By Guest Author 09/09/2019


Judy Kavanagh
Many, many things affect whether a firm will adopt a technology, and whether this adoption will be successful. I got a sense of this at a recent family gathering, where I met up with Michael. Michael’s a Hutt boy who, with a friend, set up an online nuts and bolts distribution company in Brisbane. 

The thing with nuts and bolts is there’s so many different types and you’ve got to be able to supply a wide variety if you’re going to be the ‘one-stop-shop’ for big construction and manufacturing jobs. Michael has 14,000+ product lines (SKUs) and he employs 15 full- and part-time staff – mainly processing orders, packaging them up, checking they’re accurate, and sending them out.

The Productivity Commission’s report – New Zealand, technology and productivity – coming out this Thursday – suggests that picking and sorting tasks are more readily automatable than other tasks, like driving.  So, I couldn’t help asking him – could he, would he, automate his business?

Nuts and bolts
Looking for nuts and bolts? Photo courtesy of Michael

As it happens there is a machine that can help process an order and find the different product lines (in fact it can recognise many more SKUs than Michael currently supplies). Watch it here.

The machine would reduce picking areas, increase pick rate and allow more stock per square metre.

Would he automate? Well, it would take more than just raising the capital to buy the machine. The machine is tall, so he’d have to alter the current mezzanine floor. And the stock would need to be positioned according to its popularity.

There would be other complementary investments he’d have to make as well. The major change would be to the company’s IT systems to integrate the new system with inventory, accounting, shipping and sales (website, eBay, Amazon and account customers).

What would happen to his staff? Michael doesn’t think he’d need fewer people, but they’d be doing different jobs. And the business could get bigger because the machine works faster and can manage more product lines.

Ultimately the decision to automate will depend on the economic climate – construction and manufacturing goes up and down with the economic cycle – and whether Michael wants to grow the business. I’ll be watching with interest and I’ll check in with him next time he’s over the ditch for a family gathering.

Key messages

The adoption of technology by firms:

  • happens as the result of decisions made by firms right across the economy, and improved profitability and growth are the key drivers
  • often requires access to capital and may require other complementary investments as well
  • is not just a simple case of buying a new machine or computer programme; firms may need to reorganise their business or change their business model
  • is not necessarily labour-replacing, it might lead to different types of jobs/tasks being required and more jobs if the firm expands
  • are decisions made in the context of how well the industry and the overall economy is performing, and owners’ appetite for risk.

The Productivity Commission’s new report, New Zealand, technology and productivity will be released this Thursday 12 September.

Judy Kavanagh is an inquiry director with the Productivity Commission.

This post was originally published on the Productivity Commission's website.