You are on page 1of 49

November 11, 2011

Innovation and Productivity: Whats the Relationship and How Does it Happen?
ATSE Forum Presented by: Rob Atkinson, President, ITIF

The Information Technology and Innovation Foundation (ITIF) is a Washington, D.C.-based think tank at the cutting edge of designing innovation policies and exploring how advances in technology will create new opportunities to boost economic growth and improve quality of life. ITIF focuses on: Innovation processes, policy, and metrics; E-transformation (e.g., commerce, government, health); IT and economic productivity; Science and technology policy related to economic growth; Manufacturing and innovation-based competitiveness; and Innovation and trade policy.

Productivity Growth is Critical

A productivity strategy is different than innovation strategy. The latter tend to focus on: creative, not creative destruction and traded sectors, rather than all sectors.

Especially As the Australian Population Ages


45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

Dependency Ratio: 65 and older/20 to 64 year olds


5

Todays Presentation
1 2 3 4 5 6
New Growth Theory and Innovation

Why We Need an Innovation-Productivity Policy General Purpose Technologies and Productivity: the Role of IT Three Paths to Productivity Through Innovation Comprehensive IT-Based Productivity-Innovation Policies The Political Economy of Innovation/Productivity
6

Innovation Drives Growth

Todays Presentation
1 2 3 4 5 6
New Growth Theory and Innovation

Why We Need an Innovation-Productivity Policy General Purpose Technologies and Productivity: the Role of IT Three Paths to Productivity Through Innovation Comprehensive IT-Based Productivity-Innovation Policies The Political Economy of Innovation/Productivity
8

Why Do Nations Need an Innovation-Productivity Strategy?


1. Because addressing complex and systemic challenges such as achieving affordable health care, combating global climate change, achieving sustainable energy production, deploying digital infrastructure, etc. requires coordinated strategies leveraging the resources of firms, government, academia.

Why Do Nations Need an Innovation-Productivity Strategy?


1. Because addressing complex and systemic challengessuch as achieving affordable health care, combating global climate change, achieving sustainable energy production, deploying digital infrastructure, etc.requires coordinated strategies leveraging the resources of firms, government, academia. 2. Because, in contrast to what the conventional neoclassical economic doctrine holds, markets alone will produce societally sub-optimal levels of innovation.

10

Because innovation is not as a market

It is a system, that under-performs without innovation policy

12

Why Do Nations Need an Innovation-Productivity Strategy?


Markets alone will produce societally sub-optimal levels of innovation. Systemic market failures around innovation include: High levels of risk Time horizons System interdependencies (e.g. chicken or egg) Externalities (e.g. spillovers from research) Private RoR from R&D is 7%; but the RoR to society from R&D is 28% Need for technology platforms

13

Todays Presentation
1 2 3 4 5 6
New Growth Theory and Innovation

Why We Need an Innovation-Productivity Policy General Purpose Technologies and Productivity: the Role of IT Three Paths to Productivity Through Innovation Comprehensive IT-Based Productivity-Innovation Policies The Political Economy of Innovation/Productivity
14

This is a Sophisticated Mobile Information Factory

Why Is IT Driving Productivity-Innovation?


IT is what economists call a General Purpose Technology (GPT). Most innovations come incrementally, with modest changes in products, processes, and business models.

But approximately every half century a new technology


system emerges that changes everything.

Steam power The Railroad Electricity Steel IT


16

GPTs Have 4 Main Characteristics


1. They undergo rapid price declines and performance improvements. 2. They are pervasive and a part of most industries, products and functions. 3. They enable innovation in products, processes, business models and business organization. 4. They drive productivity growth and profitability.

17

GPT Driver Periods in American and European Economic History

Period

Years

Technology System

Mercantile/craft

1840s to 1890s

Iron, Steam

Factory-based industrial

1890s to 1940s

Steel

Mass-production, corporate

1940s to 1990s

Electro-mechanical, chemicals

Entrepreneurial, knowledge-based

1990s to ??

ICT
18

Todays Presentation
1 2 3 4 5 6
New Growth Theory and Innovation

Why We Need an Innovation-Productivity Policy General Purpose Technologies and Productivity: the Role of IT Three Paths to Productivity Through Innovation Comprehensive IT-Based Productivity-Innovation Policies The Political Economy of Innovation/Productivity
19

Three Paths to Productivity Through Innovation


1. Expanding high productivity industries faster than lower productivity ones. In the U.S., average compensation per employee in innovation-intensive sectors increased 50 % between 1990 and 2007nearly 2.5 times the national average. Jobs in the U.S. technology industry pay 70 percent more than average jobs.

20

Three Paths to Productivity Through Innovation


1. Expanding high productivity industries faster than lower productivity ones. In the U.S., average compensation per employee in innovation-intensive sectors increased 50 %between 1990 and 2007nearly 2.5 times the national average. Jobs in the US technology industry pay 70 percent more than average jobs.

2. Expanding high productivity firms faster than low. One study of Canadian manufacturing found that plant turnover from entry and exit contributes from 15% to 25% of manufacturing-labor productivity growth

Source: John R. Baldwin and Wulong Gu, Plant Turnover and Productivity Growth in Canadian Manufacturing, Statistics Canada, No. 11F0019MIE, No. 193 (April 2003): 9.
21

Three Paths to Productivity Through Innovation


1. Expanding high productivity industries faster than lower productivity ones. In the U.S., average compensation per employee in innovation-intensive sectors increased 50 %between 1990 and 2007nearly 2.5 times the national average. Jobs in the US technology industry pay 70 percent more than average jobs. Expanding high productivity firms faster than low. One study of Canadian manufacturing found that plant turnover from entry and exit contributes from 15% to 25% of manufacturing-labor productivity growth

2.

3. Helping all firms expand productivity

22

Todays Presentation
1 2 3 4 5 6
New Growth Theory and Innovation

Why We Need an Innovation-Productivity Policy General Purpose Technologies and Productivity: the Role of IT Three Paths to Productivity Through Innovation Comprehensive IT-Based Productivity-Innovation Policies The Political Economy of Innovation/Productivity
23

A Framework for Productivity-Innovation Policies


1. Macro

24

A Framework for Productivity-Innovation Policies


1. Macro 2. Factor Inputs/Framework Conditions (e.g., education levels, science support, etc.)

25

A Framework for Productivity-Innovation Policies


1. Macro 2. Factor Inputs/Framework Conditions (e.g., education levels, science support, etc.) 3. Sector Studies/Policies
Hotels Construction Music Health care Government Education

26

Service Blueprinting

27
Source: V. Zeithaml, M.J. Bitner, D. Gremler, Services Marketing: Integrating Customer Focus Across the Firm, 4th ed., McGraw Hill, 2006

Finlands Omena Hotelli: A Vision of the Future?


A modern hotel for the Internet age. Customers book online and the key code is transmitted to the door lock and customers email. Eliminates the need for receptionists, sales personnel, and concierges. Offers the core product of hotel operationshigh-quality accommodationswithout expensive auxiliary services.

28

Applying IT Prior to the Customers Visit, Pre Check-In


1. Social media and phone-based applications 2. Trip Advisor and Facebook Engage potential customers online. Be active on hotel comment boards.

29

Applying IT at Check-In: Kiosks


Our Customers Wont Use Kiosks But Theyre: 1. Not advertised; 2. Not initially deployed with the proper functionality; and 3. Have no rewards for use.

30

Applying IT at Check-In: Room-Key Alternatives


Alternatives to the plastic room key card. RFID-enabled guest loyalty card as the room key. Mobile phone Using near-field communications (NFC) technology. Openwave allows mobile phone to play audio file to open door.

31

Applying IT to Concierge Services/Social Spaces


Surface computing can bring interaction, connectivity, and a social experience to the lobby. 360-degree satellite maps/tools allow guests to search for local restaurants and bars, recreation, etc. Download and view photos, order food/drinks from menus, play games, watch videos, etc.

32

Applying IT to the In-Room Experience


1. Have an in-room electronic concierge. Print-on-demand jogging maps. iPod/iPhone software that has hotel lay-out in it. Application that give links/info/discounts to merchants in a neighborhood. 2. High-definition television. Should be able to act as a computer and leverage IPTV. Link to movie reviews. 3. Connect rooms to Bluetooth-enabled wireless printer to let guests print.
33

Applying IT to Operations
1. Equip bell hops, concierges, room service, and repair personnel with handheld devices informing them and allowing them to confirm fulfillment of specific room service requests. Puts knowledge of customer needs into the hands of your professionals, provides method to validate that customer service needs have been met.

34

Applying IT to Restaurant/Conference Facilities


1. Electronic self-serve ordering would boost throughput in restaurants. 2. Restaurant staff use a handheld to take order (including room number). Provide customer the bill by iPhone and let them pay by iPhone. Could have an electronic pad to sign the receipt. 3. Strive to digitize processes with regard to conferences and event management, make it easier for event planners to share information on a central Website.

35

A Framework for Productivity-Innovation Policies


1. Macro 2. Factor Inputs/Framework Conditions (e.g., education levels, science support, etc.) 3. Sector Studies/Policies 4. Functions (e.g., processing information; processing money; moving people; growing foods-fiber; etc.)

36

A Framework for Productivity-Innovation Policies


1. Macro 2. Factor Inputs/Framework Conditions (e.g., education levels, science support, etc.) 3. Sector Studies/Policies 4. Functions 5. Tool Development (e.g., faster computers; voice recognition; expert systems [e.g, IBMs Watson]; flexible displays, etc.);

37

A Framework for Productivity-Innovation Policies


1. Macro 2. Factor Inputs/Framework Conditions (e.g., education levels, science support, etc.) 3. Sector Studies/Policies 4. Functions 5. Tool Development 6. Platform Development (e.g., smart grid; health IT; broadband; mobile payments; electronic IDs; ITS, etc.)

38

A Framework for Productivity-Innovation Policies


1. Macro 2. Factor Inputs/Framework Conditions (e.g., education levels, science support, etc.) 3. Sector Studies/Policies 4. Functions 5. Tool Development 6. Platform Development 7. Firms/Organizations Adoption (e.g., R&D tax incentives; capital equipment investment incentives)

39

IT Has Outsized Impacts on Organizations


In large U.S. firms, every dollar of IT capital is associated with $25 of market value. However, $1 of non-IT capital is associated with only $1 of market value. IT workers contribute significantly more to productivity than non-IT workers and the difference has grown over time. IT has 3 times more impact on productivity than non-IT capital.

40

But Applying IT is Not Enough

41

Organizational Change is Also Required


Firms that adopt digital organization tenets and simultaneously invest more in IT have disproportionately higher performance than firms that do not. MITs Erik Brynjolfsson: Something unique happens when human capital and other workplace practices are combined with technology.

42

The Seven Practices of Digital Organizations


A distinct corporate culture and organizational practices are found in most corporations that make extensive use of IT and the Internet. They are: 1. 2. 3. 4. 5. 6. 7. Move from paper-based to digital business processes Empower front line service personnel Foster open information access Link incentives to performance Maintain focus and communicate goals Hire the best people Erik Brynjolffson Invest in human capital
43

Higher Profitability Accrues to Firms That Get Both Right

Profitability

44

A Framework for Productivity-Innovation Policies


1. Macro 2. Factor Inputs/Framework Conditions (e.g., education levels, science support, etc.) 3. Sector Studies/Policies 4. Functions 5. Tool Development 6. Platform Development 7. Firms/Organizations Adoption 8. Individuals

45

Todays Presentation
1 2 3 4 5 6
New Growth Theory and Innovation

Why We Need an Innovation-Productivity Policy General Purpose Technologies and Productivity: the Role of IT Three Paths to Productivity Through Innovation Comprehensive IT-Based Productivity-Innovation Policies The Political Economy of Innovation/Productivity
46

Need the Right Economic Policy Framework - Innovation Economics

Puts innovation and growth at center of economic policy. Focuses on institutions (e.g., firms, universities, governments) and not just market exchanges mediated by price. Maximizes growth with proactive and strategic public policies to spur innovation.

Dont give into Luddites

48

Robert Atkinson

Thank You
Follow ITIF:
www.innovationpolicy.org

ratkinson@itif.org

facebook.com/innovationpolicy www.youtube.com/user/techpolicy www.itif.org Twitter: @robatkinsonitif