2010/02/27

ICT Productivity and the Failure of Australian Management

Prior Related Posts:
Quantifying the Business Benefits of I.T. Operations
The Triple Whammy - the true cost of I.T. Waste
Force Multipliers - Tools as Physical and Cognitive Amplifiers
I.T. in context

Alan Kohler and Robert Gottleibsen have been writing in "Business Spectator" about the relationship between jobs and Economic Productivity.

They note that the USA has improved productivity in the last year while in Australia it has declined (+4% and -3% respectively).  My take on this is: a gross Failure of Australian Management.

There is solid research/evidence that "ICT" is the single largest contributor to both partial and multi-factor Productivity, and is expected to be so for the next 20 years.  This is an big issue.

Kohler ties this back to a Telstra survey, now in its second year.

The 2009 ACIL Tasman whitepaper notes:
While investment in ICT has boosted the productivity of workers, Australian firms, industries and the national economy, productivity levels in Australia remain below those of many OECD countries.

Kohler's big takeaway is the apparent decline in Australian CEO's ability or interest in measuring their firms' "productivity".

The current Federal Government is opening itself up to on-going criticism from  senior media commentators at two levels,  so others may follow:
  • Australian Economic performance
  • Public Service Administration
Whilst the use and measuring/reporting of private sector "Productivity" can only be indirectly influenced by Government (e.g. through mandating reporting in "Standard Financial Reports"), the administration of the Public Service is directly under its control.

There aren't any good reasons for Government not to address known systemic problems and/or deficiencies of its paid administrative staff. The two Telstra reports surveyed Government managers and noted no difference.

Even s44 of the FMAA makes an attempt at enshrining this.

Ignoring mounting evidence for around 10 years of the most critical factor determining output is not "poor" management, but much worse.  Ignorance can't be used as a justification, these were Government reports.  Which implies deliberate, wilful non-action - much worse than mere "negligence".

As one of the reports notes:
The business adage of "you can't manage what you don't measure"...
So, will the Government of the Day, act? I very much doubt it.

There is always a Great Political Crisis... period.
Waiting for "a good time" to raise important, but "unsexy", issues means deferring them infinitely.

There is a world of difference between "Urgent" and "Important" issues, well known in Management and Time-Management circles.

To achieve continuing success, a Government needs to act on important issues before they develop into Crises and are picked up by the media and used by the Opposition to undermine them. That's walking a tightrope.

What would such a crisis look like? You'd have to be a Politician to answer that...


Links and quotes:
Jan 2009 ACIL Tasman Whitepaper
http://www.telstraenterprise.com/SiteCollectionDocuments/Whitepapers/Productivity_Whitepaper.pdf

Telstra Productivity Indicator (TPI) 2010
http://www.telstraenterprise.com/RESEARCHINSIGHTS/Pages/TelstraProductivityIndicator.aspx

Telstra Productivity Indicator (TPI) 2009
http://www.telstraenterprise.com/researchinsights/Pages/TelstraProductivityIndicator2009.aspx


Business Spectator articles:

"Australia's productivity gap wider in 2010: report", 23 Feb 2010
http://www.businessspectator.com.au/bs.nsf/Article/Telstra-pd20100222-2W6KF?OpenDocument

"Jobs and debt for everyone", Alan Kohler, 24 Feb 2010
http://www.businessspectator.com.au/bs.nsf/Article/Jobs-and-debt-for-everyone-pd20100224-2XQZP?OpenDocument

"Time to halt the productivity slide", Robert Gottliebsen, 23 Feb 2010
http://www.businessspectator.com.au/bs.nsf/Article/Not-made-to-measure-CEOs-pd20100222-2W6AM?OpenDocument

"Three Kinds of Productivity", Robert Gottliebsen, 3 Feb 2009
http://www.businessspectator.com.au/bs.nsf/Article/Three-kinds-of-productivity-$pd20090203-NVUS5?OpenDocument

Other:

DCITA (now DBCDE), "Forecasting productivity growth: 2004 to 2024", Mar 2006

There is a broad consensus emerging in the economic literature that ICT has been a major driver of productivity growth in developed countries in the last couple of decades. Recent overseas economic studies that highlight the central importance of ICT in driving productivity growth include David (2000), Schreyer (2000), Stiroh (2001), Colecchia and Schreyer (2001), Jorgenson et al (2002), Oliner and Sichel (2002), Bassanini and Scarpetti (2002), Gordon (2003), Inklaar et al (2003) and OECD (2004a).

Australian macro-productivity studies that point to the same conclusion include DeLong (2000), the Ovum Report (2002), Diewert and Lawrence (2005a and 2005b), NOIE (2004) and DCITA (2005a and 2005b). Parham (2004a) agrees that ICT had a major influence on productivity growth but places greater emphasis on micro-economic reform. Parham (2004b) recognises more clearly the importance of ICT but adopts a ‘semi-sceptical’ position.

Judging by recent technological futures studies, ICT will remain a major driver of productivity growth in advanced industrialised countries in the next two decades. An important contribution of ICT to productivity growth will be in improving automation in virtually all areas of the economy including offices, factories, shops, warehouses, schools, hospitals, farms and mines and in facilitating information search and flow.

"ICT Use and Productivity: A Synthesis from Studies of Australian Firms", Productivity Commission Research Paper, 2004.
Parham, D., Roberts, P. and Sun, H.

Executive Summary: Scope and purpose
The role of information and communications technology (ICT) in promoting productivity growth is an issue that has attracted particular attention not only in Australia, but also overseas, in the context of the ‘new economy’ debate.

Whilst it is now generally agreed that the use of ICT has a positive influence on productivity growth — at least in industries that use ICT intensively — the observed differences across countries in the extent of ICT uptake and related productivity effects have continued to be a puzzle.
Summary
There has been strong growth in investment in IT in Australia since the mid-1990s. IT investment reached over 15 per cent of total annual investment in the market sector in 1999-00.

The concomitant increase in the productive IT capital stock made a sizeable contribution to output and labour productivity growth over the 1990s.
•    IT contributed nearly 40 per cent of market sector output growth (averaging 3.4 per cent a year) from 1989-90 to 1999-00.
•    IT capital deepening contributed around 35 per cent of the record 3.1 per cent a year growth in labour productivity from 1993-94 to 1999-00.
•    IT capital deepening contributed about 45 per cent of the 1.1 percentage point acceleration in labour productivity growth in the 1990s. However, this was offset
by negative capital deepening based on other types of capital. With no net contribution from overall capital deepening, faster MFP growth accounted for virtually all the faster labour productivity growth.
Compared with the US, Australia showed:
•    a higher labour productivity and MFP acceleration; and
•    a similar contribution to labour productivity growth from IT capital deepening, even without making allowance for the absence of communications equipment in the Australian estimates.

Australia has generated MFP gains from IT use and/or from non-ICT related factors that, in comparison with the US, have more than offset the absence of MFP gains from an ICT production sector.

There is no clear, strong relationship between ICT use and MFP growth across industries. In Finance and Insurance, the relationship is clearly positive. Whilst the relationships are not as obvious in other industries, they may nevertheless be there.

Evidence from other studies suggest that the direct gains from IT use are only part of the story. Complementary changes in organisation, management and work practices can be important in tapping the full efficiency gains that IT can offer over the long term. Non-IT factors can, of course, also be at work.

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