Since the advent of personal computers and the subsequent explosion of digital technologies, commentators have predicted a corresponding boom in economic productivity. Yet, the reality hasn’t matched expectations.
“When you look at the actual productivity data in the United States and in other countries, it’s surprisingly disappointing,” says Erik Brynjolfsson, co-author of “The Second Machine Age” and director of Stanford University’s Digital Economy Lab. “Productivity only grew by about 1.3% over the past decade or so.”
However, that’s about to change, according to Brynjolfsson. The reason is the “productivity J-curve.”
Diagnosing the productivity gap
The productivity J-curve describes what happens with the introduction of transformative technologies—think steam engines, electricity and computers. After the advent of each, according to Brynjolfsson, productivity remained flat or even fell before taking off.
“That low in the beginning was due to the need to reengineer business processes, rescale the workforce and invest in what we call ‘intangible capital,'” Brynjolfsson explains. Hence, productivity dipped before shooting upward. “We are right now near the bottom of the productivity J-curve,” Brynjolfsson adds.
One contributing factor to flat productivity is inadequate measurement. After all, it’s difficult to manage what you don’t measure. Fortunately, organizations can remedy these problems.
“I believe we’re on the verge of a productivity boom.”
– Erik Brynjolfsson, director of Stanford University’s Digital Economy Lab
Dell Technologies recently partnered with IMD Business School to develop a comprehensive KPI taxonomy to help companies assess their digital transformation journeys. That means establishing effective metrics for measurement.
Dell and IMD suggest dividing measures into four categories addressing how digital solutions can positively impact business performance:
- Operational efficiency, or cost reduction and increased speed
- Customer engagement, or improvements in customer satisfaction and interactivity
- Employee engagement, or improvements in employee satisfaction and productivity
- New value creation, or creation of new sources of revenue and profit
These indices are linked. For example, operational efficiency can reflect employee and customer engagement, which can lead to new value creation. And they are only possible through a human-machine partnership.
People must embrace technology and the change it promises. However, for that to happen, organizations need to address human barriers to digital transformation. In other words, the people element is just as important as technology for successful digital transformation.
The people in technology
Dell surveyed 10,500 business leaders for its Breakthrough study to investigate non-technological barriers to digital transformation and how to overcome them.
The study found that most business leaders (85%) view people as their organizations’ greatest asset. Yet, almost two-thirds (64%) also see the people element as a leading cause of failure for digital transformation initiatives. That failure takes place on three fronts:
- Skills—69% of leaders are worried their organization lacks the skills needed for digital transformation.
- Leadership—67% of leaders say their organization doesn’t sufficiently plan for the people element required for transformation.
- Culture—61% of leaders struggle against office politics, miscommunication and ineffective decision-making.
Even so, while these people factors might represent bottlenecks to transformation, it’s the alignment of people and technology (knitted together with appropriate processes) that could spark the long-sought boom in productivity from what some have called the fourth industrial revolution.
Productivity in action
With the right metrics and attention to the people element, companies in every major industry around the world have succeeded in applying technology to score wins in key areas. This lends credence to the idea that productivity gains are indeed happening, but not all are being captured as part of a standardized metric that can inform formal productivity measures. These are just few examples of notable organizational achievements:
- Medacist shortened the time for running analytics from 24 hours to just 5 minutes, letting healthcare providers spot signs of drug abuse that much faster.
- REYL achieved sub-millisecond response times for data access, providing better service to its private banking clients.
- A leading global retailer realized a 100-fold increase in transaction processing capacity, improving customer service through speedier checkouts.
- Royal Enfield reduced the number of motorcycle prototypes needed before manufacturing by 25%, speeding time to market.
- Johnsonville shortened the time needed to restore data from backups from three to four hours to just 30 minutes, helping the company ensure reliable production of its food products.
When business leaders engage with technology appropriately, creating people-centered frameworks for measuring digital transformation success, they can reap the full benefits of the digital age. This has the potential to finally lead the global economy up the productivity J curve.
“I believe we’re on the verge of a productivity boom as we start harvesting the intangible account capital that we’ve put in place over the past five to 10 years,” Brynjolfsson says. “That makes me optimistic for the future.”