Or­gan­i­sa­tions need to act ag­gres­sively

Shift­ing the fo­cus of their dig­i­tal tal­ent

The Star Early Edition - - DIGITAL ECONOMY - Yu­sof See­dat Yu­sof See­dat is the di­rec­tor for growth mar­kets at Ac­cen­ture Re­search.

IN SOUTH Africa, the dig­i­tal econ­omy’s growth from 2010 to 2015 has been neg­li­gi­ble, how­ever growth is ex­pected to ac­cel­er­ate by 12.1 per­cent from 2016 to 2020 (ver­sus the global av­er­age of 8.3 per­cent) in­dica­tive of the strong mo­men­tum South Africa is gain­ing as it ro­tates to the new dig­i­tal era.

To­gether with gov­ern­ment’s plans to boost the cur­rent 52 per­cent in­ter­net pen­e­tra­tion rate, the op­por­tu­ni­ties pre­sented by the dig­i­tal econ­omy look promis­ing for South Africa’s fu­ture growth.

The dig­i­tal econ­omy now con­trib­utes up to 23 per­cent of the gross do­mes­tic prod­uct (GDP) world­wide (19 per­cent in South Africa), pow­er­ing growth and cre­at­ing jobs – as an ex­am­ple the de­vel­op­ment of mobile ap­pli­ca­tions alone has cre­ated nearly 500 000 new jobs in the US and the mobile ecosys­tem sup­ported 3.8 mil­lion jobs in Africa in 2015, im­ply­ing strong em­ploy­ment growth prospects. In ad­di­tion, busi­nesses adopt­ing dig­i­tal are ben­e­fit­ing sig­nif­i­cantly, ac­cord­ing MIT Sloan re­search, com­pa­nies that are adapt­ing to a dig­i­tal world are 26 per­cent more prof­itable than their in­dus­try peers.

The rise of the dig­i­tal econ­omy is de­vel­op­ing at pace glob­ally and is now prob­a­bly the sin­gle most im­por­tant driver of in­no­va­tion and pros­per­ity.

Ac­cord­ing to Ac­cen­ture’s Dig­i­tal dis­rup­tion: The growth mul­ti­plier re­port, de­spite chal­leng­ing con­di­tions glob­ally, the dig­i­tal econ­omy’s con­tri­bu­tion to GDP has been grow­ing at a com­pounded an­nual growth rate of 6 per­cent from 2010 to 2015. Ex­clud­ing dig­i­tal for ex­am­ple the non-dig­i­tal re­lated com­po­nent comes in at just 1.4 per­cent of growth.

Adding value

Most mea­sures of the dig­i­tal econ­omy have fo­cused largely on tech­nol­ogy in­fra­struc­ture, IT and com­mu­ni­ca­tions sec­tor in­vest­ment, e-com­merce, as well as broad­band pen­e­tra­tion rates. But this does not ac­count for the whole scope of dig­i­tal.

Ac­cen­ture and Ox­ford Eco­nomics de­vel­oped a new model that as­sesses how dig­i­tal is adding value through­out the en­tire econ­omy – by trac­ing the use of dig­i­tal skills, equip­ment and in­ter­me­di­ate goods and ser­vices in the pro­duc­tion of all goods and ser­vices – we have been able to de­rive a more com­pre­hen­sive and rounded view of what con­sti­tutes a dig­i­tal econ­omy.

Our re­search found that 28 per­cent of out­put in ma­ture mar­ket economies is dig­i­tal – com­pared to the far smaller 5.2 per­cent of ma­ture mar­ket economies that would have been con­sid­ered dig­i­tal us­ing tra­di­tional meth­ods – a deeper dive into the data high­lights that even greater gains are to be had in pro­duc­tiv­ity and growth.

Look­ing at in­di­vid­ual coun­tries for most economies, the dig­i­tal share of GDP has the po­ten­tial to grow by around three per­cent­age points be­tween 2015 and 2020. The US leads the rank­ing, with a dig­i­tal econ­omy val­ued at around $5.9 tril­lion (R798.5trln), which equates to 33 per­cent of GDP. Fortythree per­cent of em­ploy­ment in the US work­force is dig­i­tal. If we mea­sure the ac­cu­mu­lated in­vest­ment in soft­ware, hard­ware and com­mu­ni­ca­tions equip­ment, dig­i­tal cap­i­tal stock rep­re­sents 26 per­cent of to­tal stock.

By con­trast, South Africa’s labour force is 36 per­cent dig­i­tal, how­ever only 6 per­cent of its cap­i­tal stock is dig­i­tal – a rel­a­tively smaller cap­i­tal in­vest­ment than most other economies – re­sult­ing in a dig­i­tal econ­omy worth just 19 per­cent of GDP.

As­sess­ing the dig­i­tal econ­omy of­fers in­sight into its size and scope. But while it is vi­tally im­por­tant to the over­all well-be­ing of an econ­omy to cal­cu­late how much has been spent on in­for­ma­tion, com­mu­ni­ca­tions and tech­nol­ogy or ac­count for the num­ber of dig­i­tal jobs, there is more to achiev­ing a high-per­form­ing econ­omy than ac­cu­mu­lat­ing dig­i­tal as­sets and skills. Broad-based ap­pli­ca­tion of dig­i­tal tech­nolo­gies – in­clud­ing the en­abling en­vi­ron­ment, com­pany be­hav­iours and con­sumer at­ti­tudes – mat­ters in driv­ing pro­duc­tiv­ity gains.

Our re­search also shows that a sta­tis­ti­cally sig­nif­i­cant re­la­tion­ship ex­ists be­tween dig­i­tal den­sity or the ex­tent to which economies use dig­i­tal tech­nolo­gies for eco­nomic ac­tiv­ity and to­tal fac­tor pro­duc­tiv­ity. A 10-point in­crease in dig­i­tal den­sity is as­so­ci­ated with an ap­prox­i­mately 0.4 per­cent­age point in­crease in to­tal fac­tor pro­duc­tiv­ity growth for ad­vanced economies, and a 0.65 per­cent­age point in­crease in to­tal fac­tor pro­duc­tiv­ity for high-growth emerg­ing mar­kets.

So how can busi­ness lead­ers and pol­icy mak­ers de­liver a 10-point in­crease in a way that works best for their economies?

Bet­ter re­turns

By un­der­stand­ing which ar­eas need im­prove­ment, high-per­form­ing economies could re­alise bet­ter re­turns by in­vest­ing in the op­ti­mal com­bi­na­tion of three levers: dig­i­tal skills, dig­i­tal tech­nolo­gies and dig­i­tal ac­cel­er­a­tors. For ex­am­ple, coun­tries may have in­vested heav­ily in dig­i­tal tech­nolo­gies, but have ne­glected to pre­pare for the work­force of the fu­ture.

The levers con­sist of a col­lec­tion of broad and spe­cific in­di­ca­tors – dig­i­tal skills mea­sure el­e­ments such as the in­for­ma­tion, com­mu­ni­ca­tions and tech­nol­ogy ex­per­tise in the work­force or the use of dig­i­tal to fa­cil­i­tate re­mote work­ing. Dig­i­tal tech­nolo­gies in­clude mobile con­nec­tiv­ity and the econ­omy’s ca­pac­ity to make use of the in­dus­trial In­ter­net. Fi­nally, dig­i­tal ac­cel­er­a­tors in­clude wide rang­ing pa­ram­e­ters such as mak­ing use of the cloud or ac­cess to fi­nance or the econ­omy’s reg­u­la­tory en­vi­ron­ment.

Choos­ing the right com­bi­na­tion of levers to max­imise im­pact opens up the po­ten­tial for coun­tries to bet­ter ex­ploit the dig­i­tal op­por­tu­nity – es­pe­cially those dis­ad­van­taged by size. Our anal­y­sis shows a clear link be­tween dig­i­tal skills, tech­nolo­gies and ac­cel­er­a­tor levers and to­tal fac­tor pro­duc­tiv­ity with the im­pact of dig­i­tal ac­cel­er­a­tors be­ing a key in­flu­encer of undis­cov­ered value. Ad­just­ing these levers can en­hance over­all dig­i­tal in­ten­sity and act as a growth mul­ti­plier.

Plat­form busi­ness mod­els also rep­re­sent one of the great­est op­por­tu­ni­ties for dig­i­tally driven growth. These mod­els al­low or­gan­i­sa­tions to cre­ate new mar­kets and un­cover value by bring­ing part­ners and cus­tomers to­gether across a com­mon dig­i­tal plat­form.

While “born dig­i­tal com­pa­nies” dom­i­nate the plat­form econ­omy to­day, tra­di­tional in­dus­try in­cum­bents could be among the great­est ben­e­fi­cia­ries of plat­form strate­gies by com­bin­ing their cus­tomer reach and prod­uct port­fo­lios with the net­work­ing power of the plat­form to of­fer new value added ser­vices.

Dig­i­tal econ­omy

No econ­omy will re­main com­pet­i­tive if they do not in­vest in de­vel­op­ing the dig­i­tal work­force.Take a mo­tor me­chanic as an ex­am­ple – the com­po­si­tions of cars to­day de­mand that the me­chanic be skilled in not only the me­chan­ics but also the elec­tron­i­cal as­pects to be able to ser­vice or re­pair a car.

In ad­di­tion, chil­dren start­ing school this year will po­ten­tially be work­ing in the dig­i­tal econ­omy by 2030, there­fore ed­u­ca­tion needs to be­gin at the foun­da­tion level. This fu­ture work­force will re­quire new skills types that en­able them to ma­nip­u­late and de­velop new and emerg­ing tech­nolo­gies to be com­pet­i­tive in en­ter­ing the job mar­ket. Re­form­ing ed­u­ca­tion and in­vest­ing in skills is there­fore crit­i­cal. As the cus­to­dian of labour pol­icy, the gov­ern­ment must cre­ate the en­vi­ron­ment where busi­nesses are en­cour­aged and in­cen­tivised to start and grow new ini­tia­tives to sus­tain­abil­ity.

Dig­i­tal is not just a com­po­nent of the econ­omy any­more, it is be­com­ing the econ­omy and while busi­nesses and gov­ern­ments are turn­ing to dig­i­tal to se­cure faster growth amid an un­cer­tain global eco­nomic out­look, the size of the dig­i­tal econ­omy is no guar­an­tee of growth. Or­gan­i­sa­tions need to act ag­gres­sively in shift­ing the fo­cus of their dig­i­tal tal­ent and tech­nol­ogy from mak­ing ef­fi­cien­cies to cre­at­ing en­tirely new busi­ness mod­els. That re­quires not just greater dig­i­tal in­vest­ments, but the de­gree to which dig­i­tal prac­tices, ca­pa­bil­i­ties and skills are em­bed­ded into the fab­ric of economies.

The rise of the dig­i­tal econ­omy… is now prob­a­bly the sin­gle most im­por­tant driver of in­no­va­tion and pros­per­ity. .

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