Search for productivity in new ways
If Australia wants to keep, or even add, value as the digital economy grows, it has to search for productivity in new ways.
If Australia wants to keep, or even add, value to our country as the digital economy grows, it has to search for productivity in new ways, writes Rob Hillard, Deloitte Managing Partner National Technology Agenda.
To keep our country’s economy running at its current rate of progress, will mean bringing together innovations from information technology that are outside today’s core, and combining them with solutions developed here and globally.
As our two speed economy changes gears, global drivers have been shifting from valuing the making of things, to the flow of intellectual capital. This is the shift to an information economy which has most recently been dubbed – digital disruption.
In just a few short years the digital economy, which represents services driven through electronic connectivity, has grown to be of more importance to Australia than iron ore (on its way to contributing more than $70 billion to Australia’s GDP per annum).
The opportunity for financial services to shift focus from building products to developing more and more services performed over the internet has never been greater. Understanding the new reality that value is in a different place and recalibrating the business to capture this value is key.
Making the right choices quickly
Contrary to common perceptions on outsourcing for instance, global companies such as General Motors globally are moving IT jobs on-shore to increase productivity, while accepting a higher cost. Unfortunately many Australian companies regard technology as an ‘add-on’ rather than the fundamental framework of their businesses, even as their markets diminish.
By comparison, their peers elsewhere are busy innovating and inventing. Even ’old economy’ businesses are encouraging their IT departments to apply for patents.
The consensus in a recent Deloitte survey of 50 Chairs and 50 CEOs of ASX 200 companies – Board Effectiveness: The Director’s Cut 2013 – was that: ‘Australian companies adapt, they don’t innovate’. Corporate leaders agreed this was because Australian companies are good at adapting innovations to suit their businesses, but poor at coming up with their own high-value innovations. However, ‘it is the speed at which you adapt that is key,’ said one CEO.
Changing the productivity lens
To protect future prosperity, Australian businesses have to look beyond the core business and be prepared to spin-off activities at the edge that have real value in their own right.
And it also means large enterprises need to change the way that they procure so that they are seeding whole new economies. Imagine a world of IT where both large businesses and government don’t believe they have to own the systems that provide their citizens with services. This is the economy that cloud computing is making possible, with panels of providers able to deliver everything from mobile applications to payroll, for a transactional fee.
Payment for service reduces business involvement in the risky business of delivering large scale IT projects, while at the same time providing a leg-up for local businesses to become world leaders using Australian jobs.
Reframing the value chain
Business can have a major impact on productivity by managing cost in the short-term by better integrating with local and global providers. But to repeat the benefits of the 1990s productivity improvements, will require a willingness to invent new solutions using the most important tools of our generation: digital and information technology.
If banks for instance designed every digital process with mobile in mind it would force differentiation and create an instant response for a digitally aware and savvy customer base. It would also mean automating the business processes in the backend to give the impetus to reconfigure business services to be delivered through apps at the front end.
By viewing their operations in a digital form – that is, as a set of constituent parts that can create independent data and processes and then be reassembled – banks can develop a myriad of opportunities to add value. Competing internal systems can focus on discrete parts of a business and find new ways to add value.
Digital innovations make it easier to offload – or at least share – costs with others in your supply chain. There are now many more ways to increase self-service options for customers and to extend this concept to suppliers and other business partners.
For instance digital principles are allowing retailers to partner with financial services providers and logistics companies to offer a seamless retail, payment and delivery experience. The result is much lower transaction costs.
Where to compete is almost four times more important than how
As well as being critical to be competent in digital innovation, it will also be necessary to be active in new markets, both in terms of virtual network environments and physical geographies. As we look north to Asia the potential for creating new money markets and tapping into the opportunities for Australian business is immense.
As productivity rises to become the number one agenda item in 2013 for business effectiveness according to the Chairs and CEOs of top Australian businesses in Deloitte’s survey, it is imperative that banks and the financial services industry continue to search for productivity in these new ways.
Being realistic about each businesses’ capabilities, and using technology more effectively to understand customer trends and ensure rigour in assessing corporate performance, is vital.
Chairs and CEOs know that ‘ultimately we cannot cut our way to growth’, but focus on ‘doing more with what we currently have’.
This article was first published in Australian Banking & Finance.