Tackling The Productivity Paradox

There's increasing evidence that incremental IT investments do not produce positive changes in productivity - but the reverse. They provide negative returns. That's what we call the Productivity Paradox.

For most industries, it is a recognised truism that higher IT spending leads to higher productivity. The exception is banking where, for protracted periods of time, growth in IT spending has failed to translate into correspondingly higher levels of productivity growth; a phenomenon known as the “productivity paradox”.

Our contention is that this paradox exists in banking because banks concentrate so much of their IT spending on internal resources and internally developed systems. To support this contention, we point to several pieces of quantitative evidence, including the almost perfect inverse relationship between industries’ levels of IT spending and their relative spend on packaged software applications.