Why Is Technology Not Producing Productivity Improvements?
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In 1987 Robert Solow famously remarked that computing is everywhere except in the productivity statistics. His comment reflected frustration that despite the considerable hype around the digital technologies of the day, productivity stats were barely moving. It was widely believed that this was largely a case of organizations attempting to introduce new technologies to processes that were designed very much with the old ways of working in mind. It was only after business process reengineering was introduced to design organizations around computers that things began to shift.
The recent Global Innovation Index raised concerns that we’re leaving through a Solow redux, with considerable investments in technology, innovation, and entrepreneurship failing to deliver the kind of productivity improvements that improve the lot of people across society. The researchers openly pondered whether the stagnation and low productivity levels seen since the financial crisis are likely to endure or whether technologies like AI and cloud will eventually drive society forwards again.
The University of Toronto’s Avi Goldfarb, Joshua Gans, and Ajay Agrawal make the case for business process reengineering is the silver bullet in their latest book Power and Prediction. They argue that there are three core ways in which a technology can be used.
- A point solution, which is when an existing procedure is improved upon. It can be adopted independently and doesn’t require the system within which it’s embedded to be changed.
- An application solution, which is when a new procedure is created and adopted independently. This also doesn’t require any changes to the system in which it’s embedded.
- A system solution, which is when existing procedures are improved, or new procedures created, by changing dependent procedures.
“The true transformation will only come when innovators turn their attention to creating system solutions,” they explain. “Those solutions themselves bring AI to an economywide scale, and their momentum spurs further application solutions.”
Productivity problems
This is a problem afflicting even the most innovative countries. For instance, raising productivity and economic growth has been at the heart of the UK government’s (disastrous) recent mini-budget, with these plans introduced despite the country being ranked as the 4th most innovative in the world in the Innovation Index. In fact, the OECD recently argued that only Russia will fare worse in terms of economic growth in 2023.
Official data reveals that while GDP grew by around 2.7% …….