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.