I came across a chart recently that left me scratching my head. It was from the Federal Reserve Bank of St. Louis, featuring U.S. Bureau of Labor Statistics (BLS) on labor productivity.
Per BLS, “Labor productivity is a measure of economic performance that compares the number of goods and services produced (output) with the number of labor hours used in producing those goods and services. Technological advances, greater investment in machinery and equipment by businesses, increases in worker skill and experience, and other improvements to production can all lead to labor productivity growth.”
The net-net is this – 1) over a 15-year period from 1995 to 2010, labor productivity growth averaged about 2.56% per year; and 2) since 2011, the annual growth rate in labor productivity has averaged .46%.
What About All of That Investment in IT?
There is a clear disconnect between what businesses are spending on technology, and how that spending translates into productivity. With total technology purchases by business and government going up by an average of 4.8%, why is productivity growth stuck at less than .5% per year?
McKinsey’s Digital America: A Tale of the Haves and the Have-Mores summarizes this paradox:
“In the late 1980s, digital adoption grew in many sectors, and productivity growth soon followed. Total productivity growth among US businesses averaged only about 0.7 percent per year between 1975 and 1995, but over the next decade, it rose to an annual average of 1.6 percent, increasing nearly 2.5 times as fast as in the preceding 20 years. These gains can be attributed at least in part to increased business investment in ICT [information and communication technology] tools, as the most digitized sectors (including the ICT sector itself) posted some of the largest productivity gains… But after 2005, these effects vanish from the measured statistics. Total productivity growth has fallen by two-thirds since 2005, while real GDP growth has averaged about 2 percent per year—all during a period in which the digital economy has continued to grow.”
The next generation of business problems require a 360-degree view of information and access to this information – both data and content, in geometrically increasing volumes, and regardless of where it is stored. According to McKinsey’s Digital America: A Tale of the Haves and the Have-Mores, “Digitization is not just about buying IT equipment and systems. The most explosive growth is now in usage as companies continue to integrate digital tools into an ever-widening variety of business processes.”
Leading edge organizations will solve it by thinking differently about the question of how information is organized and utilized.
