The article is published in The Business Times on 03 February 2015.
If the Productivity and Innovation Credit scheme can address broader innovation and transformative activities, it could lead to activities that bring about change.
The next time you check into a hotel in Europe or the US, chances are that you would be able to bypass the traditional stop at the front desk, do a self-check-in at an e-kiosk, and go straight to your room.
The same efficiency that we now associate with automated machines (ATMs) at banks and online check-ins for flights is now reaching the hotel world.
Such automated check-in systems may soon be on offer in Singapore too. In October last year, it was announced that Far East Hospitality's Village Katong Hotel was working with the Singapore Tourism Board to test-bed a self-check-in system. In a typical system, guests check in by computer or phone before they arrive and enter their expected arrival time. A barcode is sent to the traveller to print out or display on his phone. At the hotel, the guest scans the barcode at a kiosk and types in the number of keys needed. The machine assigns a room and spits out the plastic key cards, and the guest can head upstairs.
Such system adjustments enable hotels to better cater to the changing needs of today's global travellers. They also allow manpower to be more optimally deployed.
Since Budget 2010, the government's economic policies have focused on reducing reliance on foreign workers and encouraging businesses to invest in improving productivity, skills and innovation. The aim was a 2 to 3 per cent annual productivity growth, leading to a 30 per cent increase in wages over 10 years.
Five years on, with no productivity improvements in sight, one cannot help but wonder why the various schemes installed have not driven better outcomes. KPMG's recent poll of Singapore-based businesses shows that productivity schemes such as the Productivity and Innovation Credit (PIC) scheme, is being used more to defray operating expenses rather than support truly transformative activities.
The PIC is probably the government's most important scheme to promote productivity and innovation: It reaches all businesses and is probably the most well-known among the productivity schemes. The scheme doesn't come cheap: S$1.06 billion was set aside in Budget 2014 for the PIC alone. For all its costs, can the PIC be made more effective in promoting meaningful productivity growth?
The PIC helps businesses to buy self-check-in kiosks or iPads, but generally does not subsidise costs of overhauling processes or the introduction of innovative practices that drive significant productivity advances. Business transformation, the end-goal of the productivity drive, requires more than a step-change. It involves a fundamental rethink of value offering for some businesses. For others, it calls for job redesign and remapping of the workflow.
The hotel industry's experience is by no means unique. The PIC in its current form appears to catch only the lowest-hanging fruits, encouraging the mass accumulation of technology, but perhaps little else. Based on the latest guidelines by the Inland Revenue Authority of Singapore (IRAS), the PIC does not recognise innovation unless it encompasses a "revolutionary" or "breakthrough" scientific or technological discovery. While other schemes such as the Capability Development Grants may help cover other aspects of business transformation, such schemes are not sufficiently broad-based as they require a review process before the grants are approved.
Innovative activities come in many forms. SME Magazine recently featured an employee recognition scheme by the Lo & Behold Group, which owns several large bars and restaurants in Singapore. As its snazzy name suggests, "Catch Me Doing Right" celebrates good employee performance under different themes each month, based on the company's service credo.
To showcase gains in staff retention and productivity, the Lo & Behold Group is currently compiling a book based on its employees' service stories, called the Book of Awesomeness. Is that innovative? Many would argue such programmes bear no tangible link to productivity gains. Yet, productivity isn't just about hardware - the computers and equipment that drive operations. It is equally about people and processes: management and employees, as well as behaviours and workflows that make a business more productive.
Productivity schemes, especially the PIC, can do more to address this. Somewhere between buying an automated check-in machine and mapping the human genome lie a whole spectrum of processes that should be recognised as helping raise productivity and innovation. If the "I" in PIC can support innovative activities that do not require breakthrough scientific discoveries, it would significantly help address the problem.
Company management might need external help to learn industry better practices, or to develop their business models and processes to suit changing market needs.
Staff would need to buy into and understand how the new systems work. They would also need to believe that the new processes work in their favour. In the case of hotels, automated transactions free up manpower, allowing staff to create more meaningful interactions with guests to deliver differentiated services. Deeper, multi-skills would translate not only into higher productivity, but also better pay.
For business transformation to occur, a complete rethink of business models, processes and manpower deployment is often required. Technology, while necessary, is but one part of the larger equation. If Budget 2015 can revamp schemes such as the PIC to address broader innovation and transformative activities, perhaps it will lead to activities that really lead to change, instead of merely funding the next computer upgrade.
The article is contributed by Harvey Koenig, Tax Partner at KPMG in Singapore. The views expressed are his own.