Rethinking how to measure digital technology and economic growth

Barely a day goes by without senior business and political leaders extolling the importance of improving productivity in the Australian economy.  And with good reason. 

Productivity improvement occurs when more outputs are generated from the same level of inputs.  Along with population growth and an increasing percentage of the population being employed, productivity is the primary driver of economic growth in the economy on which people’s living standards depend.  Yet as the ABS data below shows, in the last decade, Australia’s performance has been going backwards.

Even more worryingly as we look to the future, Head of the Productivity Commission, economist Peter Harris, recently observed, “if Australia could not lift productivity above the level of the past decade, it would achieve income growth per person of only 0.5 per cent a year.  This would be lower than at any time in the memory of the working population.”[i]

This is a serious matter indeed.  When solutions are discussed on how to improve productivity, rebalancing industrial relations (despite union membership in Australia being below 20 per cent) and reducing regulatory imposts seem to often be at the top of the list of areas to target. 

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Yet in its report in to priorities for economic reform in Australia, the Grattan Institute concluded on industrial relations, “In the absence of a clear historical correlation we cannot be confident that industrial relations reform is capable of delivering large gains.”[ii]

Conversely, an Australian Industry Group survey  last year (Ready or not?  Technology investment and productivity gains in Australian business, ) found that Australian businesses that invest heavily in technology experience disproportionate increases in productivity gains.

Despite these (and many other similar) findings over a sustained period on the beneficial impact of technology, its contribution frequently seems to be under-played in public debate relative to other drivers.

Two of the reasons that digital technology is, arguably, not given as much prominence as it might in improving the country’s economic fortunes is because it is now so pervasive that firstly, the boundary between “work” and “home” technology is fast disappearing and secondly, many of the gains are realised in small increments that occur tens of millions of times every day.  As a result, aggregate benefits from technology are inherently hard to measure.

To illustrate, below is a short list of typical ways in which using a smart mobile device improves the working day through a combination of enhanced efficiency and better customer and staff interactions:

  • using a mobile map to find a city building that you have not been to before;
  • answering a customer email at 9pm or 6.30am;
  • using a social media platform (whether public or private to an organisation) to share some insightful new research with colleagues;
  • sending a text to a colleague to advise you are running 5 minutes late for a meeting; or
  • checking in to a flight via mobile in a taxi en route to the airport.

Each of these is a relatively simple example that may save no more than one minute each.  It is this micro nature of improved productivity that makes it harder to measure with accuracy at scale.  Far harder than measuring, say, the impact of outsourcing the payroll function where there are clear “before” and “after” states that can be accurately compared.

This measurement challenge is a real and vexing one, particularly for non-technological business leaders.  A little while ago, the senior management group of a knowledge-based organisation started to question the ROI from all the staff technology being deployed when there was little discernible upswing in its key internal productivity metric.  A fair challenge. 

So each group member was invited to leave their company issued device on a table at the end of the meeting, or, write a paragraph to justify keeping it.  Nothing quantitative was required, just simple, qualitative statements on how their effectiveness as leaders would diminish without the technology. 

The table remained bare.  This challenge reinforced the difficulty of objective measurement when the focus is on activity-driven metrics of performance.  More relevant measures of impact for the examples shown above are likely to be customer satisfaction and propensity to recommend (eg. Net Promoter Score) and staff engagement.  Put another way, the thing to measure is outcomes, not outputs.

At the macro level, a number of respected economists such as Karl Brynjolfsson and Adam Saunders of MIT[iii] and Dr Irving Wladawsky-Berger[iv] have identified the same shortcoming in traditional economic performance measures being applied in the digital age.  Their argument is that linear input-process-output relationships typically derive productivity measures suited to the industrial age. 

In today’s world, when so many outputs are free for example search engines, mobile apps, social media, data and research, the traditional model of measuring output arguably imputes a loss of economic value rather than a gain.  Yet as the simple leaders choice test illustrated, the users of such technology clearly derive tangible business benefit from these outputs.

In short, we do not have sufficiently good macro or micro measures to demonstrate the clear impact of digital technology on the economy or individual enterprises. So what should business leaders do?

  1. Adopt a digital mindset.  Challenge how every aspect of your business might be improved through greater use of digital technology including processes, knowledge sharing, customer service, marketing, product development etc.
  2. Search widely for examples of innovation and improvement.  Look globally but also to other industries unrelated to your own for demonstrated best practice.
  3.  Focus on and measure, outcomes not outputs, particularly in relation to customers. Examples include timeliness, quality and functionality, not just the relationship of output value to input cost.

Whilst measuring the true impact of digital technology may be difficult at both micro and macro levels, its intelligent use will surely be one of the primary drivers of future economic prosperity and quality of life.  We must not undermine its importance just because it may require a little more thought and effort to measure effectively.

 

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[i] The Australian, 19 September 2013

[ii] P.24 Game Changers: economic reform priorities for Australia, Grattan Institute, July 2012

[iii] The irony: We know less about the sources of value in the economy than we did 25 years ago, MIT Sloan Review, Fall 2009

[iv] Beyond GDP – Measuring Value in a Service-oriented, Information-based, Digital Economy, blog.irvingwb.com

 About the Author

Malcolm Alder is a digital strategy consultant with more than 25 years’ experience.  In 2012, he was named as one of the 50 Most Influential People in Technology by Australian IT.  He is on the Board of  AIMIA and was until very recently Partner for Digital Economy at KPMG.  

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