Digital transformation has become the new imperative. No matter your industry or the size of your organization, you need to embrace digital technology, cloud, mobility, ubiquitous connectivity and ambient intelligence through pervasive computing.
You need to redesign your business processes to embrace new ways of getting things done. You need to engage your workforce and provide an end-to-end experience that is more complete to your people. Moreover—and perhaps most important—you need to make your company, its data, and its customers as secure as possible.
The common wisdom is that you have to make massive new investments in technology. It is what we always have done, and it has worked before, right? We have staked our careers on the supposition that technology is the solution to our business problems. Just implement new functions or products, and your company’s growth is guaranteed.
Or is it?
The irony of our digital era is that the growth of productivity across the global economy has been low or stagnant since the beginning of the century. Global productivity growth has ranged from 0.4% to 0.6% annually between 2001 and 2013. However, this is not just a 21st-century phenomenon. Even back in 1987—the year he won the Nobel Prize in economics—Robert Solow identified the disconnect between tech spending and productivity. The “Solow Paradox” has been a familiar concept for economists ever since.
There is no doubt that technology creates greater productivity, but it turns out real productivity growth occurs more rarely than we might have thought. On a global basis, greater productivity as the result of technology spending is not a given.
Far from it, actually.
The disconnect between IT spending and productivity growth is stark, and the data seems clear: spending more on IT has not yielded a parallel boost in productivity. However, global statistical averages do not paint the full picture; averages can hide a lot of detail, particularly when we look at those companies outside the statistical mean.
If you take a closer look at the correlation between tech spending and productivity, what emerges is an IT economy that is split neatly in two: those companies that are successful in growing their productivity using technology, and those that are not. Those that maintain the status quo and those that spend wisely to reach the Technology Frontier—the home of companies that have successfully used IT spending to buck the Solow Paradox.
Looking at these Frontier companies, one large theme emerges: choosing the right technology for your organization means choosing strategically, not reflexively, and choosing wisely, not just because everyone else is buying the shiny new trend. Sometimes this means getting more out of existing assets, or revamping existing processes rather than starting fresh. Moreover, it sometimes means “biting the bullet” and sunsetting older assets.
Getting the technology right turns out to be more complicated than once thought, and getting it wrong is one of the big reasons that increasing technology spend does not necessarily translate to increases in productivity. Finding productivity gains requires a mix of net new innovation and innovative ways to extend functionality and lower costs for existing systems, all while making sure that security is an essential part of your overall strategy. IT spending is not a one-size-fits all thing for all organizations, and we have to stop thinking of it as such.
So, the next time you consider that shiny new thing, ask yourself: are you being strategic or just reactive? The answer may help you find your way to the Technology Frontier.
Moreover, perhaps, most importantly, an investment in IT and digital technology is only one step towards true digital transformation. Business transformation must also play a part; embracing new modern ways of getting things done and an organizational redesign must come hand-in-hand with any new technology.
IT must become a core strategic business asset. And, that is the key to a successful digital transformation.