there is implementation time, where employees may be utilizing both the new and old systems.

Second there is training and acceptance time. Finally, there is a development of familiarity

which increases efficiency. “Once the workers were trained and became efficient with the new

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technologies, productivity took an upward turn,” (Snow, 2007, pg. 18). This upward turn is

realized after a leveling off period and results in greater long-term productivity. Eventually the

implemented technology and human potential is maximized and newer technologies are

released and implemented repeating this cycle. It is important to note that the time period for

transition from one technology to the next is shrinking considerably.

Over the last decade, technology has become more powerful with greater availability,

and additionally easy to manage. Implementation of advanced technologies has become the

norm, and yet, the implementation and realization of maximum efficiency and productivity

(given that technology) is still a timely process. Even after a company has weathered the short

term decline and reaped the benefits of long-term business improvement, there is still a “lag

time” until the company maximizes their efficiency and productivity. According to Beaumaster

(2003, pg. 4), “even a reduction in lag time by 3/4 still leaves a delay of approximately five years

—an eternity in technological terms.”

Some researchers have found that although technology has contributed to industry

restructuring and plays a substantial role in altering the competitive environment, it is not a

primary source for productivity increase (Baily 2003). These proponents appear to account the

correlation between productivity growth and technological implementation to process

innovation.

Other researchers have found that the positive benefit realized through technological

implementation is not merely technology or technology coupled with process change, but

instead, something much simpler. The positive association between technology and

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productivity must always be measured using technology and an omitted variable(s), such as the

quality of the management or the company’s capital (McGuckin 1996). These researchers feel

that independent of these additional variables, technology alone will not create greater

efficiency and/or productivity. Even if parallels can be found, the skeptics argue that a positive

relationship does not imply causality. These researchers insist that when evaluating you must

seek out these underlying, hidden, and often cryptic variables in order to truly understand the

various aspects that enabled increased efficiency and productivity.

Some prominent studies conducted to measure the relationship between investment in

technology, organizational efficiency, and productivity, have reported positive and significant

effects. Others question such results on the premise that the benefits of technological

investment can be realized only over long periods of time. However, it is both probable and

highly likely that benefits can be realized within the first year, given an organizational structure

and culture are properly primed and managed (Mahmood 2000). In any event, these

researchers often fail to differentiate between long and short term measurements on

productivity and efficiency.

There have been many research papers, journal articles, and reports from industry

analysts which have supported the idea of leveraging technological change in an attempt to

boost employee productivity and efficiency. From the boost across various industries in the

1990s (Stiroh, 2001) to the exponential increases in technology and efficiency in the 2000’s

businesses have experienced increases in both productivity and efficiency. Kevin Stiroh (2002)

analyzed the elasticity of productivity with respect to IT by looking at the effects on the

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productivity increase if the use of technology was doubled. He found that when doubling the

use of technology, businesses averaged an increase in productivity of about 5 percent. Although

this percentage appears low it can have a major impact on an organization. This also supports

the idea that as long as technology continues to advance at its exponential rate and

implementation ensues, increases in productivity and efficiency will escalate.

The bulk of this literature review has focused on the company or organization wide

impact, however, it is also important to understand how the employees feel about

technological change and how they view its impact on their productivity. In the 2007 Economic

Report of the President, there is mention of a growing fear of skill-biased technological change

that creates gaps in pay among employees and increases sabotage from less skilled and older

workers. “Technological advances increased the productivity of skilled workers more than the

productivity of the less skilled leading employers to want to hire more skilled workers…

widening the difference in pay associated with skill” (Economic Report for the President, 2007,

pg. 53). This resistance and sabotage is causing increased failure rates and impact both long and

short-term measurements in productivity and efficiency.

Beyond the resistance and sabotage that is forming, there is also a schism between both

the younger and older employees and their outlook on technological change. Laitner (2005, pg.

4-5) finds that older workers are “less eager, or less adept, at taking advantage of new

technologies”. He also mentions that the effectiveness of the technological change diminishes

as the work force ages, which can have a negative impact on productivity and efficiency in both

the long and short term. This researcher goes on to discuss how younger workers are generally

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more open-minded about change but this diminishes as they age. The idea of age is also

addressed by Burnmeister (1969) but in his findings he still considered technological change as

being effective in increasing productivity and efficiency and thereby raising output for an

organization. The importance of these findings is that it is leading organizations to invest more

heavily in training their younger employees and neglecting the older workers. This neglect is

also leading to sabotage and resistance which impacts both the morale and culture and

ultimately impedes productivity and efficiency.

Technology is expanding rapidly and affects all members of an organization both directly

and/or indirectly. It is important for an organization to understand the impacts on the

individual as well as the organization and to set realistic goals for implementation.

Methodology:

This paper will provide an in-depth look at technological change and both the long and

short term impacts it has on employee productivity and efficiency. Past research indicates a

strong correlation (although greater research must be done) between technological change and

short-term decline followed by long term efficiency. This study will attempt to underline that

claim and attempt to measure the period between decline and increased efficiency.

The research will be conducted as a survey whereby the resulting data will measure the

impact that technological change has had in currently employed professional’s productivity and

efficiency in the work place. A page of questions will be given to each qualified participant in

the form of open-ended multiple choice questions.

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Once the data has been gathered, statistical analysis will be conducted and analyzed

showing the various means (mean, median, and mode) as well as the standard deviation. The

standard deviation will be used to measure the viability of the data and determine the overall

credibility of the dataset.

The survey is comprised of 5 demographic questions and 10 various relevant questions.

Participants are qualified as first being employed full time and having been at their job for at

least 3 years. The relevant questions are asked using the Likert Scale (Appendix 1).

The questions will be completed by 30 participants whom meet the qualifications stated

above.

Study Results:

The first demographic question asked participants to “Choose the answer that best

describes your role at work.” This resulted in the majority of participants holding either a “Low-

level management” or “Mid-level management” position.

The second demographic question asked for the participant’s years of work experience.

The mean or average work experience was about 8.5 years.

The third question asked, “How recently have you implemented or been subjected to a

new technology in the work place? (Describe this new technology)”. This was an open-ended

question and the answers varied.

The fourth question of the survey asked the participant to select their gender. This

resulted in 17 to 13 with more males having participated in the survey.

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The fifth question asked, “Age.” Each participant could choose one of 5 different age

ranges that were applicable to them. The average (mean) age of the participants was

approximately 28 years old.

The first relevant question stated, “Technology has increased productivity in the

workplace.” The answers resulted in a mean of 4.4, a median of 4 which is “agree,” a mode of

both 4 and 5 which is “agree” and “strongly agree.” The standard deviation for this question

resulted in 0.65.

The second relevant question stated, “Technology enables me/my employees to work

more productively in the short run.” The answers resulted in a mean of 1.6, a median of 2

which is “disagree,” and a mode of 2 which is “disagree.” The standard deviation for this

question resulted in 0.72.

The third relevant question stated, “Technology enables me/my employees to work

more productively in the long run.” The answers resulted in a mean of 4.2, a median of 4.5

which is between “agree” and “strongly agree,” and mode of 5 which is “strongly agree.” The

standard deviation for this question resulted in 0.68.

The fourth question stated, “There is a delay between the implementation of new

technologies and increased productivity.” The answers resulted in a mean of 4.3, a median of 4

which is “agree,” and mode of 4 which is “agree.” The standard deviation for this question

resulted in 0.56.

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The fifth question stated, “Technology makes me/my employees more autonomous.”

The answers resulted in a mean of 3.6, a median of 3.5 which is between “neutral” and “agree,”

and mode of 4 which is “agree.” The standard deviation for this question resulted in 0.78.

The sixth question stated, “The benefits from new technologies are evident

immediately.” The answers resulted in a mean of 1.8, a median of 2 which is “disagree,” and a

mode of 2 which is “disagree.” The standard deviation for this question resulted in 0.54.

The seventh question stated, “To realize the benefits of new technology, proper training

and learning time are required.” The answers resulted in a mean of 4.6, a median of 4.5 which

is between “neutral” and “agree,” and mode of 5 which is “strongly agree.” The standard

deviation for this question resulted in 0.47.

The eighth question stated, “Technology makes me/my employees more efficient in the

short run.” The answers resulted in a mean of 2.2, a median of 2 which is “disagree” and mode

of 2 which is “disagree.” The standard deviation for this question resulted in 0.36.

The ninth question stated, “Technology makes me/my employees more efficient in the

long run.” The answers resulted in a mean of 4.2, a median of 4.5 which is between “agree” and

“strongly agree,” and mode of 5 which is “strongly agree.” The standard deviation for this

question resulted in 0.68.

The tenth question stated, “When upgrades to my technologies come out; they seem to

slow down older employees’ more than younger ones.” The answers resulted in a mean of 4.1,

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a median of 4 which is “agree,” a mode of both 4 “agree.” The standard deviation for this

question resulted in 0.33.

Analysis:

This survey was conducted to determine the relationship between technological change

and productivity and to determine the efficiency in both the short and long run. Even with a

small sample size of only 30 participants, the survey resulted in a low standard deviation,

indicating a strong and viable response to the survey.

The first relevant questions asked participants if they felt that technology increased

productivity in the workplace. This resulted in the majority of the participants voting 4 or 5 and

none giving a rating of either 1 or 2. That being said, it can be concluded that technology has

had an impact on business based on past experiences. Stiroh (2001) touches on this in his

article and discuss the increases in productivity throughout the 90s due to advances and

greater investment in technology. From the survey responses we can see that employees do

feel that technology has played a major role in the increasing productivity levels in the work

place.

The second question that participants were asked was, “Technology enables me/my

employees to work more productively in the short run.” Surprisingly, the majority of

participants recognized that technology does not immediately create increased efficiency

and /or productivity. These results parallel Snow’s (2007) findings that productivity and

efficiency do not result in greater productivity and/or efficiency until proper training and

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experience have taken place. This seems very intuitive but many executive and stockholders

expect instant result which simply is not the case.

The third question is the same as the second question but asking about productivity in

the long run. Not surprisingly, this resulted in responses closely resembling those of the first

question with the majority of participants either voting 4 or 5 and none giving a rating of either

1 or 2. These findings also correspond with Snow’s (2007) finding that there is a lag time in

productivity and efficiency increase but in the long run technological change does increase

productivity.

Question four asked participants if there is a delay between the implementation of new

technologies and increased productivity. The resulting answers correspond with the second

question with the majority recognizing the lag time.

The fifth question asked participants if they believed that “Technology makes me/my

employees more autonomous.” This question was asked as a measure of accuracy for the first

question; however, it resulted in a generally neutral response. This neutrality does not reflect

the answers from the first question, which alludes to the fact that, participants did not consider

autonomy a contributing factor for productivity and/or efficiency.

The sixth question stated, “The benefits from new technologies are evident

immediately.” This question was used as a measure for the validity of the data found in

question 2. Fortunately, there was a significant parallel resulting in the majority of participants

recognizing that technology does not result in immediate increases in productivity and/or

efficiency.

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The seventh question stated, “To realize the benefits of new technology, proper training

and learning time are required.” This resulted in an abundance of 4 and 5 ratings validates

Mahmood’s (2000) claim there is a decline which can be address through proper management

and training.

The eighth question asked participants if, “Technology makes me/my employees more

efficient in the short run.” This question was asked to see if participants consider technology

more or less beneficial to efficiency versus productivity in the short run. The resulting answers

mirrored those of productivity in the short run. This directly correlates with the findings of

Snow (2007) and builds on the idea that in order to combat the short term decline, proper

measures must be taken to ensure long term increases in productivity and efficiency.

The ninth question asked participants if, “Technology makes me/my employees more

efficient in the long run.” This question was asked to see if participants consider technology

more or less beneficial to efficiency versus productivity in the long run. The answers closely

resembled those of productivity in the long run and aids in validating both Stiroh and Basu.

The tenth question stated, “When upgrades to my technologies come out; they seem to

slow down older employees’ more than younger ones.” This initial slowdown is a major cause

for the short term loss in productivity and efficiency. The fact that most participants either

“agree” or “strongly agree” with this statement is testament to the statements Burnmeister

(1969) made about technologies impact on the elderly. This also gives insight into the short

term decline in productivity.

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Conclusion:

The modern world is facing a period of rapidly evolving technology, and its impacts are

affecting all aspects of business. Technological change has transformed the businesses of today,

which is made evident by many great scholars and researchers in the field (as noted in the

Literature Review). In an effort to examine these impacts, specifically technological change’s

impact on short and long-term productivity and efficiency, a survey has been conducted on

working professionals (who have recently undergone a technological change). When

participants were asked if the implementation of new technology positively impacted

productivity the overwhelming majority stated that it did. The majority also responded that

there was no short term increase in productivity but there were long term benefits. This backs

the idea that technological change results in increased productivity in the long run but only

after a short-term decline in productivity.

The reason that so many businesses are jumping on these advancing technologies is

because many industries have seen a great ROI (Garretson 1999) thanks in part to the

corresponding increases in productivity and efficiency. Stiroh (2001) uses the boom in

productivity and efficiency in the 90s as an example of this and discusses the rewards that

companies who invested heavily in technology received. This claim is also supported by the

research conducted by Basu (2003). As one part of the business would experience an increase

more technologies were implemented in other departments, in an attempt to duplicate the

benefits. As the various departments increased in productivity and efficiency it had a synergistic

effect on the company explaining the huge boom in productivity and efficiency in the 90s

(Striroh 2001).

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As the survey suggests, employees and managers feel that both productivity and

efficiency are greatly improved through technological change. In fact, the overwhelming

majority of participants agreed or strongly agreed with the following statements: “Technology

has increased productivity in the workplace,” “The company I manage/work for increases in

efficiency as technology advances,” and “The company I manage/work for increases in

productivity as technology advances.”. These statements resulted in mean responses of 4.4,

4.3, and 4.5 respectively out of a maximum positive score of 5. These correspond with the

findings of both Basu and Stiroh and further supports the claim that technological change has a

positive impact on both productivity and efficiency.

Researchers have suggested that advances in technology have taken productivity and

efficiency to a level never seen before (Stiroh, 2001). Just a few years ago employees were not

as connected and accessible to both the company and their customers, information was not as

easily transferred or shared, and machines were less reliable. All of these issues have been

addressed by advancing technologies such as cell phones, cloud computing, upgraded hardware

and advanced mechanics. Through greater efficiency and productivity these technology

companies are able to better create and improve new technology which only adds to the

productivity and efficiency, explaining the exponential growth of technology (Siegak 1991). One

of the most profound technological advancements has been the internet and the search engine.

Never before, have companies or employees had so much information at their fingertips.

Through advanced laptops and smartphones this information is accessible everywhere. These

are the types of innovations that are reshaping business and leading to long term increases in

productivity and efficiency. (Brynjolfsson, 1996, par. 7)

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Both primary and secondary research suggests that technological change does in fact

add to employee productivity and efficiency. This paper also supports the premise that this

increase is preceded by a short term decline. More research must be done to measure the

timelines based on the complexity of the technologies so that companies can better gauge the

performance of implementation. Technology will continue to advance, productivity and

efficiency will advance along with it, and this paper and literature review supports that

statement.

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Appendix:

Sample Survey

1. Choose the answer that best describes your role at work:- Entry level - Low-level management- Mid-level management- Upper Management- Executive / Owner

2. Years of work experience:- 3-5- 6-10- 11-20- 21-30- 31+

3. How recently have you implemented or been subjected to a new technology in the work place? (Describe this new technology)

4. Gender (choose one)- Male- Female

5. Age - 21 – 30- 31 – 40- 41 – 50 - 51-60- 61+

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Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

1. Technology has increased productivity in the workplace.

1 2 3 4 5

2. Technology enables me/my employees to work more productively in the short run.

1 2 3 4 5

3. Technology enables me/my employees to work more productively in the long run.

1 2 3 4 5

4. There is a delay between the implementation of new technologies and increased productivity.

1 2 3 4 5

5. Technology makes me/my employees more autonomous.

1 2 3 4 5

6. The benefits from new technologies are evident immediately.

1 2 3 4 5

7. To realize the benefits of new technology, proper training and learning time are required.

1 2 3 4 5

8. Technology makes me/my employees more efficient in the short run.

1 2 3 4 5

9. Technology makes me/my employees more efficient in the long run.

1 2 3 4 5

10. When upgrades to my technologies come out; they seem to slow me/my employees down.

1 2 3 4 5

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Work Cited:

Anderson, C. (2006). The Long tail: How endless choice is creating unlimited demand. London:Random House.

Baily, Neil (2003). ‘Technology & Productivity: Recent Findings,’ Institute for InternationalEconomics. Presentation at AEA.

Basu, S., Fernald, J.G., Oulton, N., Srinivasan, S. (2004). ‘The case of the missing productivity growth, or does information technology explain why productivity accelerated in the United States but not in the United Kingdom?’, in Gertler, M., Rogoff, K. (Eds.), NBER Macroeconomics Annual 2003, Cambridge, MA: The MIT Press.

Brynjolfsson, Erik (1996) ‘Information Technology and Productivity: A Review of the Literature,’MIT Sloan School of Management, Academic Press, Vol. 43, pages 179-214, 1996.

Burmeister, Edwin, and Dobell, Rodney, “Disembodied Technological Change withSeveral Factors,” Journal of Economic Theory 1, no. 1 (June 1969): 1-8.

Cron, W.L. & Sobol, M.G. (1983). ‘The relationship Between computerization and Performance: A Strategy for Maximizing the Economic Benefits of computerization,’ Journal of Information and Management, Vol. 6, pp.171-181

Economic Report of the President February 2007. Washington: Government Printing Office,2007.

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