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Many see technology as a way out of the world’s backward productivity crisis, but the results so far have been hazy at best. Still, digitization and artificial intelligence, along with broader economic adjustments, are seen as the best hope of pushing productivity in the right direction.
A recent analysis published by the McKinsey Global Institute noted that in the years following the 2008-2009 financial crisis, “investments continued to fall sharply, failing to produce anything to replace them”. “But today, targeted investments in areas such as digitization, automation and artificial intelligence are likely to drive a new wave of productivity growth.” They added that generative artificial intelligence alone could deliver more than half a percentage point of additional gains.
But the report, written by Jan Mischke and a team of co-authors from McKinsey, warns that the impact of these technology initiatives may soon disappear. Although productivity has improved significantly in the information, computing, and telecommunications (ICT) industry, it has not trickled down to other industries.
The co-authors believe there are four possible reasons:
- The benefits of technology and digitalization are long-term. “The adoption of digital and technology is a long-term phenomenon,” they said. Consider the lag in power development and its impact on productivity. A new technology may even “create a drag on productivity growth before it can be effectively deployed.”
- Duplication of parallel processes dilutes benefits. “Digitalization has also led to the duplication of online and offline channels, providing customers with more choices, but productivity benefits can only come when offline channels are rationalized or stopped.”
- The returns are diminishing. The second reason proposed is that digital and other innovations of the past decade may not be as transformative as innovations of the past.
- Productivity measurement is obsolete. “Current productivity measures may not reflect the growth in added value these technologies bring,” the McKinsey co-authors said. “For example, many new benefits are built into products or services for free, which means productivity statistics fail to reflect these benefits. The best available evidence suggests that 10% of the overall slowdown in productivity growth may be caused by faulty measurement , which is a relevant but relatively small effect.”
Simply introducing technology into an organization to produce results requires more than just the organization itself needing to adapt to changing realities. They say technology’s productivity advantages will only emerge “with faster creative destruction, market share shifts and the adoption of technologies, ideas and best practices”.
Notably, “some AI applications have huge productivity potential, and there are signs that they can scale faster than previous technologies,” the McKinsey authors add. “While the direction and impact of artificial intelligence is uncertain, and the hype surrounding any new technology solution is often exaggerated, some proven productivity-enhancing use cases are already emerging,” improving sales and marketing, customer operations and Performance development of software and other functional departments.
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