Digital Economy Dispatch #014

13th December 2020

What’s the Focus for Productivity in the Digital Era?

One of the major challenges facing the UK is to boost productivity. Traditionally measured in terms of output per hour worked, the UK has been experiencing a major decline in productivity since the financial crisis. This drop appears to be worse in the UK than in other comparable countries. Since the financial crisis the UK has recorded low productivity-growth, and in 2019 was seeing its worst figures in 5 years.

The puzzling question for many is why productivity is falling even when digitization and digital transformation is increasing. The consensus is that technology adoption takes some time to become widely adopted, and therefore make impact in the figures. Overcoming organizational barriers to its use requires energy and investment. Only once these are addressed will the differences become clear.

Yet the past few months may well have turned this thinking on its head. Digital transformation is now taking place in the context of formidable changes in business and society. The shift toward greater use of digital technology (also described by Nicholas Carr as the “big switch”) tracks the journey being undertaken by organizations under intense competition from a global marketplace forcing them to enhance their capabilities for a digital world. Understanding the depth and breadth of this transformation raises key questions about how to define and measure its effects.

Understanding the relationship between worker productivity and digital transformation is not straightforward. Consequently, assessing the reasons for such poor performance figures may involve several factors. The problems may begin with the realization that we may be measuring the wrong things and looking for improvements in the wrong areas. There is a significant challenge in applying traditional methods for measuring productivity and value when considering the use and adoption of digital technologies.

One approach to understanding this dilemma is to reconsider where and how value is created in a digital economy. In a digital world, value is found both in the knowledge assets being managed and, more significantly, in accelerating how that knowledge flows. In a world of volatile change, the measure of an organization’s success may be determined by its ability to sense and respond to the many different flows of knowledge around them; internally across business units and across supply chains, and externally with customers and in broader community interactions.

The real-time visibility, orchestration, and decision making enabled by digital transformation powers a different collaborative productivity that is focused on accelerating teams and connecting disparate organizations. The conversations taking place across these boundaries are important because they hold the key to behaviours and attitudes that inform the desirability of new and existing products and services, as well as strengthen confidence in decision-making on strategy and directions in times of massive uncertainty.

Understanding the importance of information flow has its implications, seen most strikingly in emerging platform technologies and their business models. Platform models create value by connecting potential buyers and sellers through online marketplaces that encourage growth within and across these communities, to the benefit of all those participating in this collaborative ecosystem. More buyers attract more seller. More sellers attract more buyers. As a consequence, the platform provider financially benefits from the exchange of goods and services it stimulates and generates new business opportunities by mining the interactions taking place within the ecosystem it has created. Platform companies are stimulating massive growth by encouraging large ecosystems of partners and consumers in the USA, China, and elsewhere across the globe.

Another key example in understanding the importance of this information flow perspective is seen in the enterprise software delivery domain. Here, the emerging focus on ”Value Stream Management” is a key recognition of the importance of connectivity and integration across the software development and delivery teams. Improvements in the speed and quality of software delivery through disciplined DevOps processes are essential. However, these drive significantly more value to the business through alignment and synchronization between the business goals and delivery processes. Value stream management highlights that information flows play a critical role in maximizing effectiveness of digital technology.

Furthermore, it is critical to also ask how the pandemic-driven acceleration of digital transformation will change the outlook for productivity. There is reason for hope as we look beyond the many challenges we have faced in 2020. The pressure on many businesses has been to accelerate deployment of digital technology and redesign processes to adapt to remote working, disrupted supply chains, and reshaped end-user demands. Domains that have stubbornly resisted digitization (such as healthcare and education) have experienced an increased sense of urgency that has broken down many barriers. It is widely expected that these may offer new opportunities to improve productivity as the current crisis will accelerate deployment of digital solutions to further automate human tasks.

The latest analyses of how companies view their future digital transformation plans confirm that use of digital technology will continue to grow. Let’s look forward to 2021 being a productive time for all of us.

Digital Economy Tidbits

How the Pandemic is Driving Innovation in Digital Health. Link.

Some very helpful analysis and summaries this week in two articles from the latest Economist on innovation in the digital health.

In “how covid-19 unleashed the NHS” there is a good discussion of the way that many of the bureaucratic constraints on the NHS. Much of the analysis is about remote care and the realization that there are huge benefits by enabling remote access to constrained resources, remote real-time monitoring, and remote collaboration across disconnected teams. And allowing this has not had detrimental effects many feared. The big challenge they now have are clear: which of these innovations make sense beyond the pandemic, and how do they maintain the burst of innovation over the longer term.

In “The dawn of digital medicine” the focus is that the pandemic may well be clearing the way for “the next trillion dollar industry”. As we have seen, a lot of new money is being invested in digital health solutions from the Big Tech companies (Apple, Amazon, and and a wide variety of VC firms. As well as the obvious barriers being broken recently by telemedicine and AI-based diagnosis, there is also a major push to align on standards for data sharing and management, and agreements being formed between the big players on security, privacy, and ethics.

Four Principles to Ensure Hybrid Work Is Productive Work. Link.

Lots has already been said and written about the future hybrid workplace and its implications on individuals, teams, and organizations. It is clear that “the great dispersion” will have a lasting impact on how and where we work. This piece by Lynda Gratton is the best review of the issues that I have read. A good perspective on the range of challenges, and some useful examples and suggestions for how to be effective.

Predict 2021: What does the workplace of the future look like? Link.

Here is the recording of a webinar I helped to deliver this week on the future of the workplace. This session is aimed at software practitioners and IT managers. It involved some very interesting discussions about the challenges facing digital technology infrastructure, the need for alignment between business and IT, and the focus for agility across the organization beyond the IT teams.