In recent weeks, the issue of the fiscal cliff, has stirred intense debate across the U.S. and has been closely monitored overseas in relation to its potential impact upon the broader global economy. The term refers to the planned tax increases and spending cuts, originally beginning in January 2013, in order to reduce the U.S. budget deficit.
As expected, with potential tax increases in sight, businesses are collectively sitting on their hands and being very cautious in regard to new spending on jobs and equipment. As reported by CNBC, a recent survey by the National Federation of Independent Businesses found that, among small business owners, just 5% plan on adding new jobs and 19% on investing in new equipment in the next three to six months.
With the specter of an economic recession looming, the question is how large and small business can minimize the impact of external forces, such as the fiscal cliff, upon their own organizations’ fortunes and profitability.
I believe part of the answer lies in U.S. innovation, which can have a powerful impact at both the individual organizational level, whether private or public, and at the national level. According to KPMG, one of the solutions to counteract increased taxation and reduced spending is to increase revenues and overall economic productivity. It is here that U.S. innovation can play a key role in both increasing revenues and creating breakthroughs in organizational efficiencies necessary to increase productivity.
While innovation within an organization is often thought of as something that’s championed in good economic times when internal funding flows freely, my belief is that it is something that can be applied regardless of economic condition to both help grow revenues and reduce costs and improve productivity. Certainly it’s easier to gain access to investment dollars in times of economic prosperity, but a corollary to the adage “you have to spend money to make money”, is that in some cases “you have to spend money to save money” as well.
Today, businesses are looking for flexibility in how they allocate their investments on jobs and the internal products and services they need to conduct business. This is perhaps evidenced by the rise in the number of part-time workers as a percentage of full-time employees. In retail in particular, according to the New York Times, the sector has cut a million full-time jobs and added more than half-a-million part-time jobs since 2006.
Organizations can take a similar approach for flexibility in how they finance and utilize the internal products and services they need for operating their business. If we focus on the IT part of this equation, the nexus of forces of cloud, mobile, social and big data technologies clearly have a powerful role to play.
Let’s take a look at the economic potential of these technology forces and how they might collectively contribute to U.S. innovation and productivity:
Cloud computing enables organizations to “pay per use” and scale up or down computing resources on demand based on their specific usage requirements. It also enables companies to reduce their internal data center footprints and move to a more virtualized data center concept. Financially, it enables them to shift many of their IT costs from upfront capital expense to ongoing operating expense across the entire IT stack from infrastructure as a service, to platform as a service, and software as a service. Community clouds have the potential for multiple organizations, and even sectors within an industry, to share their computing infrastructure costs and pool their investments. Some of the quantifiable economic benefits in the literature, such as a KPMG report commissioned by the Australia Information Industry Association, include an estimated increase in U.S. GDP by 8.64% to 10.37% over the next ten years, or 0.83% to 0.99% per year, and a cost savings in IT related expenditure of between 25 and 50%.
Just like the other disruptive trends, mobile computing provides multiple benefits ranging from new revenue sources from mobile-enabled, customer-facing products and services, to cost savings and productivity enhancements from mobile-enabled, employee-facing applications. One of the most interesting areas is the opportunity for businesses to re-invent and re-design their existing business processes, and even some of their existing business models, for the new mobile context. According to the Aberdeen Group, productivity improvements for field-service employees are typically cited in the 20% range with 40% being “best-in-class” in certain industries and scenarios.
In the social computing arena, a report this year by McKinsey estimates that by fully implementing social technologies within their organizations, companies have the potential to improve the productivity of interaction workers by 20 to 25%. This estimate factors in tasks such as reading and answering e-mail, searching and gathering information, communicating and collaborating internally, and role-specific tasks. The same report also highlights a $900 billion to $1.3 trillion of annual value that could be unlocked by social technologies in four sectors of consumer packaged goods, financial services, professional services, and advanced manufacturing. In addition, “social shopping” could influence an additional $940 billion in annual consumption.
The economic potential of big data has also been well published over the last several years. In U.S. Healthcare alone, McKinsey estimates that big data could yield over $200 billion in value per year in the form of reducing healthcare expenditures primarily related to R&D, clinical operations, and accounting and pricing processes. Big data is a key component of the so-called “Internet of Things” where intelligent sensors are ubiquitously deployed to provide real-time data that can yield actionable insights across numerous industry verticals such as transportation, manufacturing and healthcare. According to some estimates, as discussed in my post, 10 CIO considerations for disruptive trends in 2013, the “Internet of Things” has the potential to contribute $10-15 trillion to global GDP by 2030, that’s the size of the current U.S. economy.
If we look across all these forces and start to add up the economic potential, we see trillions of dollars of benefit particularly in regard to productivity improvements and cost reductions, but also in regard to opportunities for new revenue growth (figure 1). Of course, as with all these cited quantitative improvements, the level of benefit is highly dependent upon the specific use cases involved so these numbers are more for illustrative purposes in terms of their relative order of magnitude.
While recent issues such as the fiscal cliff are clearly complex societal matters with multiple dimensions, one of the best ways to minimize its impact is to explore ways to harness and accelerate U.S. innovation, and therefore growth, cost savings and productivity improvements, at both the organizational and national levels. Information technology and new, disruptive forces such as cloud, mobile, and social computing, together with big data and intelligent analytics are just some of the tools at the disposal of corporate executives and government leaders to effect such a change.
In applying this thinking to government, the “cloud first” policy of the U.S. Federal government has been highly successful with demonstrable cost savings. Perhaps now is the time to evaluate a broader policy towards U.S. innovation with a technology component that takes a similar “first” approach across all these disruptive technologies which can add significant financial value back into the economy.