Many see technology as the way out of the world’s lagging productivity crisis — but its results so far have been murky at best. Still, digitization and AI — along with broader economic adjustments — are seen as the best hope for moving productivity in the right direction.
In the years following the 2008-2009 financial crisis, “investment declined sharply and persistently, failing to generate anything to take their place,” a recent analysis, published by the McKinsey Global Institute, states. “But today, directed investment in areas such as digitization, automation, and artificial intelligence could fuel new waves of productivity growth.” Generative AI alone could add an extra boost of more than 0.5 percentage points, they add.
But the impacts of these technology initiatives may fade fast, the report, written by Jan Mischke and a team of McKinsey co-authors, cautions. And while notable productivity boosts showed up in the information, computing, telecommunications (ICT) sector, it did not permeate other industries.
Four reasons might account for this, the co-authors relate:
- Technology and digitization’s benefits are long term. “Digital and technological adoption is a long-run phenomenon,” they state. Consider the lag between the development of electric power and its impact on productivity. The early years of a new technology may even “generate a drag on productivity growth before it can be usefully adapted.”
- Duplication of parallel processes waters down benefits. “Digitization has also led to duplication of online and offline channels, giving customers more choice but delivering productivity benefits only when the offline channels are rationalized or discontinued.”
- Returns are diminishing. A second proposed reason is that digital and other innovations of the past decade may be simply less transformational than past innovations.
- Productivity measurements are outdated. It’s possible that “current measures of productivity do not capture the increases in value added that these technologies promote,” the McKinsey co-authors state. “Many new benefits are incorporated into products or services free of charge, for example, which means productivity statistics do not capture them. The best available evidence suggests that mismeasurement might explain up to 10 percent of the overall slowdown in productivity growth, a relevant but comparatively small effect.”
It takes more than simply dropping technology into an organization to produce results — the organization itself needs to adapt to changing realities. The productivity benefits of technology will emerge “only with faster creative destruction, market share shifts, and the adoption of technologies, ideas, and best practices,” they state.
Notably, “several AI applications hold significant productivity potential, and there are signs that they could expand faster than previous technologies,” the McKinsey authors add. “While the direction and impact of AI are uncertain — and big claims about any new technological solution are often overblown — several proven productivity-enhancing use cases have already emerged,” boosting performance across functions such as sales and marketing, customer operations, and software development.
Read the full article here
