Evaluating the Performance of Investments in IT: Reflections on the Productivity and Profitability Paradox

Abstract

Discussion about the evaluation of the performance of investment in technology was dominated for a long time — and in certain respects still is today — by what Solow (1987) referred to as the “productivity paradox”. Solow sought to examine the relationship between technology and performance by evaluating the various inputs involved in the production function: labour, capital and, in particular, technology. His analysis revealed that the residue of the function — this amount being understood as the measure of the impact of technology — decreased from the mid-1970s onwards, or, in other words, roughly over the same period from the beginning of which investment in technology became increasingly widespread.