Unlocking productivity in New Zealand with AI

Artificial intelligence and machine learning are potentially the most transformational technologies of our time. Recent advances in generative AI have provided the world with a glimpse of the new opportunities AI will create, but the full potential of the technology has yet to be unlocked.

Over the past 30 years per capita incomes in NZ have increased by about 60 per cent in real terms. About 80 per cent of that growth is due to increases in productivity. That’s why productivity – or rather productivity growth – receives so much attention from policy makers and researchers around the world.

New Zealand’s productivity however, lags well behind comparator countries, and has done so for half a century. The value produced by an hour of work in NZ is about two thirds of that produced by a worker in the United States, and about 80 per cent of that produced by a worker in Australia.

Throughout history, technology has provided the world with a number of step changes that have created immense sources of productive capacity. Stream, electricity, digital.

AI seems poised to join this industrious list. The NZ Treasury’s recent paper on the Impacts of AI provides a great summary of the contribution of AI to productivity at a macro and firm level. Conservative estimates suggest AI could add between 0.1-0.6 percentage points per annum, and more bullish estimates around 1.5 percentage points.

If widely and effectively integrated, there’s evidence to suggest that AI might be the source of the doubling or tripling that we’re looking for.

The question is how?

There are many factors that contribute to productivity – everything from competition settings, to management skills, trade exposure, culture, infrastructure. 

Increasing productivity in the services sector

First, consider AI’s potential to improve the productivity of services. Compared to manufacturing or agriculture, services – like education, health care, professional services – are notorious under performers when it comes to productivity.

There are some well-known measurement issues that contribute to this – it’s hard to capture quality for example – but there are some intrinsic reasons as well. Many service jobs, especially those requiring human interaction or complex decision-making, are less amenable to conveyer belt and robotic type automation we see elsewhere. Services can often involve complex cognitive tasks, emotional intelligence, or interpersonal skills that are difficult to replicate. They can require tailored solutions for individual customers. And often customers simply prefer human interaction.

AI has the promise to improve the productivity of many services through:

• automating routine tasks and streamlining processes
• enhancing decision-making through data analysis,
• enabling personalized customer experiences
• assist with creative tasks
• detect fraud

Further, by handling time-consuming operations and providing valuable insights, AI allows human workers to focus on more complex, value-adding activities.

And we can see this happening already.

The AI Forum of NZ’s first study on AI and Productivity, surveyed some 230+ businesses on exactly how firms were using AI, and what impact was it having on their productivity. The survey found two thirds of the respondents reported were using AI. The biggest adopters being the manufacturing, construction and information sectors.

More interestingly, the survey also found that firms were using AI across every part of the business: from design to HR to procurement to finance to marketing to customer service. Moreover, more than half of the respondents reported a positive impact on output, and 62% reported a savings in operating costs. That is AI adding productivity to the services in real time.

Second, AI has the potential to boost an organisation’s capacity to innovate. Innovation is the engine of growth and productivity. Innovation means creating value by doing something differently. Doing something different could mean altering a good, or a service, making something new, changing a process, a new marketing strategy, organisational structure.

Another really interesting finding from the AIFNZ’s study was that 96 per cent, said their workers had become more efficient, but less than 10 per cent reported the technology resulting in a decrease in staff.

This might resonate with many of us. Gen AI has provided a boost in personal productivity. It’s helped take the dull, repetitive, and tedious tasks off of our plate; providing space to think about the strategic, creative, over the horizon, better ways of doing things, that create value for our organisations, customers and communities.

What Gen AI tools have created is slack. This is the intentional creation of buffer time, resources, or capacity that is not immediately assigned to specific tasks or goals. Slack plays a critical role in fostering innovation, improving resilience, and enhancing overall productivity. When employees aren’t overloaded with tasks, they have the mental bandwidth to think creatively and explore new ideas. Slack also allows for experimentation without the pressure of immediate results.

Finally, AI has the potential to improve the productivity of smaller firms by allowing them to function like their larger counterparts. Overwhelmingly most NZ businesses are small. Similar to Australia and many other countries in the OCED, about 98 per cent of businesses are SMEs.

Empirically, we know that larger businesses are more likely to innovate, export and be digitally active. And because the CEO, CFO, CIO, the CTO, and the heads of marketing, HR and sales, are not all the same person, larger businesses typically have higher productivity levels as well.

For years, the focus of policymakers has been on the need to scale businesses. But we’re in a world now where AI could dramatically change what we know about firm dynamics.

While the full impact of AI has yet to be realized, the early signs are promising. Businesses across a range of sectors are already reporting positive impacts on output and cost savings from their AI investments. And by freeing up workers from repetitive tasks, AI is creating the slack that can foster a culture of innovation and experimentation. The tools are there to unleash a wave of dynamism and entrepreneurship that boosts productivity across the board. Realising an AI-powered productivity boom will require organisations to lean in and experiment, and protect the slack they’ve been gifted!

By Tim Bradley
AWS
Full version first published on LinkedIn