Last week Dr Luci Ellis, a Reserve Bank assistant governor, offered her own thoughts on yet another possible piece in the jigsaw puzzle. Productivity is generated by firms, but Ellis notes that, both in Australia and abroad, the evidence suggests that levels of productivity vary widely between firms, even within the same narrowly defined industry.
“Firms that are highly productive – so-called superstar firms – tend to grow faster, grow employment faster, and pay better than firms that are a long way from the frontier of productivity”, she says.
Why Do the Biggest Companies Keep Getting Bigger? It’s How They Spend on Tech
New data suggests that the secret of the success of the Amazons, Googles and Facebook s of the world—not to mention the Walmart s, CVSes and UPSes before them—is how much they invest in their own technology.
There are different kinds of IT spending. For the first few decades of the PC revolution, most companies would buy off-the-shelf hardware and software. Then, with the advent of the cloud, they switched to services offered by the likes of Amazon, Google and Microsoft . Like the difference between a tailored suit and a bespoke one, these systems can be customized, but they aren’t custom.
IT spending that goes into hiring developers and creating software owned and used exclusively by a firm is the key competitive advantage. It’s different from our standard understanding of R&D in that this software is used solely by the company, and isn’t part of products developed for its customers.
Today’s big winners went all in, says James Bessen, an economist who teaches at Boston University School of Law and who recently wrote a new paper on the policy challenges of automation and artificial intelligence. Tech companies such as Google, Facebook, Amazon and Apple—as well as other giants including General Motors and Nissan in the automotive sector, and Pfizer and Roche in pharmaceuticals—built their own software and even their own hardware, inventing and perfecting their own processes instead of aligning their business model with some outside developer’s idea of it.
The U.S. Air Force learned to code—and saved the Pentagon millions
“The most effective way to broaden change is to “set the right example, and don’t try to do everybody’s work for them,” according to former Carter. “This isn’t the kind of thing that it’s useful to make people do.”
But leading by example may not be enough. “We believe that technical people need to be in the room making technical decisions in places of authority,” says DDS director Chris Lynch. “Anything less than that will end up placing us back into the results we have right now.”
“Hopefully, we’re just the tip of the spear,” says Sanders, “and the Department of Defense relooks at how we do requirements, budgeting, and the acquisition process for both software and hardware systems.””