Despite its starring role in business and everyday life, many economists openly question whether technology is visible in traditional economic metrics such as GDP, productivity, and corporate profits. Declines in technology investment are followed by startling drops in all these measures of economic growth according to wo articles—Why Technology Matters and Why the Technology Economy Matters published by the Boston Consulting Group (BCG). The articles are part of a series titled The Power of Technology Economics.
The articles demonstrate that whenever companies cut back on technology spending in order to shore up profits—as companies in many industries are doing now—profits plunge. GDP also falls dramatically. Within a few years, labor productivity across the economy falls, as well.
“Companies are cutting back on a critical investment that could power the next wave of growth,” says Howard Rubin, a BCG senior advisor and the lead author of the series. “In many cases, that investment could create huge leverage, lowering other expenses much more quickly than technology spending rises. But that can happen only if companies manage their technology spending well.”
Across a range of industries, companies with high technology intensity also have high gross margins. Furthermore, technology intensity and gross margins tend to rise and decline together.
Given the rapid emergence of disruptive products and business models and the transformative power of digital technologies, the authors of the series argue that executives must become masters of the global “technology economy,” capable of detecting the economic impact of rapid technological change and able to respond with speed and foresight. Those that succeed will make the most of technology and create what BCG calls technology advantage.
“Executives require new metrics and new ways of thinking in order to navigate the technology economy and approach the many investment decisions in which technology plays a role,” says Ralf Dreischmeier, the global leader of BCG’s Technology Advantage practice and a coauthor of the series. “To successfully navigate the technology economy they must create, measure, and track virtual economic measures just as carefully as metrics about the physical world.”