Next Productivity Wave Will Refuel Technology Growth

I recently saw a chart of US productivity, which jumped out at me, suggesting that we are now at an inflection point. 

The trend in productivity has been down, with some 3 years of declines in the year over year rate of productivity gains.  The chart below shows the annual rate of change for non-farm business output per hour.  The source is the U.S. Bureau of Labor Statistics. 

Cisco’s John Chambers has been talking this year about how Web 2.0 tools, particularly around collaboration can be a boost corporate productivity.  I believe that there is a broader range of relatively recent improvements in technologies from core enterprise software to communications equipment that can fuel a significant boost to productivity over the next few years. 

Many are concerned about the credit crunch having a wider impact than just consumer spending.  There has been speculation that financial institutions might cut budgets.  I have a different forecast.  I believe enterprise IT spending will keep increasing if there as we see increased returns on investment through productivity gains. 

I’ve been tracking many enterprise software companies, including some in our portfolio, that deliver significant ROI to customers.  The current generation of software is just beginning to penetrate the market, suggesting significant potential for productivity enhancements over the next few years, helping to accelerate adoption of technology for venture-backed companies, both private and public.