Stirring up digital stagnation

UK productivity is stuck. In 2022, UK GDP per hour was 20 per cent lower than in the USA and around 10 per cent lower than in France and Germany. If the pre-2007 trend had continued, productivity would now be 16 per cent higher than it actually is. Wages and living standards would be higher too.

Low levels of investment are one of the reasons for the UK’s poor productivity: the London Stock Exchange’s weakness in the past decade may be symptomatic of this aversion to risk. And yet in many areas of digital technology, the UK is a world leader – e-commerce, cyber-security, artificial intelligence. So, with these advantages, why hasn’t the UK’s world-beating, digital-technology-driven productivity risen? The answer may be “digital stagnation”.

Digital stagnation refers to a slowdown in the adoption of innovative digital technologies within an organisation. The technology is available, just not used. The result is significant: reduced competitive advantage; restricted improvements in efficiency; a general drag on growth.

Digital stagnation is a common phenomenon and it can occur for a number of reasons, including over-regulation (the EU’s AI act comes to mind) and economic constraints caused by a lack of funding for new technologies. But there is another cause of digital stagnation, which I believe is predominant in the UK: organisational resistance.

Resisting technology

Digital stagnation that originates internally is a complex phenomenon with many causes. At its heart is a failure of senior management to embrace the opportunities provided by technology. This failure has many roots: cynicism; a risk-averse approach to investment; a feeling that cheap labour is better than expensive technology; a focus on today’s problems rather than tomorrow’s…

There is another important cause. Many leadership teams fail to identify reasons to invest in new technologies. There is muddle about the goals of technological investments, and there are many wasted investments driven by a desire to have the latest shiny technology, even if it is not what the organisation needs.

But while the UK’s corporate leaders have been guilty of a dereliction of duty over technology investments, the fault is not only with them. Many organisations, and perhaps UK society as a whole, demonstrate a culture that is hostile towards science and technology. This culture is demonstrated in many ways:

• A lack of digital skills, a reluctance to gain new digital skills by many workers, and a fear that they will be unable to use the new technology effectively, or that the technology will control them, rather than the other way round
• A fear that technology will destroy jobs: yes it will destroy some, but technology generally creates new jobs as well as supporting existing roles, making them more effective and more challenging
• A siloed mentality: the tendency for people operating new technology to keep their knowledge and skills to themselves as a way of cementing their own importance, rather than spreading knowledge across the organisation
• Unrealistic expectations followed by disappointment and rejection of technology: “we have tried that, and it doesn’t work for us”

There is another issue that reduces the productivity of technology investments. In too many cases there is an over-reliance on technology rather than human interactions. Sending an email instead of talking to someone at their desk is a very simple example of that. Using ChatGPT to write this article would be another (I didn’t!).

Unfortunately, all too often people delegate their creativity and common sense to technology. But the feeling that the computer will be better at finding the answer is really just an excuse for laziness, for not thinking critically. The unforgivable laziness of Post Office executives who failed to question the Horizon’s system’s accuracy is one horrific example.

Overcoming digital stagnation

Overcoming digital stagnation is difficult but it can be done, with the right leadership. However, it requires a multidimensional approach to address the different underlying causes. There are three key elements that need to be considered: creating a learning organisation; supporting a culture of innovation; and engaging with technology as a strategic rather than a tactical issue.

Strategy, not tactics

The most important element is to accept that the use of digital technology is a strategic rather than a tactical issue. This means that it must be guided from the very top of the organisation. Leaders have no excuse for not getting their hands dirty with technology.

The first thing leaders must do is identify the opportunities that might benefit their organisation or their customers. This means going beyond taking an interest in their children’s use of TikTok and Steam. Instead, they must educate themselves about the technologies that similar companies are already using and that consumers expect.

For some this will be uncomfortable. Education should involve a continuous process of horizon scanning, ideally using external experts to brief them regularly. Genuine curiosity about technology is essential: the all-too-common mindset that “this is just something for the geeks in IT” will ultimately lead to organisational failure.

Next, they need to align new technology opportunities with their business goals by establishing clear and relevant objectives for any investments. This is likely to involve the organisation conducting thorough needs assessments to ensure the technology being adopted addresses real business needs and pain points. Results of assessments must be reviewed by leadership before any significant investments (in money or time) are taken. These assessments, perhaps backed up by pilot projects, will increase the likelihood that the organisation is investing in the right technologies.

Once investments have been made, measuring the success of digital initiatives and their impact on business outcomes is critical. Feedback loops that continuously assess effectiveness will enable necessary adjustments to be made, including in some cases abandoning technology that proves to be ineffective or no longer optimal.

A culture of innovation

Another important way of avoiding internally generated digital stagnation is to develop a culture of innovation across the organisation. Leaders can play a very important role here by being visibly supportive of innovation. They can promote an environment where experimentation is encouraged and where failures are seen as learning opportunities: avoiding a “blame culture” is important, not just for innovation but also for organisational efficiency (compare the approach to failures in the aviation industry with that in the NHS).

Leaders should encourage senior managers to respect new ideas from anyone in the organisation, however junior or new, and to involve people at all levels and functions in innovation programmes. This will not only have the effect of driving innovation; it will also increase buy-in to digital projects and reduce resistance.

And they should influence operational practices to support innovation. For example, they can encourage senior managers to set up cross-functional teams as a way of bringing diverse perspectives to new projects. And they can influence project managers to adopt agile methodologies to allow for more flexibility, faster iteration and better responsiveness to change.

A learning organisation

Finally, digital stagnation can be addressed through the development of an organisation that has learning at its heart and employers have a responsibility to provide appropriate development in this area. At a fundamental level, training programs will be needed to upskill employees, ensuring they have the necessary digital competencies, including an understanding of ethical frameworks.

Training should also be used to communicate the benefits digital technology initiatives bring to all employees as a way of reducing fear and resistance. Training does not have to take place only in formal programmes. There is as much value in facilitating discussion, such as in online forums where employee fears and worries can be debated and allayed.

Perhaps more importantly, a culture of continuous learning should be encouraged, one where employees are encouraged to stay updated with the latest technological trends. No one should feel they are too old (or too skilled, or too busy) to learn. Organisations that support a culture of life-long learning will be better able to weather adversity and seize opportunity.

A feature of learning organisations is that they are open to ideas from outside. By engaging with external experts, including consultants, academics and leaders in other fields, new ideas for solving problems can be developed and explored before they are tested by the organisation.

Growth through technology

Digital stagnation is a very real problem. The accelerating pace of technological change, combined with rising consumer expectations, means that organisations that fail to avoid digital stagnation will stagnate commercially.

With competent leadership that is prepared to explore new ideas and to support innovation and learning, organisations can create an environment that overcomes the digital stagnation that is currently hampering growth and competitiveness in the UK.