Productivity is back on the agenda after a decade languishing behind growth. The Government began telling industry to get its house in order. Industry responded by telling government what it needs to do. Telling others to change seems simpler than changing ourselves. But it is much less effective.
The reality is that productivity growth will largely be driven by decisions made by individual firms and between firms [i]. So what does your productivity strategy look like?
Two core drivers of productivity are technology and management[ii]. And the interaction of the two drives ‘multi-factor productivity’, a major contributor to overall productivity.
What do we know about technology and productivity? In 1987 Nobel laureate Robert Solow famously quipped “we see the computer age everywhere, except in the productivity statistics”. This gave rise to the ‘productivity paradox’. However, many economists, including Solow, now agree that you can see the productivity effect of technology in the numbers. For example, the mid 90’s a surge in productivity in the US – and here in Australia – was largely attributed to the impact of ICT.
But the impact of technology on productivity continues to be a source of debate. Let’s be clear. If we aren’t seeing the benefit of technology in our productivity, the failure isn’t technology: it is management.
So if technology is an important productivity driver, what is your technology strategy? A technology strategy should have four clear elements: positioning; sourcing; incorporating; and managing.
All strategy begins with positioning. Too many firms declare their technology positioning to be ‘fast followers’. Apart from the lack of differentiation (everyone can’t be the fast follower) this lacks the necessary strategic discrimination to be an effective guide to action. At the very least the positioning needs to begin with an understanding of the strategic value drivers across the value chain. What is your intended competitive advantage in each part of the value chain? How might technology extend or defend (or destroy) that advantage? The result of this analysis should reveal elements where you might choose to be a leader; other parts fast follower; and still some areas where frankly, lagging is immaterial.
The next challenge is sourcing. What usually distinguishes leading organisations is not so much their ability to create knowledge, but rather their ability to absorb technology developed elsewhere and apply it to their own circumstances. What we often label ‘breakthrough technology’ is rarely a step change in the technology itself, but the migration in its application across into a new domain with minor adaptations. The ‘revolution’ occurs in the application domain rather than in the technical development.
The next stages are incorporating and managing the technology. This can be a barrier to the real productivity opportunities. When electricity was introduced into American factories in the late 1890’s it took nearly 30 years before labour productivity took off. Why? The engineers simply stuck the electric engines in the same place as the steam engines they replaced. They failed to take advantage of the opportunities the new technology enabled. When the old factory managers were replaced by a new generation of managers, they changed the factory layouts. Productivity more than doubled [iii].
Why do some organisations struggle to develop effective technology strategies? This was a question we put to the leadership team we were working with on a technology strategy some years ago. They identified 6 distinct barriers:
- Lack of aspiration … there was no clear ambition
- Lack of a technology strategy … resulted in a random approach to technology
- Lack of awareness … little knowledge of the external possibilities
- Risk aversion … doing nothing seemed less risky than doing something
- Lack of capability … lack of structures to effectively engage in the strategy
- Lack of execution … folklore around poor technology implementation (over budget/over time/under delivered)
Here are three questions to incorporate technology into the productivity conversation:
1. Is technology an explicit long term driver of your productivity strategy? How visible is this and does it attract and retain the necessary level of strategic investment?
2. How would your firm rate on the six barriers to technology listed above (would love to hear your feedback)?
3. Does your technology strategy begin with a differentiated positioning statement?
[i] Government can only facilitate productivity
[ii] A third key driver is industry structure but that is a topic for a later blog.
[iii] From The Second Machine Age: Erik Brynjolfsson, Andrew McAfe