TechMarketView launches new research theme for 2023!

Watch our Chief Analyst, Georgina O'Toole, as she outlines TechMarketView's research theme for 2023.

Pursuing Productivity

The UK has a productivity crisis. It’s not new. It’s been a problem for more than a decade. Since the financial crisis of 2008, average annual growth in GDP has been 0.3%. That compares to an average of 2.0% over the previous five decades. In 2019 – the latest international comparison available - the G7 countries’ average (excluding the UK) output per worker was 13% above the UK. The UK’s productivity decline since 2008 has been twice as severe as other G7 countries.

It matters. Because improved productivity is the main driver to increase GDP per capita, which in turn leads to higher real wages and improved living standards. The stagnation of real wages is particularly pertinent in an era of high inflation and labour dissent; it means we’re currently all getting poorer in real terms, despite very high employment.

Pursuing Productivity

But it’s a complex picture. There are many varied theories that try to explain this deep and prolonged period of depressed growth. It has been called the UK’s Productivity Puzzle. While it’s easy to point the finger at UK-specific challenges such as the period of austerity (beginning in 2010) and the EU’s exit from the EU, the Office for National Statistics highlights a broad range of other reasons. They range from structural arguments, i.e., long term trends such as the draining of oil and gas reserves in the UK (an industry that has high productivity rates), to labour and managerial arguments (including inefficient allocation of resources), to mismeasurement arguments.

Notably, one of the theories relates directly to the limited appetite of UK companies to adopt emerging technologies with the potential to drive productivity. The finger of blame is pointed at the difficulty organisations – across industries – have understanding technological complexity. The result is procrastination and a tendency to turn to labour to solve the problem in the short-term.

As this is not a new issue, you might question why it is in 2023 that TechMarketView has chosen the theme ‘Pursuing Productivity’. Of course, the current government has made productivity a central tenet of their policies but that is, by no means, the only – or indeed the primary – reason behind settling on this theme.

In our view there is a raft of factors that will result in organisations – across both the public and private sectors – looking at productivity improvements during 2023. The big one is labour shortages (see  The case for investing in people is compelling). We might be facing a downturn, and we might well see vacancies reducing – and unemployment rising (albeit from the lowest unemployment rate since 1974) – but once economic recovery begins, the labour crisis will return. This is a significant opportunity for the tech sector. The only way to address the problem is for companies to invest in their existing employees so that they can work smarter.

Some industries are more impacted than others – agriculture, construction, healthcare, for example, as well as the tech sector itself. The problem was exacerbated by the UK’s exit from the EU. In many cases, it will simply not be possible to fill the hole in the short-term due to the years of education and training required (think GPs, teachers, engineers, for example). And, as a result, in the private sector, there is increasing evidence that the inability to recruit quickly enough is hampering growth; companies are cutting output or delaying investment.

Other factors that we believe will play a part in organisations wanting to better understand their productivity and to make improvements include: the enduring shift to hybrid working (and the need to monitor and maintain productivity when employees are not in the line of sight); the gig economy (and the need to connect the extended freelance workforce); the increasingly popular four-day working week (and the need for employees to condense their work into fewer days); deglobalisation and reshoring (and the need to maintain output at a lower cost to remain profitable); and the rising cost of resources (including energy and wages, driving a need to do more with less).

Efficiency and productivity are two sides of the same coin: efficiency is producing a defined output with a minimal input, while productivity is about increasing output for any given input. The drive for efficiency will not go away. But there will come a point where organisations struggle to identify where they can make further savings. And, moreover, in an increasingly competitive environment, organisations need to continue their journey of improvement. The answer will be to get more out of the graft put in. There is a commonly held view that there are three key approaches to increasing productivity. One way is to simply give more work to the same people. This is not a great idea unless you want to see employee burnout, although it can be more successful if combined with upskilling and training. The second is to focus on employee wellbeing. And the third is to invest in ICT and other capital assets (machinery, plant etc), along with associated skills.

It is this focus on both employee wellbeing and on ICT for productivity (indeed, the two are complementary) that will define the UK tech market over the coming year.

We see investment in the productivity and the resilience of the workforce falling into two categories: employee-led (technology that will support mental health and wellbeing, that will allow employees to work smarter and faster, and that will enable them to embark on lifelong learning and training) and employer-led (technology that will enable better resource management, that will offer a better understanding of workforce performance, and that will provide the ability to make more informed, and faster decisions).

In the employee-led category we will see a boost to demand for productivity tools, such as those for collaboration and communication, for AI for intelligence augmentation, for smart building technology that will optimise the working environment, and for workplace mobility and digital workplace solutions. While in the employer-led category, we will see the increased popularity of HR optimisation solutions, such as AI-enabled workforce planning and performance tracking, of predictive analytics for maintenance, logistics and delivery, so that resource can be efficiently targeted, and of technology to improve workflows so that overlapping roles can be identified.

Within this picture, the productivity of ICT resource will also be a focus. The many technologies that can make an ICT team more productive, from no-code/low-code/AI-augmented coding, to automated cybersecurity solutions, to hybrid cloud orchestration and management, will all be in demand.

This predicted investment in the Pursuit of Productivity will also be driven by there being numerous beneficial side-effects. Improving productivity takes the strain off a stretched workforce, results in improved company performance, and can result in better remuneration – all of which have a positive impact on health and wellbeing. Improving productivity also means that an organisation can use less resource – including energy resource – thus having a positive impact on an organisation’s sustainability objectives. And, finally, improved productivity results in a stronger workforce. And, as people are central to most organisations, the result will be improved organisational resilience overall.  

It will be crucial for tech suppliers to demonstrate the investment in ICT and digital will deliver the desired results quickly, particularly considering tight fiscal constraints. It is notable that Japan has had stagnant growth for more than a decade despite being very open to technology adoption. The reason? The country has struggled with the cultural, political, societal, and operational changes needed to leverage technology investment effectively, plus a declining working age population has made the challenge of adopting new technology quickly even harder. It will, therefore, be those suppliers that can bring relevant technological solutions, alongside, broader organisational and cultural transformation know-how that will thrive in the months ahead.


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