The Chancellor of Exchequer, Philip Hammond, recently delivered his maiden Autumn Statement. When stood at the despatch box Hammond’s message was clear; as a nation our ability to innovate is what keeps the economy alive, we must build on our strengths in technology innovation to ensure the next generation of discoveries are created and produced in Britain.
The ultimate aim for the government is to solve the UK’s age old productivity puzzle, with the well-publicised gap between Britain’s productivity and that of the other western economies. The latest figures show the gap is larger than at any time during the last 25 years, with April’s report from the ONS showing a 1.2 per cent drop in the output per hour. The Chancellor also mentioned that UK productivity is, 20 and 30 percentage points lower than in France, the US and Germany respectively Simply put, the opportunity for boosting UK productivity is tremendous.
The Productivity Leadership Group equated that if we were able to improve productivity of our less productive companies by only 10 per cent, we could achieve an extra £130 billion in gross value added (GVA) for the UK. So where are we going wrong? Whilst as nation we have done a good job of maintaining high employment levels, output per hour and output per worker continue to be the biggest lag on our economy. This unfortunately, isn’t isolated to one sector, but deep-rooted across our economy.
Areas such as skills and infrastructure issues have undoubtedly inhibited our ability as a nation to increase its output, however, as Hammond outlined, accelerating the adoption of digital can help us make significant strides with productivity.
The digital saviour
This is not about how we transform digital industries; it’s how we make all industries more productive. At Cisco, we describe “digital” as the use of technology in transforming the way a business works. The initial phase of digitisation was about making existing process more user friendly and data more accessible and content rich.
Today, the role has grown significantly, and it is having a far more transformational impact on business. It is affecting companies both young and old. Disruptive new companies are coming to the table with digital technology at their core, think Uber and Airbnb. Meanwhile, well established enterprises are appointing Chief Digitisation Officers (CDOs) to drive their digital agendas and internal efficiencies. The need to do so is imperative for survival. Cisco research indicates that forty per cent of businesses will not exist in a meaningful way in five years because of the disruptive nature of digital.
Only companies that embrace digital will continue to exist and thrive. Beyond business though, the connected environment can make our lives far more productive. Truly smart and connected communities will be the antithesis of the productivity equation. Less time spent on travel and wasted resources is time that can be spent on innovation and creativity. However, before we can embrace these opportunities, we must first address the barriers to getting us there.
According to Cisco, digitisation amongst UK businesses is generally in-line with the EU average and we lead in some areas. Digital technology companies can be found in a variety of sectors including e-commerce, software development, financial services, advertising and marketing and telecommunications and fashion. It is clear that digital offers competitive advantage across all sectors and industries, and it does this through improving productivity, performance and profitability.
However, in the UK, some of the key challenges that we face in transforming our landscape into a fully functioning digital economy are:
- Cost – the cost of the technology itself and the implementation has been a significant challenge in the UK over the years however; this is now changing with falling technology costs, cloud adoption and an increasing national living wage.
- Skills – these are required to implement, operate and repair. A continual shortage in these skills will prove to be a bottleneck for digital adoption.
- Legacy Infrastructure – multiple data sets, financial viability and business disruption mean that companies with an existing infrastructure and processes will think twice about implementing a digital strategy.
- Cyber Security – Increases in connectivity could mean increased breaches. It should also therefore, mean increased awareness from the business and its employees to minimise the effects of breaches.
- Uncertainty – the complexities of digital adoption can deter investment by business leaders without digital expertise. This can create an uncertainty around the full return on digital investment.
We are not a nation to stand still when faced with a challenge. Two-thirds of British workers are in businesses with productivity below average for their size and sector, and that is a significant challenge that we need to tackle together as a nation.
Our greatness comes from our ability to innovate, whether Turing’s code breaking, or the numerous British inventions that came together to provide the digital back bone of industry.
Digital driving productivity
Labour productivity in London is much higher than in other cities in the UK. An hour worked in London, on average, is nearly 30 per cent more productive than the UK average. However, driving equally productive performance across the UK is a key priority for the government, with the Northern powerhouse, Midland’s engine strategy and the Midlands rail hub all to receive investment as part of the Autumn Statement.
Working with the Manchester Science Partnerships, Cisco’s Mi-IDEA Innovation Centre is promised to accelerate digital innovation in the North of England. Further to that, public investment has resulted in a newly formed National Productivity Investment Fund which will spend £23 billion pounds on innovation and infrastructure, particularly infrastructure and R&D in science and tech innovation. The real breakthrough in productivity though, will come when we use technology to create new value. The advancement of technology will bring significant new value creation opportunities.
The capability of sensors, battery technology, robotics, nanotechnology and other advances will bring new opportunities.
As a country, digitisation is one of the biggest levers we have for improved productivity. It is imperative that we embrace digital technology to achieve our full potential and drive our competitiveness globally. There has undoubtedly never been a better or more important time for the UK to collaborate, innovate and drive our digital future together.
Alison Vincent, Chief Technology Officer, Cisco, UK&I
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