Over the past several years, companies have focused on cost-cutting, but the scope to do this has been declining. At the same time, productivity growth is low and global competition has intensified. But companies still need to improve margins.
“All this points toward the corporate world looking more to innovation as the only way left to increase margins, which they desperately need,” said Marco Annunziata, co-founder of Annunziata + Desai Advisors and former chief economist and head of business innovation strategy for General Electric Co.
There are lots of technologies entering the scene and earning hype-like generative design and artificial intelligence. But despite this excitement, productivity growth has not accelerated.
“If you look at the statistics on aggregate productivity in the U.S. after the financial crisis, productivity growth has slowed to a rate that is less than one-third of what we saw in the decade before the financial crisis.”
This may be due to innovations not scaling across the system, meaning that the benefits won’t be evident in aggregate numbers, Annunziata said.
There is a widening gap between the best performing companies and the rest, in terms of productivity in both manufacturing and services, he explained.
The aggregate productivity statistics are being dragged down by the bulk of the companies that don’t seem to be able to bring these technologies in, he said.
There is also less churn. The best performing companies are more likely to stay that way, and companies on the bottom rung are less likely to statistically break into the top ranks. “The stakes are a lot higher because, if you get it right, you’re going to outperform your competitors by a greater margin. If you get it wrong, you’ll have a much harder time catching up.”
Annunziata also said that how these new technologies are implemented is the key to success.
“The interaction between humans and machines is crucial to getting this right. To have the best benefits from these new technologies, you need to have a workforce that has the right skills,” he said. “You also need to reorganize both your business processes and your management techniques.”
He also said that despite fearmongering, machines are not going to make humans obsolete.
“If you look at what is happening in industry, there are very few companies that have managed to completely automate the production line, and there have been some spectacular failures in attempting to do so. I think we need to be very careful in writing off completely the ability of what humans can do.”