Benefits of digital investment need time

An interesting article from IoT Agenda explores why digital investment in increasingly capable devices/ things/ solutions are empowering businesses to transform their processes and workflows but not yet showing up in real productivity gains

One theory is ‘the metrics used are suspect’ – however, the author sides with another

The rapid evolution in transformative technologies (e.g. Cloud, IoT, Big Data analytics) is resulting in too much change and complexity for the users – it’s the ‘rough edge of digital transformation’ – it’s preventing them from doing what they want and need to do – it has become ‘a barrier to productivity’, not an enabler

Education example – Universities are investing in on-line education to reach more students or interact more effectively with on-site students – however, teachers lack confidence and are uncomfortable with their technical ability – they feel burdened with having to learn the intricacies of all the technology required – for example, how to:

  • Support/ troubleshoot lecture capture solutions
  • Operate audio and video hardware
  • Monitor social engagement
  • Manage the movement of digital content into and out of learning management systems

 

Healthcare example – Digitisation of patient records is seen as a way to improve healthcare with consistent records following patients across different providers – but clinicians complain of interfacing too much with their computers and not enough with patients when the opposite was the goal – the result is doctors are now seeing fewer patients per day than they did before digitisation of the records

Both these examples smack of the perennial problem with software development and, nowadays, apps – too many are designed by geeks without reference to or testing by their ultimate customers, the users, before being launched

Five forces to reshape civilisation by 2030

Peter Morici, economics professor at the Smith School of Business, University of Maryland, USA, recently published some interesting views on changes he expects world-wide by 2030:

  1. A reworking of democracy – Democratic societies outperformed all others in the 20th century – however, recent populism (ideas which appeal to ordinary people) has led their governments to hamstring businesses and redistribute income in ways that discourage investment in new technologies and the skills needed to use them – meanwhile China’s state-directed capitalism and autocratic government has proven better able to nurture new industries (versus copy existing?) and inspire a strong work ethic – western democracies have reached a watershed moment in their development and need to better manage welfare versus efficiency to re-establish robust growth
  2. Artificial Intelligence (AI) – Automation is mostly good as it makes workers more productive – tractors replaced horses enabling farmers to farm 400 acres rather than 40, with those made redundant moving to cities to work in factories and stores, and most earning far more per week – the same has applied to clerical work, with the computer replacing the typewriter, and professional ranks with spreadsheets balancing accounts, ‘Big Data’ analysed to monitor shoppers’ preferences and doctors supported when diagnosing illnesses and deciding treatments – overall, however, this will widen the gap between folks with skills, learning and high-pay and the rest stuck in low-paid service jobs such as restaurants and dry-cleaners – increasing unrest is inevitable if this is not tackled
  3. Blending machines and human beings – ‘AI will never fully replace the human mind because electronic devices are only as good as the information that we let them access’ (an optimistic claim, methinks) – however, he foresees tiny chips and processors attached to human brains being commonplace, enabling us to be permanently on-line with access to information, analytics and communication – hence, a much more intelligent human race will become a reality
  4. Immigration – With birth rates falling below replacement rates in most developed nations, their need is for more immigration, not less, but those same societies lack adequate mechanisms for assimilating newcomers – however, without immigration, their economies ‘face stagnation and eventual collapse’ (what if machines cover for people shortages?) so, if their politicians don’t bite this bullet, democratic capitalism is under threat
  5. Climate change – With rising atmospheric temperatures, all nations are compelled to address global warming and jointly seek solutions – otherwise Darwinian competition among societies for hospitable places to live could set back humanity as did the black plague or collapse of Rome (this assumes places made inhospitable were not replaced by others, currently inhospitable, becoming hospitable)

 

Food for thought indeed

Dismal productivity trends need not continue

The OECD – Organisation of Economic and Cultural Development – recently painted a dismal G7 economic picture claiming  ‘slowing rates of productivity growth’ in advanced nations over the last ten years or so

Other data suggests the same trend is underway in many less affluent nations according to an article by Marc Levinson – his gloomy forecast is ‘the outlook across most of the world is sluggish economic growth that will raise wages and improve living standards only slowly over the longer term – and this will lead to festering discontent among the many who are falling behind’:

  • In the short term, a business cycle rebound, large government deficits, very low interest rates and healthier banks have combined to boost economic growth and raise many incomes
  • In the longer term, however, the rate at which living standards improve depends almost entirely on the (labour) productivity growth rate – and governments everywhere have poor records with this – their spending, tax and monetary policies cannot do much to help

 

Since the Industrial Revolution (labour) productivity growth:

  • First grew slowly, then faster in the late 19th century, sluggish in the early 20th century, and strongly (~ 5% p.a.) post-WW2 encouraging the development of welfare states and many entitlements to state healthcare, pensions and other social benefits
  • Then a slowdown at the end of the 20th century led to stagnant wages as welfare states became more burdensome despite a spurt in the late 90s as business re-organised around the internet

 

Overall, billions of people experienced unimaginable improvements in their quality of lives as a result

Now, however, labour productivity growth has flat-lined in just about every advanced national economy, being less than 1% per annum for most – this has led to wages stagnating, real spending power falling and inequality looming ever larger

Populations had got used to ever-rising incomes and generations always being richer than their parents but that has all come to a juddering halt

Some top businessmen now say: “Life is unfair so most people had better get used to it”

Equally, some government ministers offer no hope and just bemoan the fact that: “There’s no magic-money-tree to pay for public sector pay rises and our (inefficient) welfare state”

But that’s simply not good enough

We need leaders with energy, ambition, creativity and courage coursing through their veins – people who genuinely strive to improve the lot of their fellow-men and women

For  a start, different governments can each make a significant difference by comprehensive planning and coordinated investment in:

  • Education creating labour-forces capable of handling more complicated and value-adding work
  • Infrastructure, enabling truckers to move freight longer distances more quickly and allowing employers to recruit from wider labour pools
  • Research into areas like agriculture which can lead to higher crop yields per acre
  • International trade deals, not only to lower tariffs and increase trade volumes but also increase competition amongst suppliers to be more efficient and innovative

 

But most national performance improvement potential – revenue, wealth and wages growth – lies in the hands of private sector managers, especially the 80% of laggard companies that exist in every sector they have

All such businesses have huge potential to improve their productivity levels and results – indeed, most of their managers may well be working hard, doing their best and believing they could do little more – and, without good performance measures and ‘productivity knowhow’, they’re probably right

But the measures they need are already known and there’s plenty of new/ better ideas, technology, business methods, products or services, customers and markets at home and abroad for them to choose from which would make a big difference

Businesses just need the right people on the bridge – not mere watchkeepers whose only order is ‘steady as you go’ because they can’t see the opportunities, or rocks, ahead and wouldn’t know what to do even if they could

Cheap labour slows productivity growth

A nation’s mix of sectors largely determines its overall productivity and prosperity levels

And some sectors are much more productive than others

For example, the UK has some highly productive sectors such as manufacturing which are continually improving their (labour) productivity levels by investing in latest technology such as robotics, automation, IoTand AI

Japan is also a good example of this

The problem is, once these high-productivity sectors really get going, their workers rightly seek a share in the winnings they’ve helped produce via higher wages and enhanced employment benefits – however, there comes a point when employment costs become so high that management are forced to consider labour-substitute possibilities

Some then outplace labour, including skilled labour, and they have to find another job or join the ranks of the unemployed – if they do find another job, it’s more often than not in less productive service sectors where skills needed are less and there’s a plentiful supply of labour willing to work for much less pay

The result is many of the outplaced, especially the relatively skilled, that do find another job are often underemployed and/ or underpaid versus before – this breeds job dissatisfaction and attitudes which lower overall corporate morale – it also widens pay gaps and increases national feelings of inequality

Indeed, much of the productivity puzzle currently afflicting most developed nations is caused by this growth of employment in low productivity sectors

It’s these service sectors that have done least with the productivity-improving technology now on offer to them, much because of the relatively cheap labour available to them

And this is despite all-time low interest rates and plenty of investment capital being available to them

The fact is that, whilst plentiful cheap labour continues to be available to many service sectors, wages can be kept low putting a brake on overall consumer demand

And this ensures national productivity growth will remain tepid

It’s a vicious circle indeed!

Greatest AI value needs new business models

In the 60s and 70s, most firms invested in mainframe computers, then minis, to improve service, not output, and because everyone else seemed to be doing so – they were not investing in IT to improve productivity – and these IT investments were all focussed on supporting existing business models

Josh Sutton, CEO of Agorai, an AI marketplace, says it wasn’t until the late 90s that we began to see significant new business  models being created – “the businesses that won weren’t necessarily the ones who implemented systems the best but those who took a ‘digital first’ mindset to imagine completely new business  models

Josh cites the entertainment industry – not the limted value gained using digital technology to revolutionise distribution by going on-line but the paradigm shift to re-imagining storytelling and optimising the experience for binge watching

“Digital technology focused companies on their customers – when switching costs are greatly reduced, you have to make sure your customers are being really well served – value shifted to who could create the best experience”

So, while many companies today are attempting to leverage AI to provide similar service more cheaply, the really smart players are exploring how AI can empower employees to provide a much better service or even to imaging something that never existed before

That said, it was interesting to read a detailed assessment of the current and future use of AI and its economic impact on new jobs and new products from PWC – Price Waterhouse Coopers, a big four accountancy firm – who say the biggest potential for AI impact lies in eight sectors viz:

  • Healthcare – via data driven diagnostic support, pandemic identification, imaging diagnostics (radiology, pathology)
  • Automotive – via autonomous fleets for ride sharing, smart cars/driver assist, predictive and autonomous maintenance
  • Financial services – via personalised financial planning, fraud detection and anti-money laundering, transaction automation
  • Retail – via personalised design and production, customer insights generation, inventory and delivery management
  • Technology, communications and entertainment – via media archiving and search, content creation (marketing, film, music etc.), personalised marketing and advertising
  • Manufacturing – via enhanced monitoring and auto-correction, supply chain and production optimisation, on-demand production
  • Energy – via smart metering, more efficient grid operation and storage, intelligent infrastructure maintenance
  • Transport and logistics – via autonomous trucking and delivery, traffic control and reduced congestion, enhanced security

One’s first reaction is that much of the above concerns existing processes, yet so much of AI’s potential lies with applications nobody has even thought of as yet

Even so, if PWC are right, then the economic impact of AI may eventually rank alongside that of other GPTs – General Purpose Technologies – such as electricity and the internal combustion engine

Overall, the upsides for AI already appear enormous so the sooner all businesses, not just in the above eight sectors, realise the benefits AI offers, the better it will be for both them and their home nations