Published on the 01/09/2022 | Written by Heather Wright

Productivity Inquiry outlines concerns, recommendations…

Australia is falling behind in advanced areas of digital technologies which could bolster productivity, including analytics and AI, according to the Productivity Commission.

An interim report for the Productivity Inquiry shows that while the country is performing well compared to other developed economies on ‘foundations’ such as internet connections and data volumes, it trails in some more advanced indicators, such as internet speeds and use of data-driven technologies. 

High performers were three times more likely to say their data and analytics initiatives have contributed at least 20 percent to earnings.

The inquiry is focused on the enablers of productivity growth in ‘a modern, market-based, service-oriented world’ with this, second, interim report exploring how digital technology and data can be used to improve Australia’s productivity. 

It says just six percent of Australian businesses were using data analytics in 2019-2020, with AI usage even lower, at around three percent, putting the country towards the bottom of OECD countries – and well below the 20 percent-plus of leading OECD countries including the Netherlands, Denmark and the UK for data analytics, and Ireland for AI. 

While other reports have indicated Australia is doing ‘relatively well’ in AI, the Productivity Inquiry says this is due partly to Australia’s AI research, which doesn’t necessarily translate to more use of AI by businesses. 

“We do well in Australia on basic aspects of technology and data use, like internet coverage, but are falling behind in more advanced areas such as business uptake of analytics and artificial intelligence,” Commissioner Stephen King says. 

“We also need fast, reliable and affordable internet to enable businesses to take up advanced digital technologies,” he adds.

Australia’s use of broadband isn’t the issue – about 99 percent have broadband internet connections, either fixed or mobile. Speed, however, is a different story, with the report noting Australia’s internet speeds are lower than many other OECD countries, particularly when it comes to fixed broadband.

The majority of Australian fixed broadband subscriptions are between 25/30Mbps and 100Mbps, and actual speeds are even lower with speed test reports consistently showing low downloads. Case in point: Ookla’s January 2022 speedtests put the median fixed broadband speed at 50.89Mbps.

The New Zealand Commerce Commission’s Annual Telecommunications Monitoring Report 2021, cited figures from UK company Cable which produces yearly worldwide broadband speed leagues, showing Australia’s average fixed broadband download speeds were just 40Mbps. And New Zealands? 86Mbps.

Underinvestment in cybersecurity is also flagged.

The country does, however, rank highly for cloud adoption across the board for business, and data production and consumption is high. 

“These significant data volumes suggest that Australia has a lot of potential to leverage data-driven technologies, such as AI and data analytics for productivity gains,” the report notes. 

“Technologies such as artificial intelligence, robotic automation and big data analytics could revolutionise how businesses operate and help lift Australia’s productivity growth by reducing costs, improving the quality of goods and services, and increasing product choice for consumers,” King says.

The report notes that research has found that businesses reporting the greatest growth in revenue and earnings received a significant proportion of that boost from data and analytics. In fact the McKinsey report cited notes high performing organisations were three times more likely than others to say their data and analytics initiatives have contributed at least 20 percent to earnings before interest and taxes over the past three years. 

There is empirical evidence of the role of technology on productivity, including reports showing high digital adoption was associated with higher multifactor productivity growth in the average firm in EU countries, and another showing ICT capital contributed 1.0 percentage point to Singapore’s GDP growth and 0.8 percentage points to average labour productivity growth between 1990-2008.

“Digital technology, combined with data, can help businesses to improve their productivity by lowering the costs of search, replication, transportation, tracking and verification. It can also lead to productivity-enhancing product improvements and greater choice, particularly in services sectors, which have historically had more difficulty achieving productivity growth.”

Digital activities such as IT support, computer manufacturing and developing software made up around six percent of the value added by Australian industries in 2019-20 according to ABS figures. 

“This is an underestimate of the economic value of digital technologies. The ABS’s estimates reflect the output associated with products that are ‘primarily digital in nature’ but do not measure the economic value attributable to the ubiquitous and embedded use of technology in other products.”

The Tech Council of Australia estimated the sector, including telecommunications and information media, contributed $167 billion to Australia’s GDP in 2020-21 – or 8.5 percent of Australia’s total economic output.

The report, 5-year Productivity Inquiry: Australia’s Data and Digital Dividend, highlights inadequate internet (particularly for agricultural businesses), lack of skills, limited awareness and uncertainty about benefits, cost and legacy systems.  High cost were more frequently identified as a barrier by medium and large businesses, possibly reflecting the cost of transitioning from legacy systems. 

“Government can help by improving investment in digital infrastructure, particularly in rural and remote Australia, forming digital partnerships with the private sector, and ensuring we have a future ready workforce,” King says.

“Businesses of all sizes also should be encouraged to invest in digital technologies and cyber-security. Consumer trust will be vital to underpin these investments.”

The Productivity Inquiry report comes as a Governance Institute of Australia report flags concerns over a lack of digital skills on Australian boards. Driving the Digital Revolution: A Guide for Boards, found 21 percent of organisations don’t have a digital transformation underway, with 25 percent of those organisations saying it was because they don’t have the required skills. 

The Governance Institute is calling on organisations to ‘seriously consider some significant board renewal in order to fill the digital skills gap’.

“As a director, you don’t need to be a tech expert, but you need to understand enough to ensure you are part of the conversations that matter,” Governance Institute chair Pauline Vamos says. 

Forty-one percent of the nearly 500 senior executives surveyed said less than 25 percent of their board members had tech skills as part of their core skill set, with 13 percent admitting they have no directors with digital skills. 

That need for improved skills is also highlighted in the Productivity Inquiry’s recommendations. It outlines six areas for government work to improve Australia’s digital, data and cyber security foundations:

• Investing in regional digital infrastructure
• Creating new data sharing and integration opportunities
• Developing digital data and cyber security skills
• Balancing cyber security and growth to ensure restrictions and additional requirements for cybersecurity purposes don’t inhibit economic growth
• Supporting ethical use of technology and data
• Coordinating the policy and regulatory structures

Ironically, the report notes that better data, particularly around internet access, speeds and packet loss and latency, would assist in identifying gaps and linking investment to outcomes.

Submissions for the report close on 7 October 2022.