ICT use and productivity: A synthesis from studies of Australian firms

Commission research paper

This paper was released on 13 July 2004 and draws together the findings from different streams of work undertaken for the Australian contribution to an international study (coordinated by the OECD) of the uptake of information and communications technology (ICT) and its effects on productivity.

It also draws on the completed OECD study in order to provide a more comprehensive picture of how well Australian firms have performed, relative to their overseas counterparts.

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Key points
Media release
Contents

Compared with their overseas counterparts, Australian firms have been active in their uptake of ICT and successful in their efforts to turn it to productive advantage.

Australian firms invested more in ICT, especially from the mid-1990s, as technological advances provided cheaper and readier access to more accurate, timely and useful information.

The gains from use of ICT stem from the opportunities it provides firms:

to undertake existing tasks more quickly, cheaply and effectively by substituting ICTs for other inputs, especially labour; and
to improve multifactor productivity (the efficiency and effectiveness of input use) by using ICTs as a means to innovate - to develop and introduce new value-adding and efficiency-enhancing products, processes and organisational structures.

Many of these gains do not come automatically - from the mere purchase and installation of new hardware and software.

There can be costly and time-consuming adjustments, for example, in staff dislocation and (re)training.
Product, process and organisational innovations require investments in design, development and implementation.
Skilled staff and high-order management skills and qualities are needed if potential gains are to be realised.
The gains also depend on the accumulation of experience in and learning from the application of ICTs and from the investments in ICT-enabled innovations.

The acceleration in use of ICT in the 1990s raised the rates of growth in Australia's labour productivity and multifactor productivity.

Although the available estimates suggest that the acceleration in use of ICT contributed a relatively small amount to Australia's 1990s productivity acceleration, the estimated productivity gains (especially in multifactor productivity) are high by international standards.

Firms and industries differ in the intensity of their use of ICTs and in their realisation of productivity gains.

This is largely due to differences in the nature and amount of their investment in ICT-enabled innovation, in their access to skilled staff and management, and in their accumulation of learning and experience.

Countries differ in the intensity of ICT use and associated productivity gains.

This is largely due to differences in costs of using ICT, in the ability of firms to absorb new technology and in the policy and institutional environments in which firms operate.

Tapping ICT's future productivity potential is predominantly in the hands of firms.

Whilst specific issues require ongoing government attention, the strong performance of Australian firms suggests that additional widespread government support is not warranted. The main role for governments remains one of ensuring that markets are competitive, firms have flexibility to adjust and to experiment, innovation is appropriately supported and needed skills are developed.

The increased use of information and communications technology (ICT) has helped to raise Australia's productivity growth, according to a Productivity Commission research paper.

The research paper - ICT Use and Productivity: A Synthesis from Studies of Australian Firms - draws together the findings from a series of studies undertaken in a project involving the Productivity Commission, the Department of Industry, Tourism and Resources, the Australian Bureau of Statistics and the Department of Communications, Information Technology and the Arts.

Australian firms invested more heavily in ICT from 1995. Firms could raise productivity by using ICT in the place of more labour-intensive means of undertaking tasks; and by using the capabilities of ICT to innovate in what they do (product innovation) and how they do it (process and organisational innovation).

The paper concludes that the stronger growth in use of ICT in the second half of the 1990s added up to half a percentage point to the acceleration in annual labour productivity growth (output per hour worked). The major effect of ICT on productivity growth occurred through substitution of ICT for labour, with a small contribution from ICT-based innovation.

Compared with most other OECD countries, Australia's uptake of ICT and associated productivity gains were high. The paper draws on overseas research which shows that a number of factors help to explain inter-country differences. The policy environment - whether it fosters competition and allows firms flexibility to adjust - is one crucial factor. Another is the ability of management to identify new potential for productive use of ICT and to implement the investments and the organisational changes that are needed to tap that potential.

Preliminaries
Cover, Copyright, Foreword, Working papers produced for the project, Contents, Acknowledgments, Abbreviations, Key points, Summary

1 Background, issues and approach
1.1 The OECD multi-country firm-level study
1.2 The Australian project
1.3 This paper

2 Australia's rapid uptake of ICT
2.1 The evolution of ICT as a general-purpose technology for business innovation
2.2 The uplift in ICT investment
2.3 International perspective

3 Why have firms invested more in ICT?
3.1 Four major influences on the costs and benefits of ICT use
3.2 Firm size has made a difference
3.3 The importance of competition
3.4 International studies of factors influencing ICT uptake

4 ICT and productivity: a broad perspective
4.1 Nature of performance effects - input substitution and innovation effects
4.2 Estimates of effects on input growth
4.3 Estimates of effects on MFP growth
4.4 Accounting for labour productivity growth
4.5 International perspective

5 How has ICT affected firm performance?
5.1 Sources of performance gains - illustrations from firms' experience
5.2 Econometric analysis of firm-level performance
5.3 Findings from international research

6 Why firms differ
6.1 Differences in the scope for application and innovation
6.2 Human and organisational capital

7 Tapping ICT's productivity potential
7.1 Prospects for further uptake and productive use of ICTs
7.2 The central role of firms
7.3 Factors that might hinder uptake and productive use of ICTs
7.4 Issues for governments
7.5 Conclusion

References

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