One of the great puzzles of the information age is that global productivity growth is slowing down even as companies deploy more productivity-enhancing IT than ever before. Is it that these productivity tools are bogus, or that we’re not measuring productivity properly?
Economists are still wrestling with this issue, but the answer may be “none of the above.”
Productivity growth slowed across developed economies from 2000 to 2013, The Wall Street Journal notes, and in China and India from 2007 to 2013.
The problem, according to a recent OECD paper, is that while leading companies are getting huge productivity bumps from IT, most companies have not begun to scratch the surface.
The main source of the productivity slowdown is not so much a slowing of innovation by the most globally advanced firms, but rather a slowing of the pace at which innovations spread out throughout the economy—a breakdown of the diffusion machine.
A Widening Gap
Productivity growth of the most productive firms globally remained robust in the twenty-first century, despite the slowdown in aggregate productivity, but the gap between those high-productivity firms and the rest has been increasing over time.
The OECD paper has coined the term “broken diffusion machine” to mean the slowing of technology adoption by smaller companies.
British economist Diane Coyle argues in a column for the FT that midsize companies that are part of larger supply chains (such as component makers in the automotive manufacturing supply chain) tend to be less technologically advanced than bigger players, reducing the overall productivity of the entire chain.
Referring to the middle of the chain as “the meso,” she writes that “the link between flat productivity in recent years and the geography and complexity of supply-chain networks needs to be explored. The micro, meso, and macro need joining up.”
That disconnect may be about to go away, however, as productivity-enhancing platforms such as Oracle Supply Chain Management Cloud make complex supply chain tools available at much more affordable prices—bringing “meso” companies on par with their larger partners.
Explaining why he believes the small and midsize business segment represents a significant opportunity for Oracle, Executive Chairman and CTO Larry Ellison noted that “SaaS service is much easier to consume for a midsize company than buying a computer, opening a data center, hiring a bunch of people, and running licensed software.”
As Oracle CEO Mark Hurd put it earlier this year: “The benefit of cloud is not CapEx turning into OpEx. The benefit of cloud is somebody else does the work, somebody else glues an operating system to a server.... What is the economic value-add of [companies] gluing an operating system to a server? Let somebody else do that for you.”
Find more on Oracle.com:
- Market Leaders Take a Broad View of the Supply Chain
- E-book: Three Tenants of Modern Product Value Chain Management
- 5 Ideas: Value Chain
