Productivity problem? - call IT

In my view many of our chief executives are going down a dangerous path and shareholders in those enterprises are also endangered because, increasingly, Australian companies are providing services and goods that will need to compete internationally.

The strategy of Australian chief executives in non-mining enterprises is revealed in the latest Dun & Bradstreet National Business Expectations Survey of manufacturing, retail and wholesale firms. In essence, the majority of companies are restricting capital investment, curbing hiring but planning for higher sales and therefore higher profits.

And so we can see in the graph above rising sales and profit expectations, but bad figures for employment and capital investment.

In theory, that increases productivity – but the productivity rise is a mirage because the companies are not changing the way they do things by investing to increase productivity. In contrast, in the US businesses are lifting productivity by investing in IT.

Forrester Research expects US spending on IT to grow by 8.1 per cent this year. While that is a slight downgrade from an earlier prediction of 9.9 per cent, it's still astonishing growth for a sector operating in an economy that's expected to perform sluggishly for a few more years to come.

Forrester puts the strong investment down to two things – a slight improvement in macroeconomic conditions but also, far more importantly, the fact that US enterprises are boosting technological innovation, which is crucial to long-term productivity.

In part, the US push for technological innovation is driven by a skills shortage in the US. The skills shortage is not widely talked about because the unemployment rate is so high. The US has a population of frustrated, increasingly poor people so it's not a politically correct message to tell them that they're not skilled or talented enough.

It's estimated that with 14 million Americans unemployed – and the unemployment figure is probably higher because many are no longer counted as they have giving up looking – there still remain about 3.2 million jobs unfilled. To illustrate, German technology giant Siemens has disclosed that it has 3000 unfilled skilled jobs sitting on its books. Others have just as many but are reluctant to talk publicly about it.

There are other factors boosting investment in technology so less labour is required. The US property market is still $US700 billion underwater and while many are focused on the negative impact that has on consumer spending, it also means that US skilled labour is less mobile than it was a decade ago. There are a lot of skilled people who can't take that job in Pennsylvania because they can't leave their expensive negative-equity home in Nevada.

Australia has a similar version to this problem, because its skills shortage is in the mines but its skills are in the capital cities. Companies can't improve profits easily through personnel, so they have to make their existing personnel more productive. In the US, the solution is hardware.

This is reflected in the recent string of tech company results. IBM's fourth-quarter numbers beat expectations thanks to a great performance from its software and services units. A shortage of hard drives didn't stop chipmaker Intel topping analyst predictions. Apple, of course, smacked its results out of the park (Apple's seeds of sweet success, January 25).

Given the expansion of globalisation, Australian management is going to be tested as never before and that testing extends to both manufacturing and service industries. Those employees of enterprises that are falling behind in technology should look for another job.