AiGroup report and ICT transformation

Business Investment in New Technologies report

In an earlier blog article I criticised the leading Australian business industry associations for their lack of prioritisation of the Digital Economy agenda. In that piece I noted that as a priority issue it was absent from the website pages outlining the primary policy agendas of BCA, AiGroup, ACCI and AICD.

I was refreshingly surprised therefore to read that earlier this month the Australian Industry Group (AiGroup), in partnership with Deloitte, has published a major new report in which they surveyed the CEOs of 540 companies in the manufacturing, services and construction sectors for their insights on the current status in Australia of Business
Investment in New Technologies
. Even more exciting was that the survey included a specific section within it on Business Use of Online Technologies (which is code for Internet or Digital Economy).

Firstly I should applaud AiGroup and Deloitte for undertaking this work. There simply isn’t enough focused material on this hugely important topic of how the Digital Economy is being adopted by Australian businesses.

Secondly and sadly however I have to report that to a large extent the outcomes of the report reinforce many of my suspicions as a country we are not well positioned to take advantage of this transformative technology opportunity, despite the broadband infrastructure vision being shown by the current Australian Government with the NBN initiative.

Though they are not specifically detailed by name, I would suspect that the 540 CEOs interviewed in the survey represent some of the largest companies in their sectors. The involvement of AiGroup and Deloitte, both of whom operate extensively in the “big end of town” would support this.

The report focuses first on Business Investment in New Technologies in general and based on survey responses it advises that on average companies have spent 21 per cent of their total investment on new technologies over the last three years. A large 71 per cent of survey respondents stated that the primary reason for these investments was in relation to achieving improvement in productivity. When asked to measure that productivity improvement, the average response was that businesses estimate that new technologies were responsible for 16 per cent of productivity gains.

My initial reaction to these numbers is that they are pretty underwhelming. If you are the CEO of a large business but spending only one-fifth of your new investment dollars in new technologies then it sounds like you should be looking hard at the relevance of the other four-fifths. And a 16 per cent increase in productivity as a result is really quite modest.

While dabbling in comparative statistics from different sources is a notable black art, the productivity improvements quoted from the AiGroup survey fall well short of prior studies from the older Australian Government Productivity Commission study (in 2004) which showed that in Australian service industries, 33–65 per cent of productivity growth has been driven by ICT-related technology factors and that the contribution for manufacturing industries was 45–75 per cent.

While there are big differences in the seven year period of history between the two studies, I suspect that the reasons for the gaps involved relate to the fact that many of the initial significant productivity gains of ICT have already been realised and that secondly, and more importantly, many businesses still see use of ICT as a tool for business enablement rather than business transformation.

Turning more specifically to the Online Digital Economy section of the AiGroup survey.. The good news upfront is that a chart in the survey indicates that more than 95 per cent of CEOs say that the Internet impact has been positive on the productivity of their businesses (god knows what the other 4 or 5 per cent were thinking but let’s not dwell on that).

More worryingly however only 30 per cent of businesses surveyed reported they had a high or medium degree of information about the practical impact of faster broadband speeds.  More scaringly still, around 55 per cent of businesses reported that they, to a high or medium degree, currently have the skills/capabilities to take advantage of a new national broadband network. This means that some 45 per cent of businesses do not.

The take-out here is that nearly half of the CEOs of major Australian business are not ready to exploit a high-speed Digital Economy and around two-thirds of them need more information to work out how to use it. This leads me to comment that if you are the CEO of a major business today and you don’t know what the impact of the digital economy is in your sector then maybe you should be thinking of retirement or career change relatively soon.

Our business leaders must be fully tuned in to the possibilities of ICT and the Digital Economy as a transformative force for us to stand any chance of reaping the benefits of the NBN investment and building a long-term sustainable economy for the future.

In my view, far too many CEOS still see ICT as a basic process enabler and cost centre to manage down.

ICT as an enabler is an approach which takes and existing methodology or process and then uses smarts to make it more effective. Think implementing a new accounting system or replacing a set of existing manual processes with new parallel computing ones. It can make things more efficient but it does nothing to radically change the business overall.

What the global Digital Economy is opening the world up to is using ICT as a transformer, which is so much more impactful and significant than pure enablement. Classic sector-wide examples of use of ICT as transformation such as Apple’s impact on the music distribution industry and Amazon’s impact on the book industry are very well stated in a Wall Street Journal article – Software is eating the world by Marc Andreesen. A smaller scale but massive ICT transformation on business is Internet banking, which completely radicalised the way that customers interface with their banks.

The fundamental point being that using ICT to enable a new accounting system if you are a book retailer is OK, but it would be missing the main game if you don’t transform your business to respond to the ICT transformation that is taking place in your industry.

The Aigroup and Deloitte study reinforces that there is much work to be done for Australia to have a leading global digital economy. In its closing Policy Implications section the report calls on Government to play a greater role in facilitation of information about the impacts of new technologies. To me this misses much of the point about the fact that many of our leading CEOs are just not up to scratch in terms of preparing
their businesses for the online future. Given the hugely impactful global business
case studies of online retailing, progressive global manufacturing and supply
chain revolution they must have had their heads in the sand for some time.

Where are the visionary Australian Business leaders?

Are Australian Business Leaders really as lacking in vision of the online future as their business associations seem to suggest?

A major global report by McKinsey Global Institute issued in May of this year under the title of “Internet Matters: The Net’s sweeping impact on growth, jobs and prosperity” is a massive wake-up call to any CEO leading a significant business. The report updates us with some critical insights that make compelling reading:

  • There are now over 2 billion Internet users globally and this is still growing rapidly.
  • The Internet economy typically currently accounts for 3.4 percent of GDP in a mixed selection of 13 different countries analysed .
  • That 21 percent of GDP growth in mature economies in the last 5 years can be attributed to the Internet.
  • That 75 percent of Internet economic impact arises from traditional industries not pure Internet players.

Let’s just dwell on the impact of a couple of those statistics. Firstly, that if you are running a traditional business today then you can safely say that probably at least 15 to 20 percent of your future growth may well come from the Internet or Digital economy – and that’s based on today’s figures not tomorrows. Secondly, if you want to find new customers or extend into new markets, then the Internet provides access to a consumer and business population previously unheard of.

This should all be pretty compelling stuff for business leaders with vision you might imagine.

However, my analysis of the current stated priorities for Australia’s leading business associations suggests that this phenomena is actually a low-order (if not non-existent) issue for their members.

The general Australian business community is led by high-visibility groups such as Australian Industry Group, Business Council of Australia, Australian Chamber of Commerce and Industry and the Australian Institute of Company Directors. My analysis of the websites of these associations reveals little or no focus on the Digital Economy and what it means for their members.

  • BCA has 10 major policy areas listed on their website with no reference to the Digital Economy – there is one small mention of Broadband stashed away under their Infrastructure policy area.
  • AiGroup has 14 policy areas listed on their website but no mention of the Digital Economy.
  • ACCI has a 10 point agenda which again has no reference to the Digital Economy but they do at least have a Broadband policy statement.
  • AICD has no mention of the Digital Economy in their policy priorities.

So what are they all focused on? – well perhaps not surprisingly it is mostly “old economy” issues such as Workplace Relations, Tax Reform, Business Regulation/red tape and Size of Government.

Seems to me that while they are important, these are pretty much all “bottom line” defensive measures for most of their members. They are certainly not focused on helping their members achieve top-line growth. Certainly if I was paying a business association tens or hundreds of thousands of dollars for my membership I might well question their policy priorities.

Is this typical in other countries I wondered? So I took a look at the Confederation of British Industry (CBI) website and found that its 13 priorities were certainly rather more progressive – notably with support and engagement of the new Creative Industries sector identified as being a key priority for UK business.

Business associations are one thing, but it got me thinking about Australian business leaders in general and their public statements about the Digital Economy.  I might have missed something, but I could not readily think of any high-profile local captain of traditional (non-ICT) industry who is talking up the need for the Digital Economy and ubiquitous high-speed broadband.

Wouldn’t you think that the ability to be able to connect with and service every member of the Australian consumer and business population through online provision of services shouldn’t be something that business leaders would be excited about?

Even putting aside the massive top-line online sales opportunity this creates, it should at least also get some penny-pinching C-class executives excited being able to service their customers at lower cost.

Certainly some sectors like the local Banking industry have seen their business transformed by the Digital Economy already. Australian banks provide some of the best online technologies in the world. The future of high-speed broadband provides them with great further possibilities such as video-based engagement with customers and prospects rather than having a need for a mobile sales force. But I haven’t seen them coming out and supporting the NBN or any other Broadband plan as a result.

So why aren’t Australia’s Big End of Town businesses more focused on the Digital Economy when it is clearly going to be so impactful on their futures? Is it truly a lack of leadership vision or maybe a fear of political backlash if they come out in support of the NBN vision? That would be very sad as this debate should be both apolitical and vibrant – it’s far too important to ignore as Mckinsey’s report clearly identifies.

Broadband.. not about size; it’s what you do with it that counts

Is it any wonder that the average Australian citizen is confused and uncertain about the nature of the broadband debate in this country?  Not only has the public conversation about the National Broadband Network (NBN) descended to cheap political point scoring on all sides of politics, it has also been mostly void of any substantive levels of public support from the Australian business community, for the benefit of whom much of its design is intended.

Our politicians have bashed away against each other in a remorseless fashion about the virtues, elegance and pitfalls of one sides broadband solution versus the other. Their entrenched policy positions have been bound tight in technical and often mind-boggling arguments about the relative details of broadband speeds, the need for fixed versus wireless, rollout plans, business plans and affordability.

Moreover from a business perspective, our local captains of (non-ICT) industry have been totally missing in action publically about whether they support ubiquitous high-speed broadband as a business imperative or not. We have seen leading retailers complaining about the nature of online retail and how it impacts their traditional bricks and mortar sales figures. We have heard stories of how the publishing industry is in crisis due to the rise of alternate media sources through the Internet. And we continue to hear how Australian iconic brands and businesses are being gobbled up by foreign interests as a result of the rapid opening up of the global economy. But where are the local business leaders who are actively embracing all of the opportunity that the global digital economy has to offer and therefore standing up publically for a best-of-class broadband solution for our country?

I believe that the fundamental point that seems to have really been missed throughout the public debate in Australia about broadband is this … that in the end this should not be a conversation dictated by the size/speed/cost of telecommunications infrastructure but instead it must be a debate about what we are ultimately seeking to do with our Australian digital economy once we have it. Because when everyone understands what Government and Industry actually plan to do with the digital economy in the future then we can have a meaningful debate about what technology and funding solution best meets those needs.

And to that point, nobody without a vested interest in politics or the Australian business community is talking in any sensible terms about what they expect the usage payback of our investment in broadband is going to be.

By way of just one example, if we fully understood that the various Australian Governments involved in our healthcare delivery were all collectively going to commit as one to deliver a known and specific level of tele-health capability to a clearly defined geographic population of citizens then we would know the implication this initiative would have on the nature of the related broadband requirements. Similarly so for other forms of Government service delivery elements such as Online Education and Public Sector teleworking. The same parallels apply to businesses – for example just how critical is it for local companies to rely on high-speed teleconferencing to all premises? They should be letting us know the answer to these kinds of questions.

I’ve used this analogy many times before but the whole broadband debate feels like it has been similar to the conversation that probably took place about the arrival of the railways in Australia in the 1800s. Instead of concentrating our thinking on the speed/comfort of the trains, the value of the destinations and the transformative change potential of the technology, it seems we are instead continually arguing about which size rail gauge we want to build. If we want to reap maximum benefit from the investment then we must switch the thinking from the details of the infrastructure over to the what it means in terms of outcomes.

The closest thing we have to a statement of broadband usage requirements is the Australian Government’s Digital Economy Strategy that was announced earlier this year. This strategy’s approach in setting eight high level goals is to be applauded for its vision and for its intent in design to provide a framework for leadership for others.
However, not surprisingly, it is really quite light-on in terms of detail as to how the high level goals it outlines will ultimately be achieved. This is probably because this level of detail can only be filled in when other Governments, Business leaders and vested interests get truly engaged about the future potential of our digital economy – which it seems they are really not doing today.

On one level it shouldn’t escape too many people that we already have a functioning digital economy with the latest Australian Business Use of IT statistics from ABS showing that while 90 percent of Australian businesses have Internet access; 40 percent have a web presence and further that only 25 percent take orders online (note these are 2009/2010 survey results).

In comparative terms however our local digital economy currently lacks the momentum of that of other key nations. For example, the relative comparison achieved by Google’s two recent significant reports of the Connected Kingdom in the UK and the Connected Continent in Australia is marked. The studies reveal that the UK is estimated to have an Internet economy valued at approx. 100 billion pounds, or 7.2 percent of GDP, where the direct contribution of the Internet to the Australian economy is worth approximately $50 billion, or 3.6 percent of Australia’s GDP. Furthermore a recent McKinsey
study
has Sweden leading a basket on international countries based on their own research methodology with a GDP contribution from their Internet economy of 6.3 percent of GDP. All of this research suggests we have a long way to go already to catch up with the pace of our digital economy adoption and exploitation.

In addition to the current lag in in our Internet economy when compared to other key nations, the latest OECD Statistics also reflect that in Australia we have rapidly declining international relative positions for key Productivity and Innovation indicators.

It is not hard to conclude that all of these matters are increasingly linked. As we look to how to improve our relative international economic position on key criteria such as Productivity and Innovation in a contemporary mature country then fast and sophisticated adoption and usage of broadband comes very high on the requirements list.

I think it can be validly argued that the current Australian Government has shown a degree of leadership with its vision for the NBN and for a future digital economy underpinned by it. Whether the NBN should or will survive in its current form is a matter of ongoing debate, but it seems to be understood by all parties in Canberra that without ubiquitous high-speed broadband our country will ultimately wither on the economic vine.

Our collective problem as a nation is that we must quickly respond to the future digital economy vision with actions arising and targeted outcomes identified as a priority.

The danger is that if we don’t do the work to identify how in detail we will achieve competitive national improvement from our substantial broadband investment then it will be a crime of missed opportunity.

The global digital economy revolution is happening now all around the world. McKinsey
research
reports that is has resulted in 21 percent of GDP growth in mature countries in the last 5 years with 2.6 new jobs created for every 1 job lost.

It is quite obvious that all Australian Government and business leaders should have the digital economy at the top of their strategic agendas. If they make a shift quickly in this regard then perhaps we can have a relevant and informed debate about the future of the digital economy and following that an informed view of the related broadband capabilities we need and how we will benefit as a result.