Digitized, Not Monetized: Productivity Gains Still Elude New Digital Economy

NEW YORK, May 17, 2016 /PRNewswire/ -- Despite more than a decade of accelerating digital innovation, rapid increases in spending on digital services, and ongoing price declines of digital technology, the New Digital Economy has thus far had little visible positive impact on productivity, profitability, and overall economy growth, according to a report released today by The Conference Board. Navigating the New Digital Economy: Driving Digital Growth and Productivity from Installation to Deployment finds that the top half of industries which represent the most intensive users of digital technology actually accounts for 60 percent of the slowdown in labor productivity growth observed in the United States since 2007, as well as 54 percent of the slowdown in the United Kingdom and 66 percent of the slowdown in Germany over the same period.

The study incorporates a suite of economy-wide, industry-specific, and firm-level data alongside interviews with executives in a dozen major companies to examine the progress of the New Digital Economy—characterized by rapidly increasing spending on cloud computing, data analysis, and other services in a world of ubiquitous, always-on Internet connections. The authors argue that the diffusion process by which this next stage of digital technology will realize its benefits has only just begun.   

"Despite large increases in business spending, we are still in the 'installation phase' of the New Digital Economy," said Bart van Ark, Chief Economist of The Conference Board and a co-author of the report. "Diffusion of the next generation of digital technology is slowed by continued weak economic growth. The productivity gains are further constrained by the organizational complexities of true digital transformation, which explains why organizations who are the biggest users of the technology have seen the least productivity gains so far."

Yet the potential for huge benefits remain, for companies that are realistic about the path forward. "Business leaders must realize that the transition from the installation to the 'deployment phase' takes time and is not always smooth," van Ark said. "It can even fuel periods of overspending, which may be followed by crises with significant—albeit temporary—dents in both spending and returns on investment, before maturing technologies finally yield sustained productivity gains."

To guide businesses, policymakers, and the public, Navigating the New Digital Economy offers a range of new and adjusted metrics that create a high-resolution map of where technological adaptation stands today, and where it is headed over the next decade. Among the key findings:   

• The relative price of information and communication technology (ICT) assets has continued to decline—by almost 10 percent overall, with prices for ICT services falling by as much as 30 percent per year.
• Largely as a result of these savings, productivity growth in the United States business sector is understated by about 0.3 percentage points per year.
• In the United States, the value of spending on ICT services such as cloud computing has risen to about two-thirds that of ICT investment in hardware and software assets. In Germany and the United Kingdom, ICT services intensities have already overtaken investment intensities, substantially closing the traditional ICT spending gap with the U.S.
• A new measure of labor shortages for digital occupations reveals major shortages in the supply of research analysts and data scientists. Other fields, including computer programming and software development, face levels of labor-market tightness close to the economy-wide average.

Given these conditions, the report details steps companies can take even in today's slow-growth environment to accelerate the arrival of long-term productivity and profitability returns from their investments in technology. These include:

• Taking advantage of ongoing rapid price declines in ICT assets and services to obtain significant cost reductions, without running up cost elsewhere.
• Leveraging the shift from investment in ICT assets to purchased digital services to increase business flexibility in raising productivity and speeding up the bringing to market of new products and services.
• Creating key knowledge-based assets (product and services design, workforce training, and organizational improvements) to strengthen innovative capabilities.
• Assessing and managing different degrees of talent shortages among digital workers and tech-savvy workers.
• Utilizing local innovation ecosystems by taking advantage of access to talent, partnerships, and shared services.
• Creating agility and resiliency to anticipate and respond to the disruptive impact of new technology.
  

For complete details visit https://www.conference-board.org/digital-transformation-economies/

Report:   Navigating the New Digital Economy
By Bart van Ark, Abdul Erumban, Carol Corrado, and Gad Levanon

Join the conversation on Twitter. @Conference Board | #tcbDigital

About the Conference Board
The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org

SOURCE The Conference Board

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