Lack of IT skills adds to dismal productivity

As productivity flatlines, we need to help Kiwi businesses stay competitive in a global world, writes management consultant Rohan MacMahon

Whatever the make-up of the next Government, we can expect some major topics debated in the election campaign to get a lot of attention. Things like housing supply, mental health and water quality.

One fundamental challenge for New Zealand which received little attention in the campaign, but will need to be addressed, is productivity. The latest statistics paint a dismal picture (read a great summary by Michael Reddell here).

Basically, once you net out population growth, New Zealand's productivity is static or, if you choose the most optimistic measure, growing at less than one percent per annum.

This means workers need to work longer hours to have more money in their pockets. It means farmers must hope for better prices on commodity exports or an uptick in global demand to generate growth in profits.

Why is it so hard to, as they say, "work smarter, not harder"?

One area where New Zealanders are not "working smarter" at scale yet is in the use of ICT.

New Zealanders are enthusiastic consumers of technology. Kiwis love global technology brands like Apple, Facebook, Netflix, Amazon and Google, and are generally quick to take up attractive new technologies.

However, it's businesses that drive productivity, not consumers - and here the story is less rosy.

The World Economic Forum rated NZ 17th in the world in its benchmark Networked Readiness Index in 2016.

This ranking has gone backwards since 2012, when New Zealand ranked 14th. Within the basket of measures that make up this index, NZ ranks 20th on business usage of ICT and 25th on economic impacts of ICT.

We are a long way from achieving the industry's aspiration for New Zealand to be one of the world's most digitally savvy economies.

Many businesses use ICT effectively and productively, but many others do not. Businesses in the "middle of the road" - neither early adopters nor laggards - make up the majority of all firms. Depending on your world view, these firms are a major problem, or a massive opportunity.

Quality and availability of ICT infrastructure is less and less of a problem. The Government is investing $2 billion in Ultra Fast Broadband (UFB) and improved rural broadband. Fibre connections and data usage are growing strongly. However, UFB is a platform, not a solution of itself. Connecting an unproductive business to faster broadband will provide little if any improvement.

We need to accelerate UFB uptake, but more importantly, make sure more businesses are using UFB and all their ICT effectively.

Prices for ICT services are an issue. Broadband and mobile prices are falling as providers compete for share. But for some other ICT services more generally (hardware and devices, software, storage, services), New Zealand is somewhat more expensive than in peer countries.

Many businesses struggle with strategic planning, skills, processes and implementation.

1. Strategy - "We are focused elsewhere." "We already have a technology strategy" (which is very different from a comprehensive digital strategy).
2. Skills - "We'd like to do this but we don't know how."
3. Processes - "We bought lots of technology but never integrated it across our business to make sure it's used to the optimum."
4. Implementation - "We've tried this already and we weren't able to implement it."

What should businesses be using ICT for?

(i) Adding value: getting a higher margin for our products and services. (New Zealand has low value exports and many domestic jobs are in low wage sectors such as tourism.)
(ii) Growing revenue: finding new customers online and getting more revenue from existing ones.
(iii) Reducing costs: shortening cycle times, automating manual tasks, removing redundant process steps, reducing customer churn with loyalty schemes and improved customer service.
(iv) Managing people: work-life balance, staff retention, skills development etc.

This is quite a generic list which makes a clear and important point: whatever your business priorities are, more effective use of ICT is, or should be, an enabler of them.

Multinational tech giants like Google, Apple, Facebook and Amazon are taking a bigger slice of the New Zealand economy every day. These firms have massive economies of scale and invest heavily in digital research and design. They and their peers are driving disruptive tech developments: big data, AI, automation, virtual/ augmented reality and many more. Typically, such firms employ few people within New Zealand and pay little domestic tax.

These threats mean time is ticking for New Zealand businesses. The internet has opened the economy to international competition in unprecedented fashion. It's brought huge benefits to consumers. But in response, we need to help Kiwi businesses stay competitive in this global world. And the good news is, if businesses can differentiate, innovate and take a premium market position, they can take their services to the world.

Rohan MacMahon is an Auckland-based management consultant and former strategy director at Crown Fibre Holdings.

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