Saturday, July 13, 2024

Productivity, Recession and Joblessness

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Maybe it’s time enterprise software took the credit, and the blame, for the jobless recovery.

When Federal Reserve chairman Alan Greenspan famously praised technology for boosting productivity in a March 2000 speech, everyone in high-tech said their “I told you so’s” and patted each other on the back. Of course, Greenspan has been too polite to pass around the blame for the subsequent recession, though we all know in our heart of hearts that high-tech’s pact with the dotcom devil had plenty to do with the bad times we’ve all felt since the economy turned sour shortly after Greenspan’s speech.

What’s been largely untold is that the rate of productivity gains when Greenspan took his measurements has to be a fraction of what it is today. That’s because when Greenspan was taking his measurements prior to March 2000, high-tech was at the height of the dotcom hype. Greenspan’s productivity gains were based largely on pre-Internet technology and the nascent effects of a still-untried new economy.

Three-plus years later, we know that many of the promises of the new economy really did make sense, and were adopted even as the recession loomed. The result is that today there’s an even better case for productivity gains from technology than could have been evident in 1999.

Every company I talk to is finding ways to use technology to improve production planning and turnaround times, lower inventories, improve economies of scale, design more cost-effective training, create better business processes, tighten automation between partners, etc.

The fact is, enterprise software is making real headway in improving productivity, lowering costs and streamlining operations. Not to mention facilitating new markets. In other words, three-years post-hype, we’re finding that Greenspan’s comments seem both prescient and conservative. The improvements have had an impact across the board, from the boardroom to the shop floor, from mid-sized regional players to global giants. While far from perfect, the fact remains that, with 2004 on the horizon, it’s time to say that enterprise software is beginning to hit its stride.

Which brings us to the jobless recovery.

While I don’t contend that technology got people fired in the first place — management largely fired workers out of a desperate need to reduce costs, not through perceived efficiencies gained from using technology — I’m beginning to believe that technology is what’s preventing the current turnaround from bringing on massive new employment. Since the recession began, a lot of enterprise software has gone on line, and taken a lot of jobs with it.

Take retail, for example. Turns out that e-retailing actually does work: Customers are buying many billions worth of goods online. While early on-line retail systems also used low-tech paper order or fax at some point in the order process, most of the big e-retail systems of today are highly automated. Published estimates say that consumers will buy $12.5 billion in goods online this year — that’s still only 4.5 percent of the retail spending pie.

But those numbers represent thousands of potential jobs lost to the Internet. And even if customers still shop in stores, the move to automate the supply chain will make retail even more productive. Add RFID tags, and the efficiencies in warehousing, inventory management, and logistics will be enormous. As that number grows from 4.5 percent to 10 percent and beyond, the productivity gain in retail will continue to grow. All with a net reduction in the number of workers needed.

Hence the problem with joblessness: Once a company has implemented these technologies, there’s no need to fill in the gaps by rehiring once the recession turns around. That growing e-retail component will scale nicely without additional hiring. And the future promises more bad news. Many enterprise software products can be bought and installed for the price of four to 10 full-time equivalents. If the software can be proven to obviate the need for a few bodies, the economics of software versus hiring will continue to favor software.

Short of becoming Luddites, there’s not much to do except retrain workers and hope that new productivity will also expand opportunity. Enterprise software is not to blame, it has merely done its job. But if you’re among those made redundant by the new new economy, software has done its job just a little too well.

Joshua Greenbaum is a principal with Enterprise Applications Consulting, a technology and marketing consultancy in Daly City, Calif.

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