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    What Happened to the ‘Innovation, Disruption, Technology’ Dividend?
    05 Aug 2015What Do You Think?

    What Happened to the ‘Innovation, Disruption, Technology’ Dividend?

    by James Heskett
    SUMMING UP. Jim Heskett’s readers are divided on whether we are seeing productivity dividends from the latest round of technological innovation.
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    How Patient Should We Be In Waiting for the Tech Productivity Dividend?

    Respondents to this month’s column cited a number of factors accounting for the fact that there is no discernable increase in the rate of improvement in human productivity in the US in spite of significant effort that has produced innovations in information and other technologies.  Some questioned the data.  Others counseled patience.

    David Caulfield sees productivity improvement, but not necessarily among workers.  In questioning the way we measure productivity, he commented that “Much of the productivity increases I see in the field of analytics are focused on improved utilization of productive equipment and materials… It is hard to get much GDP growth or wage growth this way, but corporate profits are certainly going up.  Perhaps that is a better way to see the impact.  Another measure that should be useful is GDP per unit of energy consumed.”  Dan Wallace asked whether or not we have “the wrong expectations.”  As an example, he cited the sharing economy, where we achieve “better asset utilization and customer experience, but not necessarily increased ‘productivity.’”

    Dave C. suggested that too much technology is being diverted to the creation of more variations on basic ideas faster instead of “an economy based on new products/platforms/ideas.”  Donald Shaw cited “problems in finding qualified people to hire.”  He also said that, “It appears to me that our systems of education and government cannot change fast enough for the U.S. to have the workers it needs in any near-term way.”  Tema Frank went even further, commenting that “… we are still reliant on the human factor… so a lot of potential productivity is wasted through bad management of human resources.”  And Murray Kenney laid the blame on the low productivity increases associated with certain industries, like hospitality, retail, and increasingly education and health care.   AIM questioned whether productivity increases are even the appropriate goal, commenting that “productivity increases will always come at an expense of a human being.” 

    Others challenged data documenting productivity trends.  Their position basically was that there is no need for patience.  The productivity dividend is happening.   For example, David Wittenberg cautioned us to “Beware of snapshot analysis amid a trend! … Globally, the trend continues unabated, although some high-productivity economies may have seen their growth rates slow.”  And Brent Dalager expressed his opinion that the picture is changing rapidly for the better with the introduction of “software robotics” in such industries as “financial services and telco’s.”

    Anil Gupte’s comment characterized those urging patience.  As he put it, “The computer was created by Babbage in the 18th century… We only started seeing the pervasive benefits from computing in the last 10-15 years.  Today’s innovations will bring real productivity in half a century or more.”  That prompts the question,:  How patient should we be in waiting for the tech productivity dividend?  What do you think?

    Original Column

    For years we have been regaled with prospects of outsized productivity increases in the United States such as those that actually accompanied the Industrial Revolution, the Second World War, and the period from the mid-1950s to the mid-1970s. During another productivity bonanza, the one that extended from 1995 to about 2005, we speculated in one of these first columns on the possibility that organizations producing new information technologies would anchor a New Economy (note the capitalization), one that defied the old rules for productivity, income increases, and economic growth.

    We are told by widely-quoted scholars such as Erik Brynholfsson and Andrew McAfee that innovation and new information technologies are creating a "second machine age" that holds the key to an even brighter future. Others predict that "disruption," perhaps the most overworked term in business English today, will foster competition, make long-term strategic planning a questionable management activity, and bring new ideas to market with increasing speed.

    The facts are that the expected productivity increases so critical to wage and economic growth haven't occurred, at least not in the US. We've waited for at least a decade for this new era of information innovation to yield dividends. Why haven't they? Which of the explanations for this make the most sense to you?

    First is the measurement argument, which goes like this: The way we measure productivity increases doesn't account for such things as quality of life (although greater convenience should be reflected somehow in productivity). Others argue that the economic climate isn't quite right; it's so volatile-downturn in 2000, recovery, Great Recession in 2008, recovery--that it makes trend analysis (and consistent productivity growth) impossible.

    A related argument is that when labor is relatively cheap, growing companies are encouraged to hire more low-productivity help than train the employees they have. A fourth possibility is that some sectors of the economy, particularly services, pose a drag on productivity increases, although our own analysis of productivity trends over the past three decades does not provide consistent evidence of this. Or is it that profitable organizations today are not investing very much of their profits in new technologies, instead returning profits to shareholders or holding cash? Or is too much of our innovation devoted to "cool apps" that actually reduce productivity?

    Yet others still argue for patience. There is a learning curve for any new technology. The use of new information technologies in medicine is a favorite piece of evidence cited in support of this argument. Brynjolfsson and McAfee cite the importance of changes in the workforce alongside the introduction of new technologies if the potential they forecast is to be achieved. Give users of the new technologies time to learn and productivity will increase.

    What's really going on here? It's exciting to hear about innovation (although author Martin Ford speculates on "a jobless future" resulting from the introduction of such things as robotics). New information-based technologies seem to make a lot of sense. And if your company is still engaging in long-term strategic planning and not pursuing a strategy of disruption these days, some conclude that it has already lost the competitive race.

    But how much of the impact of such things as 3D printing, robotics, and information technology that fuels the shared economy is hype? What happened to the "innovation, disruption, technology" dividend? What do you think?

    To Read More:

    Erik Brynholfsson and Andrew McAfee, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, (New York: W. W. Norton & Company, 2014).

    Martin Ford, Rise of the Robots: Technology and the Threat of a Jobless Future (New York: Basic Books, 2015).

    James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, What Great Service Leaders Know and Do: Creating Breakthroughs in Service Firms (Oakland, CA).

    Robert M. Wachter, Why Health Care Tech Is Still So Bad , The New York Times, March 22, 2015, p. SR5.

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    James L. Heskett
    James L. Heskett
    UPS Foundation Professor of Business Logistics, Emeritus
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