The impact of technology may take time
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Many see technology as a way out of the world's lagging productivity crisis, but so far the results have been murky at best. Still, digitalization and AI, as well as broader economic adjustments, are seen as the best hope for steering productivity in the right direction.
A recent analysis published by the McKinsey Global Institute found that in the years following the 2008-2009 financial crisis, “investment declined sharply and persistently, failing to generate replacements.” That's what it means. “Today, however, investments in areas such as digitization, automation, and artificial intelligence have the potential to drive a new wave of productivity improvements.” Generative AI alone adds an additional boost of more than half a percentage point. They add that it can be done.
But the report, written by Jan Mischke and a team of co-authors from McKinsey & Co., warns that the impact of these technology efforts could quickly fade. Additionally, while the information, computing, and telecommunications (ICT) sector saw significant productivity gains, they did not trickle down to other industries.
The co-authors say there are four possible reasons for this:
- The benefits of technology and digitalization are long-lasting. “Digital and technology adoption is a long-term phenomenon,” they said. Consider the lag between the development of electricity and its impact on productivity. The early years of a new technology can even “stymie productivity gains before it can be effectively adapted.”
- Duplication of parallel processes reduces the benefits. “Digitalization has led to overlapping online and offline channels, increasing customer choice, but productivity benefits will only be realized if offline channels are streamlined or eliminated. .”
- Revenues are decreasing. A second proposed reason is that the digital and other innovations of the past decade may simply be less transformative than innovations of the past.
- Measuring productivity is outdated. “Current productivity measures may not capture the increased value-added that these technologies drive,” the McKinsey co-authors said. “For example, many new benefits are built into products and services for free, but this means they are not reflected in productivity statistics. The best available evidence is that productivity growth Our results suggest that up to 10 percent of the overall slowdown may be explained by mismeasurements, which is a relevant but relatively small effect.”
Driving results requires more than simply introducing technology into an organization. Organizations themselves need to adapt to changing realities. They say productivity benefits from technology will only emerge “through faster disruption, market share shifts, and adoption of technologies, ideas, and best practices.”
In particular, the McKinsey authors add, “There are signs that some AI applications have significant productivity potential and may scale faster than previous technologies.” “Although the direction and impact of AI is uncertain, and while big claims about new technological solutions are often overstated, several proven use cases that improve productivity are already emerging.”
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