By Bruno Berthon & Lito Tayag
THE digital economy is bigger than you think. Much bigger.
Some call the digital economy the “Second Machine Age,” “Industry 4.0,” and the “4th Industrial Revolution.” No one is playing down the future impact of digital, but there is a danger that many are underestimating its prevalence today.
New research from Accenture Inc. reveals the digital economy represents one-third of the US economy, equivalent to $5.9 trillion. China’s digital economy represents less than 15 percent of its current gross domestic product (GDP).
These recent data matter. Too many businesses and organizations assume that digital is something that will happen to them. They expect technology-driven start-ups to disrupt their traditional business models and threaten their competitive position. That may be true. But the breadth of digital assets and skills means that incumbent organizations may have a greater digital base to build on. It tells us they can be more aggressive and proactive in disrupting markets themselves.
Most estimates of the digital economy rely predominantly on expenditure on information and communications technology (ICT). Our measure is more comprehensive. It looks at the proportion of occupations and employment that have digital skills that are important to those jobs. Forty-three percent of US employment can be considered digital, for example. It includes how software and hardware are delivering value in the entire economy. Accenture estimates that 26 percent of US accumulated capital stock can be deemed to be digital.
None of this means that becoming a digital business will be any less effortless than we had thought. But it provides some confidence that the foundation is stronger in many countries than is presumed. As investors and companies consider their next steps in digital transformation, it is important however to address three myths:
Myth 1: A bigger digital economy means greater economic growth.
Just as the size of a country’s manufacturing sector does not guarantee any particular rate of growth, so to with the digital economy. A larger digital slice of the pie does not automatically increase the size of the pie. It is the application of digital investments that matters and how they can generate greater productivity and growth.
Accenture explores how digital skills, technologies and other accelerator factors can be used to drive such growth. Should American organizations pull these three levers in an optimal combination, we suggest that they could collectively add another $421 billion to US GDP by 2020, equivalent to a 2.1-percent boost. That’s the difference between business as usual and smarter use of existing digital investments.
Myth 2: All we need is greater technology investment.
In order to convert existing digital investments into higher rates of growth, we must remember that organizations and economies are at different points of maturity. In order for the US to pull off its 2.1-percent uplift to GDP, for instance, Accenture suggests that just 10 percent of its extra effort should be devoted to digital technology. Instead a good 60 percent of improvements to the application of digital should be focused on skills.
Myth 3: The online giants will continue to dominate the digital economy.
Major brands have reshaped multiple markets. They have done so by mastering the so-called platform economy whereby they use the network effects of bringing suppliers, customers and partners together to deliver new forms of value.
The top 15 of these platform players have a collective markets cap of $2.6 trillion. European policy-makers have expressed concern at their dominance.
But we now see the opportunity for traditional analog companies to benefit from digital platforms in similar ways. By generating data from their network of products and partners, they can deliver rich new services themselves.
Exposing these myths is important if we are to mobilize the many sectors that have yet to be disrupted by digital and to ensure policy-makers support them by channeling investments the right way. The size of the underlying digital economy is significant and leaves no excuses to delay.
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Bruno Berthon is Accenture managing director for digital strategy and Lito Tayag is country managing director of Accenture for the Philippines. Berthon and Tayag’s views do not necessarily reflect that of the BusinessMirror’s.
