According to an Australian Productivity Commission report, Australia saw a 4.6% drop in labor productivity between March 2022 and March 2023, the fastest on record. This is despite the amount of private investment in AI being 18 times greater in 2022 compared to 2013. Increasing labor costs have further added to the challenge. Gartner predicts productivity will be a top-five CEO strategic business priority by 2025.
Redefining Productivity For The Digital Era
The Productivity Commission defines productivity as "a measure of the rate at which output of goods and services are produced per unit of input (labor, capital, raw materials, etc.)." Productivity has been the driver of long-term improvements in living standards. The commission found that "over the past 70 years, the Australian economy has undergone a fundamental shift from agriculture and manufacturing to services. Services now account for about 80% of production and 90% of employment."
This makes the current definition of productivity obsolete and requires constant refinement with agile dimensions. "Doing more with less" might be an obsolete version. The contemporary definition should be "doing better with less" or doing more value-added activities rather than transactional and repetitive tasks.
Strategic Approaches To Enhancing Productivity
Leveraging digital accelerators is a key factor in achieving this non-linear relationship between inputs and outputs. In 2023, productivity growth is at the lowest levels despite organizations increasing their investment multi-fold in digit accelerators (i.e., automation, data analytics and AI). Secondly, in more unfortunate stats, labor costs are not showing any sign of slowing down.
The definition of productivity needs to be modernized and standardized, and a framework or guidelines must be created to measure productivity. We need to strategically embed productivity at the macro and micro levels. Labor arbitrage for the new-age job family is evaporating between conventional developing and developed countries. Revenue-enhancing productivity would soon drive outsourcing, which is conventionally based on cost arbitrage.
A pricing model based on business outcomes drove Infosys' $454 million deal with Danske Bank in June 2023. This validates that arbitrage-based business decisions related to labor costs would soon be outdated. It is productivity arbitrage with scale that is now a value differentiator. For example, data engineer or digital market jobs in India can be more expensive than in the U.S. or Australia if the productivity is more in terms of business outcomes, as the focus should be on revenue enhancement rather than cost reduction.
Digital accelerators are also dependent on how fast an economy can adopt and deploy them. Singapore and India are quite ahead of more developed countries areas like the U.K., U.S. and Australia. This will add to their competitive advantage of having a multiplier of digital accelerators to increase productivity as a competitive value differentiator.
Integrating Talent And Technology
Organizations must incorporate productivity into their framework to attract and retain human talent when unemployment is at its lowest levels. Skill sets required for transactional and repetitive jobs would become obsolete and should not be incentivized. There should be upskilling/reskilling initiatives and incentives to enhance the productivity of human capital.
Digital-led productivity enhancement initiatives in end-user organizations generally fail to achieve optimal results, as most of them are done at a tactical level instead of a strategic level. For example, automating the loan application lodgement process is standalone and tactical, whereas the comprehensive automation of loans from marketing to disposal using multiple integrated technologies should be designed and implemented to enhance productivity enhancement and outcomes.
Humans can use the time and bandwidth that automation has freed up to provide intelligence and insights to make quality decisions. We can further automate data-based decisions. Organizations should embed productivity enhancement using digital assets into the culture at every level and as a key performance indicator for senior executives.
The Future Of Productivity: A Holistic Approach
Currently, business or IT teams lead digital initiatives at a tactical level, focusing on cost optimization instead of revenue enhancement. The focus should shift from cost optimization to revenue generation using digital assets. For example, the life cycle and time to market of a new product launch is now faster and more effective due to automation and AI despite call centers having high labor turnover.
Another area where digital initiatives can enhance productivity is through improving customer and employee experience. For example, generative AI can handle appointment scheduling in medical centers, while conversational AI can operate during or after business hours and on weekends autonomously, boosting both patient and employee experiences.
Technology platform providers and system integrators play a crucial role in the digital era, acting as enablers for productivity enhancement. They have the responsibility to educate, train and provide consultative implementation to the market rather than hype-driven sales. These providers should help clients fully use their platforms, with pricing based on business outcomes rather than just subscriptions or usage. Currently, organizations aren't fully realizing their technology stack's potential.
McKinsey predicts that generative AI and automation will mitigate the productivity impacts of an aging population by 2040. Low-code functionalities of technology platforms should unlock the potential of business users to accelerate the development of exceptional experiences.
Finally, capital providers, which include VCs and private equity firms, also play critical roles through investment in technology startups or established organizations. They should adopt a new definition of productivity and, as part of their due diligence, give additional weightage to platforms that enable their portfolio and clients to enhance productivity in comparison to technologies that are focused on cost optimization only.
Adopting A New Definition Of Productivity
In summary, we all—irrespective of our role in the ecosystem—need to adopt a new agile definition of productivity through the lenses of ever-evolving digital tools and assets. We would be differentiated by how to adopt, reskill and manage changes within frameworks that stakeholders, regulators and ethics designed.
This article was originally published on Forbes. You can view the original article here.
Topic: Blog
