No business or government leader today would question that digital technologies drive growth and productivity. But ask them quite how cloud, analytics or the Industrial Internet of Things boosts performance and they may struggle to explain. As decision makers invest ever greater sums in digital initiatives, there’s a danger that their returns will continue to disappoint unless they develop a more granular understanding of how these new technologies sweeping through their markets enhance a range of business and economic activities.
A recent research study shows that, with a modest increase in its ‘digital density’, the UK could make productivity gains that add as much as $57bn (£38bn GBP) to its economic output by 2020. Digital density, a catch-all phrase that indicates the extent to which digital technologies penetrate a country’s businesses and economy, comprises of several elements such as the pervasiveness of digital skills in the economy, the use of cloud or other technologies to streamline processes, and the volume of transactions conducted online.
The UK ranks in fifth place out of 17 countries in the Accenture’s Digital Density Index; the Netherlands, U.S., Sweden, and Finland are the other countries in the top five, while Japan, France and Italy join Brazil and India at the low end of the rankings.
On the surface, the UK is one of the most digitally-ready countries in the study. Certain industry sectors in the UK including consumer goods and services, and chemicals/refined petroleum are arguably at their most digitalised. Further, the UK has the largest Information and Communications Technology (ICT) sector in Europe at 6.7% of GDP. One of the UK’s great strengths is its ability to create new digital markets. Much of its high digital performance depends on its long standing underlying enterprise friendly environment, flexible labour market and organisational agility.
But the study reveals a number of disconnects. UK households are among the best connected in Europe but UK companies are underinvested in superfast internet. The UK’s consumer markets are amongst the most digitised in the world but its ability to digtially source and mange labour, capital and other business appears to be behind the curve. The environment is highly welcoming to digital enterprise but firms are often slow to adopt new digital processes like cloud, RFID and are not well advanced in crowdsourcing to support innovation or crowdfundingto improve access to finance.
Based on the research findings, business leaders need to collaborate with government to make a range of interventions across the economy to boost the UK’s digital density profile and increase GDP. A few ways British companies can make a difference at a macro and micro level:
– Make the most of mobile: UK firms lag behind their advanced economy counterparts in their mobile connections with consumers. Matching Australian, Swedish and US levels would place the UK in the top half of the Digital Density Index.
– Invest more in telecoms: The £200 per capita invested in telecoms in the UK is dwarfed by the £340 per capita spent in the Netherlands, at the European frontier.
– Use digital to collaborate: Expanding the use of digital platforms for collaboration within and between companies would raise the UK’s ranking. For instance, companies like Accenture and Royal Philips have come together to create a proof-of-concept demonstration that uses a Google Glass head-mounted display for researching ways to improve the efficiency of surgical procedures. This solution could provide physicians with hands-free access to critical clinical information.
– Get more from the Industrial internet of Things (IIoT): Machine to machine communication in the UK is not as advanced as some European competitors and a wide range of other IIoT technologies stand to deliver greater productivity as well as entirely new service revenues based on the data generated by devices and products.
– Tap digital to raise capitals: Digital platforms are not extensively used in the UK to access capital, compared to other advanced economies like The Netherlands, Sweden, Australia and the US, putting its small enterprises at a disadvantage at a time when traditional lending to this sector has dried up.
The digital investment dilemmas facing investors and policy makers reflect the fact that today’s technologies are no longer distinct innovations that boost performance in certain processes or functions. They are pervasive. They are available to be harnessed in all areas of business and economic activity. They don’t just improve operational efficiency. They create entirely new market opportunities.
Whether decision-makers choose to take full advantage of this potential depends on their detailed understanding of what constitutes digital density. That is why digital density should rank alongside access to natural resources, a good transportation system and skilled people in the list of discriminating criteria that business leaders must consider when making investment decisions.
Narry Singh is a Managing Director in Accenture Strategy and responsible for leading digital strategy in Europe, Latin America and Africa.
