To implement a technology based system is expensive and the cost of doing so must be outweighed by some potential benefits. Typically when an industry makes an investment in IT they expect a pay-back in the form of increased ‘productivity'.

A system of production has inputs (labour, raw materials, energy) and outputs (the product). Productivity is a measure of the value added to the output of the system, a productive system being one where the value of the outputs is greater than the cost of the inputs. Productivity is therefore a widely accepted measure of how well a business is performing. Note that getting your employees to work long hours would not increase productivity, because you are simply making your labour inputs more expensive. To increase productivity substantially you need to work more efficiently, not just harder or longer.

One would expect that the introduction of information technology into a system of production would be just such a tool to increase productivity. IT automates many dull repetitive tasks, either doing away with the need for low-skilled labour (and reducing labour costs) or allowing workers to apply themselves to more skilled tasks, thereby increasing output of quality product (assuming that skilled workers produce better quality products than unskilled workers).

However many economic studies in the United States have shown that the expected increase in productivity caused by the implementation of IT systems simply has not materialised. This is the ‘productivity paradox'.