Highly-skilled Personnel Utilization for Increasing IT Use and Productivity

INUI Tomohiko
Faculty Fellow, RIETI

1. Accomplishing Desired Innovation

In order to maintain the growth of the Japanese economy despite an aging population, it will be necessary to generate "product innovation" that creates products and services with higher added value, as well as "process innovation" that produces existing products and services more efficiently. Efforts by Japanese companies to innovate, however, have been half-hearted. According to the Report on the Japanese National Innovation Survey 2018 implemented by the Ministry of Education, Culture, Sports, Science and Technology's National Institute of Science and Technology Policy (NISTEP), in the three years from 2015 to 2017, while 34% of companies engaged in product innovation or business process innovation, 62% did not engage in any innovation efforts at all. The largest factor cited as hampering the achievement of innovation and the implementation of efforts towards it is "an insufficient number of capable personnel within the company," whereas financial constraints such as insufficient internal capital or difficulty in procuring outside capital are not mentioned as significant factors. This implies that liquidity constraints are not impeding innovation efforts, but, rather, that innovation is not a priority for companies to begin with and that companies are inattentive to the allocation of corporate resources such as the acquisition of high-level personnel with the specialized expertise and knowledge required for serious innovation efforts.

If we consider that highly-skilled personnel with high-level knowledge are holders of doctorate degrees, we see that in the NISTEP survey the ratio of companies employing at least one person with a doctorate degree remains low among companies not engaged in innovation efforts: 2% of small businesses, 4% of medium-sized businesses, and 9% of large businesses. According to NISTEP's 2012 Survey on Research Activities of Private Corporations, one reason why the utilization of holders of doctorate degrees at private companies is stagnant is the high reported rate of businesses claiming that "it is more effective to increase the abilities of personnel through company education and training" and that "such personnel may have expert knowledge in a particular field, but such knowledge cannot readily be applied at a company."

NISTEP's Yuya Ikeda and I have done research on the relationship between doctorate degree holders and rates of achieved innovation using the data from the Fourth Round of the Japanese National Innovation Survey (Ikeda and Inui 2018). There is the possibility that other corporate characteristics influence the achievement of innovation, but our research controlled for these factors in the estimation, and showed a positive effect of the presence of doctorate holders on achieving product and process innovation. Our research results indicate that compared to companies without doctorate holders, companies with such personnel have a probability of achieving product innovation that is eleven points higher and a probability of achieving process innovation that is seven to eight points higher.

As is evident from the above, in order to effectively utilize highly-skilled personnel it is necessary to proactively engage in the introduction of business management and human resource management methods that are capable of producing innovation. At the same time, efforts are required to cultivate highly-skilled personnel with the expertise and abilities desired by companies, by promoting advanced, joint research between businesses and universities, training personnel through dispatching lecturers to universities and supplying teaching materials.

2. Improved Personnel and Business Management Promotes IT Utilization

In comparison to the United States, IT investment in Japan is strikingly lagging in IT-utilizing industries and has not significantly contributed to increases in productivity growth. In terms of IT investment trends in the distribution sector, a representative IT-utilizing industry, IT investment and value-added ratios have drastically increased since 1991 in the US, whereas in Japan both have remained nearly flat since 1991 (Fukao et al. 2016).

So why is IT use stagnant? It is highly likely that here, too, the problem lies with business management and human resource management methods. According to the International Foundation for Information Technology's Survey Report on IT Usage of Japanese Firms (May 2015), in a survey of 615 domestic businesses on the state and effects of IT utilization, "insufficient IT expert personnel" and "insufficient personnel able to communicate with the IT division" were cited as the most important factors for current IT utilization issues. It can be deduced that, as with holders of doctorate degrees, failure to secure and utilize IT expert personnel is one reason why businesses hesitate in introducing IT.

In the current situation of a grave labor shortage, there is an urgent need for increased utilization of IT and similar advanced technologies to improve productivity, as securing personnel will remain difficult. Inui et al. (2019) have demonstrated the relationship between business management and performance in nursing care facility services among nursing service providers, especially in intensive care homes for the elderly, which occupy a preeminent position in such services. Prior research in the United States has also shown that labor productivity and quality of services are higher for providers with superior management practices (Bender et al. 2018; Bloom et al. 2015). We carried out a business management and human resource management survey based on the survey items in prior research, but adapted to the items appropriate for Japanese management forms. We surveyed intensive care home operators located in Tokyo, Kanagawa Prefecture, Saitama Prefecture, and Chiba Prefecture. We then used the survey results to quantify the level of business management and human resource management of each care home with a number between one and four as a management score. A higher score shows a higher level of business management and human resource management.

The results of an analysis using these management scores demonstrate that improving business management and personnel management abilities encourages the introduction of IT and robots. Specifically, our results show that an increase in the management score by one point raises the probability of introducing IT by approximately 20% and the probability of introducing robots by approximately 15%. In this survey, as well, there were many care homes that cited "there are few employees who are able to use IT well" and "there are few employees with the knowledge to introduce IT devices" following "the cost of introducing IT is too high" as factors impeding the introduction of IT. This suggests that in order to promote the utilization of IT at care homes for the elderly, it is necessary to consider policies aimed at improving their business management and personnel management abilities.

November 11, 2019
  • Ikeda Yuya, Tomohiko Inui (2018) "PhDs Holders and Innovation in Firms: An Analysis Using the Japanese National Innovation Survey," NISTEP DISCUSSION PAPER No.158.
    DOI: http://doi.org/10.15108/dp158
  • Inui, Tomohiko, Kazuyasu Kawasaki, Yukiko Ito, Tsutomu Miyagawa, Toshiki Mano (2019) "Management Practices and Labor Productivity in Intensive Care Homes for the Elderly," RIETI Discussion Paper Series 19-J-049.
  • National Institute of Science and Technology Policy (2016) "Report on the Fourth Round of the Japanese National Innovation Survey," NISTEP REPORT No.170.
    DOI: http://doi.org/10.15108/nr170
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    DOI: https://doi.org/10.15108/nr182
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  • Fukao, Kyoji, Kenta Ikeuchi, Young Gak Kim, and Hyeong Ug Kwon (2016) "Why Was Japan Left Behind in the ICT Revolution?" Telecommunications Policy, 40(5), 432-449.

December 11, 2019