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What’s the Focus for Productivity in the Digital Era?

One of the major challenges facing the UK is to boost productivity. Traditionally measured in terms of output per hour worked, the UK has been experiencing a major decline in productivity since the financial crisis. This drop appears to be worse in the UK than in other comparable countries. Since the financial crisis the UK has recorded low productivity-growth, and in 2019 was seeing its worst figures in 5 years.

The puzzling question for many is why productivity is falling even when digitization and digital transformation is increasing. The consensus is that technology adoption takes some time to become widely adopted, and therefore make impact in the figures. Overcoming organizational barriers to its use requires energy and investment. Only once these are addressed will the differences become clear.

Yet the past few months may well have turned this thinking on its head. Digital transformation is now taking place in the context of formidable changes in business and society. The shift toward greater use of digital technology (also described by Nicholas Carr as the “big switch”) tracks the journey being undertaken by organizations under intense competition from a global marketplace forcing them to enhance their capabilities for a digital world. Understanding the depth and breadth of this transformation raises key questions about how to define and measure its effects.

Understanding the relationship between worker productivity and digital transformation is not straightforward. Consequently, assessing the reasons for such poor performance figures may involve several factors. The problems may begin with the realization that we may be measuring the wrong things and looking for improvements in the wrong areas. There is a significant challenge in applying traditional methods for measuring productivity and value when considering the use and adoption of digital technologies.

One approach to understanding this dilemma is to reconsider where and how value is created in a digital economy. In a digital world, value is found both in the knowledge assets being managed and, more significantly, in accelerating how that knowledge flows. In a world of volatile change, the measure of an organization’s success may be determined by its ability to sense and respond to the many different flows of knowledge around them; internally across business units and across supply chains, and externally with customers and in broader community interactions.

The real-time visibility, orchestration, and decision making enabled by digital transformation powers a different collaborative productivity that is focused on accelerating teams and connecting disparate organizations. The conversations taking place across these boundaries are important because they hold the key to behaviours and attitudes that inform the desirability of new and existing products and services, as well as strengthen confidence in decision-making on strategy and directions in times of massive uncertainty.

Understanding the importance of information flow has its implications, seen most strikingly in emerging platform technologies and their business models. Platform models create value by connecting potential buyers and sellers through online marketplaces that encourage growth within and across these communities, to the benefit of all those participating in this collaborative ecosystem. More buyers attract more seller. More sellers attract more buyers. As a consequence, the platform provider financially benefits from the exchange of goods and services it stimulates and generates new business opportunities by mining the interactions taking place within the ecosystem it has created. Platform companies are stimulating massive growth by encouraging large ecosystems of partners and consumers in the USA, China, and elsewhere across the globe.

Another key example in understanding the importance of this information flow perspective is seen in the enterprise software delivery domain. Here, the emerging focus on ”Value Stream Management” is a key recognition of the importance of  connectivity and integration across the software development and delivery teams. Improvements in the speed and quality of software delivery through disciplined DevOps processes are essential. However, these drive significantly more value to the business through alignment and synchronization between the business goals and delivery processes. Value stream management highlights that information flows play a critical role in maximizing effectiveness of digital technology.

Furthermore, it is critical to also ask how the pandemic-driven acceleration of digital transformation will change the outlook for productivity. There is reason for hope as we look beyond the many challenges we have faced in 2020. The pressure on many businesses has been to accelerate deployment of digital technology and redesign processes to adapt to remote working, disrupted supply chains, and reshaped end-user demands. Domains that have stubbornly resisted digitization (such as healthcare and education) have experienced an increased sense of urgency that has broken down many barriers. It is widely expected that these may offer new opportunities to improve productivity as the current crisis will accelerate deployment of digital solutions to further automate human tasks.

The latest analyses of how companies view their future digital transformation plans confirm that use of digital technology will continue to grow. Let’s look forward to 2021 being a productive time for all of us.

Source: AWB Digital Economy Dispatch #14

Alan Brown

Alan W. Brown is Professor in Digital Economy at the University of Exeter Business School where he co-leads the Initiative in Digital Economy at Exeter (INDEX). Alan’s research is focused on agile approaches to business transformation, and the relationship between technology innovation and business innovation in today’s rapidly-evolving digital economy. After receiving a PhD in Computational Science at the University of Newcastle-upon-Tyne, Alan spent almost 2 decades in the USA in commercial high-tech companies leading R&D teams, building leading-edge solutions, and driving innovation in software product delivery. He then spent 5 years in Madrid leading enterprise strategy as European CTO for IBM’s Software group. Most recently Alan co-founded the Surrey Centre for the Digital Economy (CoDE) at the University of Surrey where he led research initiatives in 4 EPSRC-funded research projects.

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