U.S. Productivity grew by more than 16% in the last quarter, up from 11% in previous (newspaper headlines, April 28, 2024)
The newspaper article continues….”cost of living index down….standard of living up….Reduction in poverty….but income inequality appears to widen after 20 years of narrowing”.
If ever you wanted a long bet, there it is in my mock newspaper headline.
As you know I have great interest in productivity. It is through productivity that we improve our living standards. Right now the U.S. economy is growing slowly and unemployment is dropping but our overall standard of living is not changing. The reason is due to our flat or falling productivity. When we increase our outputs from a given set of inputs, good things happen as a result. The problem for us today is that this is not happening.
In today’s US print edition of the Wall Street Journal there is an opinion piece entitled The Mystery of Declining Productivity Growth. The piece suggests a number of reasons for the fall. One concerns a possible statistical quirk in the data: if we count output poorly then the result will be negative. The growth of self service and online services might not all get counted as improved output (nor indeed might self service even qualify since the work simply shifts from seller to buyer).
In recent years the greater proportion of falling productivity seems to fall squarely on falling investment. Thus as we spent less on capital renewal the efficiency of work falls. Firms have a choice where to invest. With high levels and complex regulation, and the threat of higher taxes due to high five rennet debt, some firms are less inclined to risk investment in future productivity- so far. This is supposition however; we don’t really know but we do see the fall in investment. Governments too can help to a degree: lowering capital investment taxes and also spending on capital (i.e. Infrastructure) improvements if debt levels permit it. This also is not happening much.
One lasts major item can help with improved productivity: IT. Computers had a major input to how productivity improved in the 1980’s and 1990’s. But during the last few years this is harder to discern. The Bureau of Labor and Statistics have actually made it harder to determine the role of IT on productivity since they have ‘improved’ (e.g. changed, for the worse) the way they report the data they collect. This is probably from an outdated understanding of the role of IT in how firms operate across:
- Hardware (mostly) and processing power to support software processing
- Software (mostly) and how work is designed and executed
The hardware is the easier of the two to track. The nature of software is much harder because it can use hardware to do any number of things supporting business efficiency, effectiveness and transformation spanning:
- Business apps represent an estimate for business processes. Some software supports efficient, some effectiveness, and some transformation
- Business analytics are used to explain and describe the world and work around us. Again, some support efficient, some effectiveness, and some transformation
And for all of the above there is the process of how innovation transfuses across each industry. There is much research in this topic and my favorite book is Mastering the Dynamics of Innovation (Utterback, 1996).
Due to the lag in the data collection, and due to the fact that the Bureau of Labor and Statistics recently made it even harder to determine the role of IT contributing to productivity, I have to go out on a limb. Given my understanding of how firms operate, given my understanding of the economics of work and investment, and given my exposure to the state of technology since 1970’s, I would say that business is going to get another fillip in productivity. But we don’t see this show up for 10 years. They productivity will come not from one technology such as ‘computers’ but from a amalgam of investments that will compound and add up to something greater than the sum of the parts. Here is the list of increments:
- Master Data Management
- Big Data
- Cloud Computing
- Internet of Things
Master Data Management (MDM).
Originally conceived about 9 years ago, MDM represents a reversal of 25 years of information management. To this point most leaders would tout the value of information and how managing it all, top to bottom, wall to wall, and having a perfect understanding of an ideal future state was the path to domination. Humbug.
MDM has changed the way we think and prioritize information. It has taught us that some information is more important than others, even though this simple point is still not yet broadly understand or exploited across the industry. It has taught us that governing information is much less about control and more about enablement.
MDM is a new way to use information (in apps and analyses) that also brings with it technology. MDM helps reduce costs but also improves the economics of innovation.
Big data, in my view, has the smallest contribution to increased IT-centric productivity than the others on the list, but it is none the less required. Big data represents a change in the way business solves problems and finds opportunities. However the market today is fixated on customers and social data.
I was at a conference recently where a consultant rightly said, “if all the big data examples actually delivered what they profess to be working on, every man, woman and child will be the recipient of 23,487 promotions and advisers. Big data is a whole lot bigger than this but the market won’t figure this for several years yet.
Big data is an analytics play that also brings with it new technology. Big data techniques, with its attendant technology, changes the economics of innovate.
Initially, and this is where the industry is currently stuck, cloud computing represents a simple, low cost source of computing power and storage. Thus it reduces costs and so improved productivity. But firms are struggling to examine how cheap CPU access leads to innovation. What is needed are non technologists to rethink how business processes would be redesigned if we were unbound by technology. For example, HTAP and in-memory computing might be the main and next beneficiaries of cloud and it is then through them that innovation will flower.
Cloud provides a sourcing alternative for processing power and storage as well as information. Other technologies will eventually emerge that will exploit this new sourcing alternative. Install cloud will support efficient and later, effectiveness and innovation.
Internet of Things (IOT).
For me the IOT revolution is the a last and missing part of the puzzle. IOT will industrialize big data across many more use cases other than customer only facing work. IOT represents the instrumentation of everything- to do with customer, suppliers, homes, teeth, factories, batteries, submarines, pets, pens, and so on. IOT will need MDM to help assure prioritized and governed data; big data will provide the analytics framework for improved decision making; and cloud will deceiver the processing speed unbound.
Thus the real beneficiary and perceived source of improved productivity will be from IOT and we won’t see the firm-level improvements for another 3-5 years, and at an industry and economy level for another 5-10 years. Information will be the fuel that flows through the Internet of Things and will likely be accounted for as a financial asset by this time. Hence my forecast.
So there you have it: a forecast I might not even be around to be measured on. Maybe I will still be here at Gartner to crow or decry the results or the data. I hope so. Whatever happens I am sure will be other ideas, and innovations, along the way.
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