Are you ready for the next wave of digital innovation?

Tuesday, 01 September 2020

Dr Stefan Hajkowicz  photo
Dr Stefan Hajkowicz
Senior Principle Scientist, CSIRO
    Current

    Just as electricity drove rapid growth in the early 20th century, AI and machine learning will be key to rebuilding the Australian and global economy in the next decade.


    Digital companies have been met with two types of opportunity during the COVID-19 economic crisis. Firstly, they’ve been able to more easily shift activity from the physical world into the virtual world. Jobs, sales, product development, research and other such activities can all occur over a telework connection. Secondly, many have seen an explosion in demand for their services to help customers live and work in a changed socio-economic landscape.

    The online delivery sector is expanding rapidly with a view to long-term structural shifts. Coles signed a $400m deal with Charter Hall for two high-tech industrial sheds in Sydney and Melbourne in May. This was in response to a 24 per cent jump in online sales in the first half of FY 2019-20 (before COVID-19) and a surge in demand during the pandemic crisis that overwhelmed capacity.

    Woolworths has doubled its online delivery capacity to capture a forecast $3b growth in online retail sales in the next financial year. The company has also recruited an additional 5000 third-party couriers to complement its fleet of 800 delivery trucks. Amid an employment crisis, Woolworths announced 20,000 new jobs in late March to boost online delivery capabilities. They are making similar investments in infrastructure, skills and technology. The scale of investments is indicative of expectations for a long-term structural shift towards online delivery, not just a short-term business strategy.

    It’s not only the online retail sector that’s booming amid the downturn, the phenomenon is occurring across the entire digital economy. Telehealth, telework, online education, online entertainment, software development and artificial intelligence (AI) companies are experiencing growth. For example, at the end of March, Australian NASDAQ-listed software and technology company Atlassian reported third-quarter revenue of US$411.6m. This represents a 33 per cent, year-on-year sales growth during the largest economic downturn in history.

    Atlassian’s share price is currently performing well and, according to media reports, it made a record number of new hires via a recruitment drive, which added an additional 200 staff to its workforce. The company’s leaders have made statements to the press about plans to significantly grow the company during and after the COVID-19 economic slump. Other companies in the digital technology sector are experiencing similar growth trajectories. On the New York Stock Exchange, telehealth company Teladoc and online collaboration company Zoom Video Communications (not to be confused with Zoom Technologies Inc) have both recorded strong share price growth and an explosion in demand for their services.

    The next wave

    The next wave of digital innovation in a post-COVID-19 world will be driven by technologies that collect, manage, analyse and optimise increasingly large and complex datasets. It is now more important than ever for organisations to be thinking about whether they have the right data in place — and the right analytical capabilities, cybersecurity systems and digital cultures — to future-proof their businesses. Digitally savvy organisations are responding to the crisis by automating processes to increase business efficiencies so teams can focus on higher-order tasks — technologies such as AI, machine learning, computer vision, autonomous systems, robotics and natural language processing will take centre stage.

    An example of this type of digital innovation during the COVID-19 crisis comes from a company called Studiosity. This is an online study support provider partnering with CSIRO’s Data61 to create a competitive advantage in the personalised delivery of secondary and tertiary education services. The Studiosity platform uses AI and natural language processing to fast-track reviewer feedback for students, improve readability of documents and generally support students through their educational journey.

    Another example of digital innovation is a technology called Paid Right. Developed by Data61 in collaboration with PwC, Paid Right uses advanced analytics to ensure workers are paid fairly. It can also autonomously audit the accuracy of payrolls, saving businesses time and money during times of volatility.

    Given its prominence in the rebuild, where is the digital sector likely to take us? Recent research published in the Harvard Business Review finds that digital companies are different to other companies primarily due to their R&D investment. Large digital technology corporations such as Facebook and Alphabet spend 19 per cent and 15 per cent of sales, respectively, on R&D, while smaller and emerging digital companies may spend up to 50 per cent. This compares to the general marketplace in the US, which is closer to two per cent.

    Many digital companies, such as TechnologyOne and WiseTech on the ASX, have come into existence via innovation and R&D to create new software systems that uplifted productivity for their customers. Such companies understand and depend upon new product development. They have innovation and R&D built into their cultures. According to analysis by both McKinsey and PWC, the years following the 2008–09 global financial crisis saw a boom in R&D spending by global companies during a time of deep cost cutting. This is because when “business as usual” is over, R&D is needed to build another type of business.

    There is also likely to be a shift in the flavour of innovation programs. We’re moving beyond empty innovation language — which has seen Silicon Valley-style warehouses and “casual Fridays” spring up across the nation — toward genuine R&D, knowledge creation and discovery. It doesn’t always look as trendy, but genuine innovation pays.

    Lastly, amid the doom and gloom of the current time, it’s worth reflecting on the economic journey around the 1918–19 Spanish Flu. There was a global recession and, arguably, depression, during 1920–21. However, spending soon took off, with the remainder of the 1920s seeing the fastest rates of growth in economic history. Economists from Columbia University in New York, and Adelaide University, publishing in the Journal of Macroeconomics, found evidence of significant technological progress during this period; in particular, the widespread adoption of electricity. During the Roaring Twenties, the US per capita economic output grew by 3.3 per cent per annum between 1922–29, around 1.5 percentage points higher than the 20th-century long-term average. The growth can be attributed to productivity gains, which are in turn attributable to science and technology.

    If electricity was the general-purpose technology of the early 20th century then AI is that of the early 21st century. Now might be the time to make use of AI to boost productivity and economic growth. Good data suggests this might work. A recent report published by the United Nations looked at the role of science, technology and innovation in helping countries survive economic crises. It found countries that sustained science, technology and innovation activity during and after the 2008–09 GFC performed better than those that didn’t. The knowledge economies proved more resilient to economic shocks.

    We can see this in Japan, one of the world’s most technologically advanced knowledge economies. According to the Organization for Economic Development and Cooperation (OECD), Japan’s harmonised unemployment rate was 2.4 per cent in March 2020 (2.6 per cent in June) — less than half the OECD average of 5.5 per cent (8.4 per cent in June). Some countries had reached double-digit percentage unemployment. Japan has thus far achieved a very low rate of unemployment given the COVID-19 crisis, albeit with a sizeable stimulus package by government. This attests to the resilience of technologically advanced, digitally enabled and knowledge-based economies in weathering these types of shocks.

    Economic crises provide a rare opportunity to refresh the policy context, change direction and build new sources of wealth generation. Digital technology will be central to the rebuild of the Australian and global economies. Digital R&D will allow companies and industries to invest in new products and business models. We are in for a rough ride, but there’s a way out — and a way to somewhere better.

    It’s time to embrace digital technologies such as AI, machine learning and data science, and do some genuine R&D. If we do things well, this approach could see the boom years of the Roaring Twenties replicated by the Roaring 2020s in the wake of COVID-19.

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