One important issue to emerge from the pre-election political debates was that the overall growth in productivity of the UK economy looks to have all but stalled. Productivity measures how efficiently inputs such as human resource and capital are being used. The economy may be back in a moderately strong grown phase, but without that steady improvement in productivity, none of us are really any better off. Two detailed reviews to read are in the Financial Times - 'Productivity: It's a drag' - and The Economist's 'Under The Bonnet - The Productivity Puzzle' which were both published at the end of May.
The Economist observes that UK Gross Domestic Product (GDP) per hour worked is lower now than in 2007 – and flat lining. "Ask any economist what she or he sees as the biggest risk to the country's growth prospects and the reply is the same: 'productivity'." Both papers note this is not solely a UK phenomenon – the US is as much concerned. And our ageing populations imposes a drag on the our economies that, according to McKinsey, productivity should be growing some 80% faster in the next 50 years than that achieved in the last 50 years - just to stand still.
This is not a uniform reality across the economy. In a sector by sector review The Economist details some interesting results. "Lift the bonnet on the UK economy and it emerges that the fastest improving productivity is in the transport manufacturing industry – 345,000 workers making cars, planes and trains now produce 56% more in an hour than they did in 2009." The aerospace venture Rolls-Royce has halved the time it takes to manufacture fan and turbine discs "using methods developed at the Advanced Manufacturing Research Centre (AMRC) at Sheffield University."
In contrast, a serious underperformer is the chemical and pharma sector – my old training ground (I worked for the former chemical major ICI 1973-1999, latterly as their Group CIO)! It is, notes The Economist, highly productive (ouput per hour of £72 per worker) but productivity growth has stalled with hourly output dropping 11% since 2009, real wages down by 4% and employment down by 5%.
In the productivity growth stakes, the next most sucessful sector after transport manufacturing is humble 'admin and support' – with an hourly output of around £22 per worker (well behind IT at £42 and finance at £62) – "where output per hour, after dipping 6% between 2008 and 2009, has since risen by 32%" - and where "firms have managed to increase both their productivity and their staffing levels – the sector has seen employment rise by more than 300,000 (close to 25%)." This sector is home to many outsourcing companies, perhaps demonstrating the power of focus on key competencies. Certainly a sector where the capabilities of contemporary IT are well exploited.
So what does this all have to do with you, the CIO? The final paragraphs of the analysis in The Economist carry some insights that I suggest point us towards an answer.
"One possible cause of the chemcial crash is a failure to invest." Research from the London School of Economics points to firms "hiring more cheap workers rather than buying pricey machines" – without which the productivity drive is hard to deliver. Arguably moving to cloud sourcing give access to the productivity-driving technology investment that the cloud vendors are now taking the lead in.
"Stronger industrial clusters help – where firms cut costs by sharing infrastructure." While the example given by The Economist is the chemical industry operating on major integrated manufacturing sites (go visit the great Wilton complex near Middlesbrough, where I cut my commercial teeth) the message is as relevant to the development of shared cloud infrastructure – think Wilton, think AWS?
"Developing pharmaceuticals is a risky business in which the fate of a firm may hang on a single patent. In a city like Cambridge, where there are plenty of pharma start ups, it is easy to attract talent – workers know that if their firm goes to the wall, another will be hiring soon." Think the flat white economy from my April column and the 32,000 new ventures launched in a single London post code in two recent years? How could this cornucopia of innovation and bright young talent, properly exploited, feed the ability of your enterprise to increase its agility, speed its productivity growth?
The contemporary CIO is strongly positioned to understand the factors that both hinder and drive the productivity challenge in their enterprise. It is undoubtedly a complex agenda to tackle, but one where the wider issues of the organisational and cultural change that are integral to the exploitation of modern ICT (including 'the cloud') requires a clear headed lead to be given at board level. And who better than the CIO?
Perhaps then the contemporary CIO is now the Chief Productivity Officer, the CPO?