The past month has held many reassurances for those who’ve expressed concern about the future of the UK’s innovative tech sector. Atomico’s State of European Tech in 2016 boldly stated that there’s never been a better time to be a tech entrepreneur in Europe and cited London as Europe’s top tech hub. Google also chose this past month to announce its plans to build a new headquarters in London and create 3,000 jobs.
The highlight though was the Chancellor of the Exchequer’s Autumn Statement promise to invest £23bn in infrastructure and R&D to keep Britain at the forefront of digital innovation and address the UK’s productivity gap.
This is a smart investment and an astute recognition of the crucial role that technological advances play in improving productivity.
However, the measurement of productivity is not as exact as it appears. The current measurement of productivity is calculated by GDP per hour - a notoriously fickle statistic that only takes into consideration the monetary value of the inputs.
What it doesn’t measure is the quality improvements of new technology every year at the same price point, the agility of cloud over on-premise or the network effects of business platforms. Business models such as Google search generate substantial value for users that’s not in the national accounts.
That’s why, over the last decade or so, the debate has moved from ‘does ICT enhance productivity?’ to ‘by how much do we underestimate the impact of ICT on productivity?’
Future studies may be a case of ‘analysis paralysis’ however in terms of today’s challenges. Today’s technology applied to today’s infrastructure has shown incredible benefits – one example is a doubling of throughput in the Port of Hamburg whilst actually reducing traffic.
The latest figures show the UK has a productivity gap on average of 18 per cent behind its G7 competitors - the equivalent of losing one day each working week. If we look at the adoption of productivity enhancing ICT we might see why; according to the European Commission’s Digital Economy and Society indicators, the UK is third from the bottom in the use of ERP at just under 17 per cent. Germany, the EU productivity champion, is top of the league at over 55 per cent. A similar relative comparison, if less extreme, is seen in supply chain integration.
What is evident now is that the Chancellor is thinking big and has ambitious plans for the UK’s tech sector - notably investing in driverless cars and allocating money to a new Industrial Strategy Challenge Fund that will direct it to priority technologies, including robotics and artificial intelligence.
This renewed focus from the Government on cutting edge technology should act as a shot in the arm to the UK’s world-leading tech supply side industry. This begs the question though, if the UK is already behind in using productivity enhancing ICT how do we play catch up and be ready for the next round of innovations – the fourth industrial revolution? We mustn’t lose sight of the fact that it’s the rapid spread and use of technology that creates the most inclusive benefit for all across the economy.
The next step for businesses and government bodies
Businesses and Government bodies now need to think seriously about how they can integrate technology in ways that will enhance their users’ experiences, improving their capabilities to manage and run their organisations in more productive ways. The kind of deep digital transformation that we know can massively improve the benefits of valuable human and capital assets.
If anything the public sector has even more opportunity than businesses to deploy cutting edge technology to improve their services, integrate their infrastructure and streamline their services. Now is the time for the public sector to embed smart approaches in both new and legacy infrastructure projects to maximise their benefits and accelerate their return on investment.
The Government will need to support both businesses and public sector bodies implementing cutting edge technology such as AI, IoT and Cloud. It’s clear that these are the tools providing the much needed fuel for economic growth which are driving exciting innovation and putting high-end skills to use. The Government should be seen as a potent catalyst in its unique threefold role as customer, regulator and funder for innovation.
The power of SMEs
It’s vital that the Government supports demand side as well as supply side innovation and technology adoption, especially in SMEs if it is to close the productivity gap. And with SMEs accounting for 99 per cent of private sector businesses in the UK, it is not surprising that the Government is showing commitment in supporting these vital contributors to the economy.
As part of this commitment, the Government should help SMEs acquire new digital tools and capabilities which will help them close the productivity gap, raise wages and develop value added skills. According to recent research from IDC, two-thirds of UK small businesses are already undergoing some form of digital transformation, but uptake of digital technology by all SMEs not just tech producing startups needs to grow if the UK is to rise up the productivity and e-business league tables.
It’s apparent too that SMEs can lack the breadth of knowledge around digital technology that is seen in abundance in their large businesses counterparts and need independent reliable advice. This is a gap the Government should be keen to address.
There are some intriguing possibilities, exploiting the government’s unique position. As it aims to bring more SMEs into its own supply chain, can it catalyse their use of technology? As it moves to e-invoicing and updates its procurement solutions, will it bring its supply base with it, leapfrogging a technology generation direct to business procurement networks? Can the support for SMEs to export promote the use of global business platforms?
The Chancellors Autumn Statement and his commitment to invest in the UK’s R&D and infrastructure is a great starting point in solving the productivity puzzle. But the Government will need to do more both in the private and public sector to make the kind of changes that need to happen for the UK to retain and build on its place as one of Europe’s most advanced tech hubs. Given the current state of uncertainly, this is a distinction we do not want to lose.
Chris Francis, Director of Government Relations at SAP
Image Credit: DD Images / Shutterstock