Maximizing Returns on Digital Investments
Written by : Abdallah Abdallah
A recent project by the World Economic Forum, Maximizing Returns on Digital Investments, explores the unclear relationship between IT investment and productivity. Some economists believe that new digital technologies will never impact productivity, jobs or growth in the positive way that the steam engine, the assembly line and the computer did in previous industrial revolutions. Others, however, are at least cautiously optimistic.
Areas of technology investment:
The project covered 14 industries: automotive, aviation and travel, chemistry and advanced materials, consumer, electricity, financial services, healthcare, logistics, media, mining and metals, oil and gas, professional services, retail and telecommunications. It focuses on four areas of technology investment:
- Cognitive technologies include artificial intelligence (AI) and big data analytics (BDA). AI uses deep natural language processing and understanding to answer questions and provide recommendations. BDA is a new generation of technologies and architectures designed to extract value efficiently from very large volumes of variform data.
- IoT/Connected devices refers to a network of networks aggregating and linking uniquely identifiable endpoints (or “things”) that communicate autonomously using internet protocol connectivity.
- Robotics encompasses the design, construction, implementation and operation of robots. Robotics process automation, cognitive interfaces and other software applications that are not capable of movement are excluded.
- Mobile/social media include mobility solutions and social technologies. Mobility solutions include the devices, software, infrastructure and related services that enable mobile data services. Social technologies facilitate collaboration between internal stakeholders, partners, vendors and customers, as well as the extraction of data from these communications.
Drivers of Digital Investments
The investments in new technologies are driven by company objectives. New efficiencies are still the primary driver for large companies to invest in new technologies. They use these technologies primarily to improve existing business processes and optimize assets and resources, thus reducing their own costs and enabling savings for their customers. Enhanced customer experiences are also driven in various forms, depending on how new technologies are utilized.
Return on digital investments – Key findings
The project reveals four key findings:
- The return on investment in new technologies is positive overall. The productivity increase is three times higher when technologies are deployed in combination.
The average return on investment is positive for each technology category. Cognitive technologies have the highest stand-alone impact on top-line growth, followed by mobile/social media. However, robotics yields the highest productivity increase. IoT, which draws the largest share of total new technology spend by companies (42%), makes the smallest stand-alone revenue and productivity impacts.
Combined investments, when technologies are deployed in combination, are estimated to deliver labour productivity increases that are three times higher than those for stand-alone technology investments (weighted by share of investments in each technology).
- The return on digital investments varies by industry, and industry leaders achieve a greater productivity increase from investments in new technology than followers. The leaders in a majority of industries tend to be larger companies by revenue.
Productivity returns from digital investments vary across industries. The highest productivity increase was seen in two asset-heavy industries: chemistry and advanced materials, and mining and metals. Asset-heavy industries are those with a capital expenditure (capex) that is more than 7% of the sum of capex and operating expenditure (opex). Among asset-light industries (those with a capex that is less than 7% of the sum of capex and opex), professional services and financial services realized the highest productivity returns.
At the company level, industry leaders by productivity – who tend to be larger companies by revenue in most industries – realized greater productivity increases than followers.
- Asset-heavy industries realize more value from robotics; asset-light industries realize greater value from mobile/social media.
In asset-heavy and asset-light industries, an average firm realizes similar productivity gains from digital investments. However, it makes these gains by investing in different technologies.
Asset-heavy industries make greater investments in hardware-based technologies, such as IoT and robotics (~80% of total new technology spend, 2016-2020 average, based on IDC estimates). They have achieved greater productivity gains from robotics than IoT. Their investments in mobile/social media and cognitive technologies have so far resulted in negative productivity returns.
Asset-light industries make greater investments in software-based technologies, such as mobile/social media and cognitive technologies (~70% of new technology spend, 2016-2020 average). They have achieved greater productivity gains from mobile/social media than cognitive technologies.
- While industry leaders realize higher overall return from robotics and mobile/social investments, followers have gained more from IoT and cognitive technologies.
For industry leaders, the overall productivity increase from digital investments is more than twice that for followers (70% vs 30%). The difference is primarily due to their investments in robotics and mobile/social media. Leaders, who tend to be larger organizations, might have delivered a higher return on robotics because it is a comparatively mature technology for which integration with existing systems and processes is simpler. Cognitive technologies and IoT have yielded lower returns for industry leaders than followers, perhaps because strong data management and legacy system integration are challenges at larger organizations.