Perspective   Karim Sabbagh              Roman Friedrich              Bahjat El-Darwiche              Milind SinghMaximizi...
Contact InformationAmsterdam                         David Tusa                        Melbourne                      Riya...
EXECUTIVE        Policymakers today face a different environment for information                 and communications techno...
KEY HIGHLIGHTS•	 The world is witnessing an   accelerated pace in digitization—   the mass adoption of smart and   connect...
Booz & Company   3
Digital technologies and    applications contribute to the     eco­ omic strength, societal        n      well-being, and ...
DEFINING AND                                             We believe the extent of a country’s                             ...
Understanding Digitization: The Stages                   advanced, and then isolated four                          These g...
Constrained economies—those with         show minor advances in the speed,         gressed to the next level of digitizati...
8   Booz & Company
ASSESSING THE                                           After developing a methodology to                                 ...
countries using a classical production                     triggers a 0.50 to 0.62 percent gain            0.25 percent.13...
transition to more advanced stages.       lions of jobs in the coming decade in       but in emerging economies that areCo...
We found that increasing digitization       As a result, it would appear that, as       in the HDI. As economies develop,s...
Exhibit 5   Societal Well-Being and Digitization  DIGITIZATION AND THE BETTER LIFE INDEX (34 OECD COUNTRIES)              ...
14   Booz & Company
Governance Impact                         measured by the UNDP as a subcom-           Additionally, as expected, e-govern-...
such as public education. As previ-                               is projected to level out in developed             varie...
KEY POLICY       The digitization index and analysis                 will be an invaluable tool for countries             ...
Elevating Digitization on the National        policymakers need to create a detailed      Countries’ approach to ICT gov-A...
Booz & Company   19
To reach the advanced stage   of digitization and realize  the wide-ranging benefits it offers, countries need support   f...
Developing countries can accelerate          mation technology is still lagging. For    the creation of small and medium-d...
In some cases, excessive competition      competition in services. Similarly, in     literacy and skilled human
About the Authors                                                                                      Karim Sabbagh is a ...
ReferencesBroadband Prime. 2009. “Estonia Jumps on the FTTH                       Koutroumpis, P 2009. “The Economic Impac...
Endnotes1 See ITU’s World Telecommunication/ICT Indicators, the World            13                                       ...
The most recent             Worldwide Officeslist of our officesand affiliates, with        Asia                          ...
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Booz co maximizing-the-impact-of-digitization


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El-Darwiche, Bahjat; Friedrich, Roman; Sabbagh, Karim; Singh, Milind

With information and communications technologies more pervasive than ever, policymakers are faced with the challenge of ensuring individuals, businesses, and governments are making the best possible use of networks and applications, while also focusing their efforts on digitization.

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Booz co maximizing-the-impact-of-digitization

  1. 1. Perspective Karim Sabbagh Roman Friedrich Bahjat El-Darwiche Milind SinghMaximizing the Impactof Digitization
  2. 2. Contact InformationAmsterdam David Tusa Melbourne RiyadhSteven Pattheeuws Partner Simon Gillies Hilal HalaouiSenior Executive Advisor +971-4-390-0260 Partner Partner+31-20-504-1900 +61-3-9221-1903 Milind SinghBeirut Principal Mexico City São PauloBahjat El-Darwiche +971-4-390-0260 Carlos Navarro Ivan de SouzaPartner Partner Senior Partner+961-1-985-655 +52-55-9178-4209 Düsseldorf Michael PetersonRamez Shehadi Partner Milan ShanghaiPartner +49-89-54525-640 Luigi Pugliese Andrew Cainey+961-1-985-655 Partner +39-02-72-50-93-03 +86-21-2327-9800 Munich andrew.cainey @booz.comCopenhagen Roman FriedrichTorsten Moe Partner New Delhi TokyoPartner +49-211-3890-165 Ashish Sharma Toshiya Imai+45-3318-70-02 Principal +91-124-4998-705 +81-3-6757-8659 Helsinki toshiya.imai@booz.comDallas Santeri KirveläJoseph Sims Principal New York ViennaPartner +358-9-6154-6666 Christopher Vollmer Klaus Hölbling+1-214-712-6636 Partner +1-212-551-6794 +43-1-518-22-907 Houston klaus.hoelbling@booz.comDubai Kenny KurtzmanKarim Sabbagh Senior Partner Paris ZurichSenior Partner +1-713-650-4175 Pierre Péladeau Alex Koster+971-4-390-0260 Partner +33-1-44-34-3074 +41-43-268-2133 Madrid alex.koster@booz.comOlaf Acker Jose AriasPartner Partner+971-4-390-0260 jose.arias@booz.comRaul Katz and Sandeep Ganediwalla also contributed to this Perspective.Previously published in “The Global Information Technology Report 2012:Living in a Hyperconnected World,” World Economic Forum, 2012. Booz & Company
  3. 3. EXECUTIVE Policymakers today face a different environment for information and communications technology (ICT) than the one for whichSUMMARY they designed policies. ICT technologies are far more pervasive than they were previously: More people today have access to a mobile phone than to electricity, powering exponential growth in global data generation.1 With ICT access approaching ubiquity, policymakers’ next challenge is to ensure that individuals, busi- nesses, and governments are making the best possible use of net- works and applications. Countries that have achieved advanced levels of digitization—the mass adoption of connected digital technologies and applications by consumers, enterprises, and gov- ernments—have realized significant benefits in their economies, their societies, and the functioning of their public sectors. Previous attempts to measure the impact access to public services. Finally, digitiza- of ICT have focused primarily on assess- tion allows governments to operate with ing the economic effects of widespread greater transparency and efficiency. access to either wireless or broadband technologies. But in developing a com- Policymakers have an important role to prehensive methodology to measure the play in ensuring that their countries are impact of digitization, Booz & Company progressing toward advanced stages of found greater benefits linked to grow- digitization. They need to acknowledge ing usage of digital technologies and where they currently stand and recognize applications, rather than access alone. the benefits of digitization. Finally, they We also found that benefits are not just need to shift focus away from access and economic, but encompass social and set into motion programs and plans that political spheres as well. Digitization focus on the widespread adoption and offers incremental economic growth: usage of technology. That includes elevat- countries at the most advanced stage of ing digitization on the national agenda, digitization derive 20 percent more in including the systematic planning and economic benefits than those at the initial tracking of their efforts; evolving sector stage. Digitization has a proven impact governance structure; adopting an eco- on reducing unemployment, improving system perspective; enabling competition; quality of life, and boosting citizens’ and stimulating demand.Booz & Company 1
  4. 4. KEY HIGHLIGHTS• The world is witnessing an accelerated pace in digitization— the mass adoption of smart and connected ICT by consumers, businesses, and governments.• Measuring digitization and its impact is essential for supporting policy-making and investment decisions.• Proposed econometric method- ology quantifies the impact on economic advancement, societal well-being, and government ef- fectiveness. DIGITIZATION: indicators to measure the extent to which ICT is being assimilated in• Digitization multiplies the benefits of connectivity, as it generates ICT’S NEXT societies. During most of the sector’s three times more economic EVOLUTION development, ICT stakeholders focused primarily on access, building benefit than broadband alone. the networks that today connect• Digitization contributes positively much of the planet; they devised to job creation, with a 10 percent metrics accordingly. In a world of increase in digitization reducing near ubiquity in terms of access, the unemployment rate by 0.84 The proliferation of digital technolo- policymakers need a new way to look percent. gies over the past two decades has been at the ICT sector. substantial, marking one of history’s• Countries in the advanced most rapid rates of adoption of new The second challenge concerns the digitization stage reap 20 percent technologies. The number of personal lack of tools to determine the impact more economic benefits than computers (PCs) in use worldwide that the mass adoption of connected countries at the start of their surged from 100 million in 1990 to 1.4 digital technologies and applications digitization journeys. billion by 2010. There were 10 mil- is having on societies and economies.• Policymakers need to lion mobile phone users in the world With practical, reliable tools to acknowledge where their in 1990; today there are more than 5 measure the benefits of digitization, countries currently stand and billion.2 The number of Internet users governments could potentially be set into motion programs grew at an even more rapid rate over more ambitious in developing and and plans that focus on the the same decades, from 3 million to 2 investing in the ICT sector. widespread adoption and usage billion.3 To put that into context, only of digitization. That includes two decades ago there were as many The third challenge is for policymakers elevating digitization on the Internet users in the world as people in to adopt new policy tools to acceler- national agenda, evolving the city of Madrid; today, there are as ate digitization and reap its accom- sector governance, adopting an many people online as are living in all panying benefits. Over the past two ecosystem perspective, enabling of Asia. The surge in ICT use has not decades, policymakers established rules sustainable competition, and been restricted to the developed world. to enhance access to communication stimulating demand. In Africa, for example, more than services—setting policies that introduce half a billion people today connect to competition and promote infrastruc- mobile networks.4 ture sharing, for example. Now they need to gain a similar understanding of The explosive growth of ICT services the ways in which they can encourage is presenting policymakers with three adoption and boost the usage of digital key challenges. The first challenge is applications by consumers, businesses, to establish standard performance and public institutions.2 Booz & Company
  5. 5. Booz & Company 3
  6. 6. Digital technologies and applications contribute to the eco­ omic strength, societal n well-being, and effective governance of a nation.4 Booz & Company
  7. 7. DEFINING AND We believe the extent of a country’s digitization can be measured across six • Usability9—the ease of use of digital services and the ability ofMEASURING key attributes: local ecosystems to boost adoptionDIGITIZATION • Ubiquity5—the extent to which of these services consumers and enterprises have • Skill10—the ability of users to universal access to digital services incorporate digital services into and applications their lives and businesses • Affordability6—the extent to which To measure digitization and chart its digital services are priced in a range evolution, we created a composite that makes them available to as score consisting of the six critical many people as possible attributes and measured these with data collected across 23 indicators • Reliability7—the quality of available with the aid of proxy measures digital services (see Exhibit 1).11 • Speed8—the extent to which digital services can be accessed in real timeExhibit 1Key Components of the Digitization Score Ubiquity - Fixed broadband penetration - Mobile phone penetration Extent to which consumers and enterprises - Mobile broadband penetration have universal access to digital services and applications - PC population penetration - 3G mobile connection penetration Affordability - Fixed-line installation cost - Fixed cost per minute Extent to which digital services are priced in a - Mobile connection fee range that makes them available to as many people as possible - Mobile prepaid tariff - Fixed BB Internet access tariff Reliability - Investment per telecom subscriber (mobile, broadband, and fixed) Quality of available digital services DIGITIZATION SCORE Speed - International Internet bandwidth (bits/second/Internet user) Extent to which digital services can be - % of Internet connections above 2 Mbps accessed in real time Usability - Internet retail as a % of total retail - E-government Web measure index Ease of use for digital services and the ability - % of individuals using the Internet of local ecosystems to boost adoption of these services - Data as a % of wireless ARPU - Domains by country per 100 inhabitants - IP addresses per 100 inhabitants - Social network unique visitors per month - Average SMS usage per customer Skill - Engineers per 100 inhabitants - % of labor force with more than secondary education Ability of users to incorporate digital services into their lives and businessesSource: ITU; Ovum; Euromonitor; Akamai; ILO (LABORSTA); Global Insight; UN; WCDM; Webometrics; Bgexpert; Internet World Stats; UNESCO; Wireless IntelligenceBooz & Company 5
  8. 8. Understanding Digitization: The Stages advanced, and then isolated four These groupings will allow policymak-We measured digitization for a distinct stages of digitization develop- ers to recognize their nation’s cur-sample of 150 countries on a scale ment: constrained, emerging, transi- rent level of digitization and provideof 0 to 100, with 100 being the most tional, and advanced (see Exhibit 2). perspective on how to progress.Exhibit 2Stages of Digitization, 2010 Digitization Levels 70 Constrained Emerging Transitional Advanced 60 Level of digitization 50 40 (2010) 30 20 10 0 Stages of digitization 150 countries CONSTRAINED EMERGING TRANSITIONAL ADVANCED Afghanistan Kenya Albania Argentina Australia Algeria Kyrgyzstan Antigua and Barbuda Bahrain Austria Angola Lao P .D.R. Armenia Barbados Belarus Aruba Lesotho Azerbaijan Bulgaria Belgium Bangladesh Madagascar Bosnia and Herzegovina Chile Canada Belize Mali Botswana Colombia Czech Republic Benin Moldova Brazil Croatia Denmark Bhutan Morocco China Cyprus Finland Bolivia Mozambique Costa Rica Estonia France Brunei Namibia Ecuador Iran Germany Burkina Faso Nepal Georgia Jordan Greece Burundi Niger Lebanon Kuwait Hong Kong Cambodia Nigeria Mongolia Latvia Hungary Cameroon Pakistan Panama Macao Iceland Cape Verde Paraguay Peru Malaysia Ireland Comoros Rwanda Saint Lucia Malta Israel Côte dIvoire Sao Tome and Principe T.F.Y.R. Macedonia Mauritius Italy Cuba Senegal Trinidad and Tobago Mexico Japan Djibouti South Africa Venezuela Montenegro South Korea Dominican Republic Sri Lanka Oman Lithuania Egypt Suriname Philippines Luxembourg El Salvador Swaziland Qatar Netherlands Ethiopia Syria Saudi Arabia New Zealand Fiji Thailand Serbia Norway Gabon Togo Seychelles Poland Ghana Tunisia Turkey Portugal Guatemala Uganda Ukraine Romania Guyana Uzbekistan Uruguay Russia Honduras Vanuatu Singapore India Vietnam Slovak Republic Indonesia Yemen Slovenia Iraq Zambia Spain Kazakhstan Sweden Switzerland Taiwan United Arab Emirates United Kingdom United StatesSource: ITU; Ovum; Euromonitor; Akamai; ILO (LABORSTA); Global Insight; UN; WCDM; Webometrics; Bgexpert; Internet World Stats; UNESCO; Wireless Intelligence; TelecomAdvisory Services; Booz & Company analysis6 Booz & Company
  9. 9. Constrained economies—those with show minor advances in the speed, gressed to the next level of digitizationa digitization score below 25— usability, and skill indexes. development. Not only has the paceface challenges in realizing basic quickened, but the jump in develop-digitization building blocks such as Advanced is the most mature stage ment has also been more marked.widespread access and affordability. of digitization, achieved with a score From 2004 to 2007, the averageIn these nations, services remain greater than 40. These countries have growth in the digitization score wasexpensive and limited in reach. made significant strides in addressing seven points. From 2007 to 2010, the ICT usability and developing a talent average jump was 10 points.Emerging economies—those with a base to take advantage of availablescore between 25 and 30—largely technologies, products, and services This acceleration stems from ahave addressed the affordability while improving the speed and qual- number of factors. Emerging countrieschallenge and have achieved ity of digital services. now can follow the path that devel-significant progress in providing oped nations have already blazed,affordable and widespread access. The Accelerating Pace of Digitization learning from their best practices.However, the reliability of services The pace of digitization and move- They also can take advantage ofin emerging digitization nations ment between stages is accelerating mature technologies and markets,remains below par and capacity rapidly. Developed countries such as and the resulting price limited. Germany, the United Kingdom, and Furthermore, acceleration between the United States took nearly four stages can stem from increased liberal-Transitional is the next digitization years on average to move from the ization and the growing affordabilitystage, encompassing those coun- emerging to the transitional stage of and availability of digital technologiestries with a digitization score in the digitization; now, developing countries and skills. This hastens the implemen-range of 30 to 40. Countries in the such as the United Arab Emirates, tation and usage of new technologiestransitional stage have addressed Kuwait, and Estonia are making that and the deployment of supportingthe reliability challenge and provide same amount of progress in less than infrastructure.citizens with access to ubiquitous, two years. Overall, between 2004 andaffordable, and reasonably reli- 2007, countries registered 39 stage In sum, the whole world is movingable services. Alongside their jump leaps; in the ensuing three-year period toward an advanced stage of digitiza-in reliability, transitional countries of 2007 to 2010, 65 countries pro- tion at a rapid clip.Booz & Company 7
  10. 10. 8 Booz & Company
  11. 11. ASSESSING THE After developing a methodology to determine a nation’s level of digitiza- Economic Impact Our analysis confirms that digitiza-IMPACT OF tion, the next step was to understand tion has a material economic impact,DIGITIZATION the contribution of digitization to eco- nomic strength, societal well-being, and which we assessed with three variables: growth in per capita GDP, job creation, effective governance (see Exhibit 3). and innovation. We analyzed 150Exhibit 3The Framework for Measuring Digitization’s Socioeconomic Impact COMPONENT SUBCOMPONENT METRIC Economy Impact of digitization GDP growth - GDP per capita: measures total output of a on the growth of the country on a per capita basis economy Job creation - Unemployment rate: monitors level of unemployment in the country Innovation - Global Innovation Index: evaluates progress of innovation readiness in countries IMPACT OF Society DIGITIZATION Impact of digitization Quality of life - OECD Better Life Index: based on 11 areas on the societal well-being of material living conditions of a country - Gallup Wellbeing Thriving Index: based on a daily assessment of peoples’ health and well-being Access to - UNDP Human Development Index (HDI): basic services based on standards of living conditions Governance Impact of digitization Transparency - Corruption Perception Index: monitors corporate on the public sector & political corruption in international progress E-government - E-government Development Index: measures digital interactions between government and citizens Education - Inequality-Adjusted Education Index: based on a subcomponent of the HDISource: World Bank; World Economic Forum; INSEAD 2011; OECD; Gallup Wellbeing Surveys; UNDP Human Development Report; Transparency International; UN PublicAdministration Network; Telecom Advisory Services; Booz & Company analysisBooz & Company 9
  12. 12. countries using a classical production triggers a 0.50 to 0.62 percent gain 0.25 percent.13 Thus the GDP impactfunction model to assess economic in per capita GDP. By contrast, from digitization is more than twiceimpact, controlling for a number of previous studies that focused mainly as large as the impact of broadbandvariables.12 on broadband penetration established penetration (see Exhibit 4). that a 10 percentage point increase inWe found that an increase in broadband penetration contributes a Additionally, the economic impact ofdigitization of 10 percentage points gain in per capita GDP of just 0.16 to digitization accelerates as countriesExhibit 4Digitization and GDP CONTRIBUTION TO GDP PER CAPITA GROWTH OF A 10 PERCENT INCREASE IN DIGITIZATION (PER STAGE) 0.59 0.62 0.50 0.51 Percent 0.16 Average broadband studies1 Constrained Emerging Transitional Advanced IMPACT OF DIGITIZATION ON GDP 395 272 +45% Constant 2005 US$ billions 108 2007–08 2008–09 2009–101 Average of OECD, Germany, Latin America, Brazil, Chile, and Malaysia.Source: Global Insight; Telecom Advisory Services; Booz & Company analysis10 Booz & Company
  13. 13. transition to more advanced stages. lions of jobs in the coming decade in but in emerging economies that areConstrained digital economies realize order to ensure that a booming popu- in the process of elevating millionsa 0.5 percent increase in GDP per lation of young people can contribute from poverty, a complex relation-capita for every 10 percent increase to their national economies. ship between economic growth andin digitization, while advanced digital inequality remains. Therefore weeconomies show a 0.62 percent Finally, a 10-point increase in digitiza- analyzed societal impact on two levels:increase in GDP per capita for every 10 tion results in a 6-point increase in the level of quality of life in a societypercent digitization increase. the country’s score on the Global and the equality of access to basic ser- Innovation Index14—a correlation sug- vices that a society requires. We usedDigitization also has a significant gesting that, as a country progresses the widely published Gallup Wellbeingimpact on job creation in the overall in its digitization development, it also Thriving Index and the Organisationeconomy: an increase of 10 percent in becomes more innovative. for Economic Co-operation anddigitization reduces a nation’s unem- Development (OECD) Better Lifeployment rate by 0.84 percent. From Social Impact Index to measure quality of life,152009 to 2010, digitization added an Assessing the impact of digitization and the United Nations Developmentestimated 19 million jobs to the global on societies is complicated because Programme (UNDP) Humaneconomy, up from the estimated 18 there are no universal metrics that act Development Index (HDI) to measuremillion jobs added from 2007 to as a barometer of societal advance- access to basic services,16 and cor-2008. This is an especially critical ment. Studies often tend to look at related all three with the digitizationfinding for emerging markets, which the level of inequality in a society (as levels of 150 countries.17will need to create hundreds of mil- measured by the Gini coefficient),Booz & Company 11
  14. 14. We found that increasing digitization As a result, it would appear that, as in the HDI. As economies develop,significantly boosts societal well-being expected, digitization has an impact access to basic services becomes ain a developed economy: a correla- on quality of life only when the popu- given and digitization’s impact is lesstion run on the 34 OECD countries lation has satisfied its basic needs. pronounced.shows that a 10-point increase in thedigitization score results in an increase Increasing digitization also supports To sum up, the correlational analy-of approximately 1.3 points in the better access to basic services, as sis suggests that digitization has anOECD Better Life Index (see Exhibit measured by the UNDP’s HDI, which impact on societal well-being, partially5). However, the analysis reveals tracks global access to health and as a result of the increased access tothat in countries with lower levels of education as well as overall living stan- basic services. However, because theeconomic development, the impact of dards. Our analysis indicates that, as populations in developing nationsdigitization is not as pronounced. The countries become more digitized, all of are confronted with the necessity ofdifference appears to be that in less- these measures improve. Digitization’s addressing some basic needs—rangingdeveloped economies, factors beyond impact on the measures of health, from food to shelter and basic care—digitization are more critical to quality education, and living standards is more that must be satisfied before they canof life: of primary importance is food; pronounced in constrained and emerg- address other issues, digitization wouldthen housing, clothing, water, and ing economies, with a 10-point increase appear to have a less important socialenergy; followed by health; and finally in the digitization score leading to an contribution there than it does in moretransportation and communication. increase of approximately 0.13 points advanced economies.12 Booz & Company
  15. 15. Exhibit 5 Societal Well-Being and Digitization DIGITIZATION AND THE BETTER LIFE INDEX (34 OECD COUNTRIES) 10 y = 0.1289x + 0.095 2 8Better Life Index R = 0.51407 6 4 2 0 0 10 20 30 40 50 60 70 Level of digitization (0–100 scale) DIGITIZATION AND THE WELLBEING THRIVING INDEX (67 NON-OECD COUNTRIES) 0.7Wellbeing Thriving Index y = 0.0058x + 0.0771 0.6 2 R = 0.20427 0.5 0.4 0.3 0.2 0.1 0 0 10 20 30 40 50 60 70 Level of digitization (0–100 scale) DIGITIZATION AND THE HUMAN DEVELOPMENT INDEX (120 COUNTRIES)Human Development Index 1.0 y = 0.2311ln(x) – 0.0684 0.8 2 R = 0.87211 0.6 0.4 0.2 0.0 0 10 20 30 40 50 60 70 Level of digitization (0–100 scale) Source: OECD Better Life Index; Gallup Wellbeing Surveys; UNDP HDI; Booz & Company analysis Booz & Company 13
  16. 16. 14 Booz & Company
  17. 17. Governance Impact measured by the UNDP as a subcom- Additionally, as expected, e-govern-The final area in which we analyzed ponent of the HDI.20 ment services are more effective in athe impact of digitization was gov- digitized environment. An increaseernment effectiveness. As for the Our correlational analysis demon- of 10 points in digitization fostersanalysis reviewed above, we relied strates that greater digitization enables an improvement in the effectivenesson three metrics: the transparency of a society to be more transparent, of e-government services (as mea-governmental activities, for which we increasing public participation and sured on the UNPAN E-governmentused the 2010 Corruption Perception the government’s ability to dis- Development Index) by approximatelyIndex published by Transparency seminate information in an acces- 0.1 points. Current research indicatesInternational;18 the delivery of e-gov- sible manner: a 10-point increase in that causality in this case acts bothernment services, for which we used digitization increases the Transparency ways. Higher digitization contributesthe e-government development index International index by approximately to more efficient delivery of e-govern-developed by the United Nations 1.2 points. Digital technology gives the ment services, while better e-govern-Public Administration Network population more insight into govern- ment services stimulate an increase in(UNPAN);19 and the provisioning ment policies and function—an insight digitization.of public education—a key govern- that might, in turn, lead to more activement service—for which we used the political participation and support the Finally, digitization supports betterInequality-Adjusted Education Index, development of human rights. delivery of basic government services,Booz & Company 15
  18. 18. such as public education. As previ- is projected to level out in developed varies according to a country’s levelously noted, digitization’s impact on countries that have access to such of digitization. Digitization has anthe human development indexes and basic services. increasing impact on the economy andsubindexes is more pronounced in quality of life as countries advancethe case of developing countries, and Overall, our analysis indicates that through the stages of digitization,a 10-point increase in digitization digitization clearly has a positive and more impact on access to basicresults in an approximately 0.17-point impact on economic advancement, services and education in countriesincrease in the Inequality-Adjusted societal well-being, and government that are just beginning their journeyEducation Index. However, this trend effectiveness, although this impact (see Exhibit 6).Exhibit 6The Impact of Increased Digitization VARIABLE METRICS POSITIVE IMPACT OF DIGITIZATIONECONOMY GDP Growth GDP per capita: Overall 0.60%* GDP per capita: Constrained Stage 0.50%* GDP per capita: Emerging Stage 0.51%* GDP per capita: Transitional Stage 0.59%* GDP per capita: Advanced Stage 0.62%*SOCIETY Job Creation Unemployment rate 0.84%* Innovation Global Innovation Index 6.27 points † Quality of Life OECD Better Life Index 1.29 points † Access to Basic Services UNDP HDI: Constrained & Emerging 0.13 points † UNDP HDI: Transitional & Advanced 0.06 points † Transparency Corruption Perception Index 1.17 points †GOVERNANCE E-Government E-Government Development Index 0.10 points † Education Inequality-Adjusted Education Index: Constrained & Emerging 0.17 points † Inequality-Adjusted Education Index: Transitional & Advanced 0.07 points †* 10 percent increase in digitization; † 10-point increase in digitization.Source: Telecom Advisory Services; Booz & Company analysis16 Booz & Company
  19. 19. KEY POLICY The digitization index and analysis will be an invaluable tool for countries is tracked and monitored, with accountability residing at seniorIMPERATIVES to understand their current level of levels of government. digitization and how to build on it. • Evolve sector governance: Segregate In recent years, both developing regulatory and policy roles; clarify and developed countries have both ownership and accountability invested significantly in broadband for ICT and digitization. infrastructure, ensuring that their citizens have high-speed access to the • Adopt an ecosystem philoso- Internet and communications services. phy: Address the convergence of But this investment is not enough. We telecommunications, media, and studied the countries that have made information technology; develop a rapid advances through the four stages strategy that addresses all stages of of digitization to see what measures the value chain in a holistic way; and policies contributed to their and consider the local ecosystem as progress and found that policymakers well as export opportunities. can play a pivotal role by focusing on five key imperatives. • Enable sustainable competition: Develop a competitive ICT model These imperatives are critical for all that stimulates both innovation and countries—both the mature economies adoption, while ensuring sector that have reached the advanced stage sustainability and investments. of digitization, and the developing economies that fall primarily into the • Stimulate demand: Invest in boost- constrained, emerging, and transi- ing digitization usage and service tional stages of digitization. They are: adoption; ensure that public services are available through e-channels. • Elevate digitization on the national agenda: Ensure that national policy Depending on their current stage of and senior government stewardship digitization, countries will vary in how provide the platform for progress; they can implement these imperatives. create a plan for digitization thatBooz & Company 17
  20. 20. Elevating Digitization on the National policymakers need to create a detailed Countries’ approach to ICT gov-Agenda national- and sector-level digitization ernance should also enable closeTo reach the advanced stage of digi- plan, clearly identifying goals, mile- collaboration between the publictization and realize the wide-ranging stones, and corresponding metrics. and private sectors, through industrybenefits it offers, countries need sup- Second, policymakers need to institu- forums, government and industryport from the highest levels of govern- tionalize systems to measure and moni- policy consultations, and frame-ment. National leaders must formulate tor digitization progress against those works for public–private partnershipsand commit to a national digitization plans, while creating accountability for (PPPs). Developing an effective PPPpolicy, with oversight at the execu- the targets defined. model requires countries to providetive branch level. Governments need incentives for less-attractive invest-to play a leading role in setting the Irrespective of their stage of digitiza- ments while enabling the privateagenda for digitization because many tion development, most economies sector to target high-return invest-participants are seeking to stake a are still in the process of establishing ments. For example, governmentsclaim in this fast-growing arena. As a the relevant metrics. Some developed may decide to fund broadbandresult, without a coherent strategy and countries have revised and refined their deployment in remote areas, but letoversight, the sector may devolve into plans; for example, the United States the private sector target the attractivea “tragedy of commons” in which too has laid out its National Broadband urban areas.many competitive stakeholders impede Plan. Its six goals (ensuring high-speedprogress. Internet in 100 million homes, provid- Finally, effective governance will ing leadership in mobile innovation, allow for close collaboration amongGovernments also need to recognize developing a ubiquitous and robust telecommunications, media, andthe importance of the ICT sector for broadband network, ensuring afford- technology players, as well as theoverall economic growth and treat able broadband service, establishing integration of the ICT sector withit accordingly, rather than focus- wireless nationwide access for first other industry verticals. Commoning on the direct tax revenues it can responders, and enabling a clean agencies—for example, entitiesoffer. Many developing countries still energy economy) are intended to bring that consider sector governance instruggle to make the transition from “the power and promise of broadband conjunction for players in telecom-viewing the sector as a source of tax to us all.”21 munications, media, and informa-revenue to understanding it as an tion technology—can support suchenabler of socioeconomic development. Evolving Sector Governance collaboration.But countries that have made that Governance is another critical consid-transition have been rewarded. For eration. Countries need to effectively Most developed countries haveexample, in recognition of the sector’s fulfill four complementary roles: established strong sector governance.role as a vital economic enabler, Qatar policy, regulation, sector development, Singapore, for example, has success-has reduced the royalties paid by the and e-enablement. Each role must fully executed its digitization plantelecommunications sector and as a maintain a distinct and dedicated func- and grew the ICT sector by 13.6result has incentivized investments, tion, yet must be coordinated with the percent between 2006 and 2008, duegrowing the ICT sector’s contribution others. In finding this balance, coun- in part to its robust governance. Theto Qatar’s GDP by approximately 16 tries may choose to establish separate Singapore Infocomm Developmentpercent for the last five years and dou- institutions or create clearly defined Authority (IDA) is a sector regulatorbling Qatar’s share of total ICT activity roles within an umbrella organization. and pursues development; in addition,in the Middle East region. Although the separate institutional the Singapore Media Development model initially allows better focus Authority (MDA) performs theAnother essential element of elevat- and enables more effective capabili- sector regulator and developmenting digitization to the national level ties building, countries might opt to role in the media sector. Both theis to create an effective system that envelop all four governance functions IDA and the MDA are coordinatedmeasures, tracks, and demonstrates within a single organization to ensure through the Ministry of Information,conclusively the significant impact of synergies and efficiencies, as the United Communications and Arts.22every dollar that is invested in it. First, Kingdom and Qatar have done.18 Booz & Company
  21. 21. Booz & Company 19
  22. 22. To reach the advanced stage of digitization and realize the wide-ranging benefits it offers, countries need support from the highest levels of government.20 Booz & Company
  23. 23. Developing countries can accelerate mation technology is still lagging. For the creation of small and medium-development of their ICT sectors by instance, in the United Arab Emirates, sized enterprises focused on ICT viaestablishing a policymaking function non-telecommunications ICT spending developing technology incubators, andand investing early in a sector-develop- accounts for 21 percent of total ICT established an ICT Trust Fund thatment arm. Saudi Arabia, for example, spending,24 compared with 37 percent uses ICT to promote and enhance theadvanced rapidly through the stages of in developed markets such as Finland;25 performance of these enterprises.27 Asdigitization by ensuring fulfillment of this means that there is significant a result, Egypt has emerged as one ofall regulatory and oversight roles at the untapped ICT opportunity beyond the largest ICT exporters in the Middlenational level.23 telecommunications. East and North Africa region, with 27 percent yearly growth in ICT serviceAdopting an Ecosystem Philosophy Second, policymakers need to look exports from 2005 to 2009.28Governments need to recognize the beyond infrastructure and shift theirchanging scope and boundaries of the attention to building local capabilities Enabling Sustainable Competitionsector and make policy decisions on the in creating content and applications. Competition in the ICT sector fostersbasis of what is best for the ecosystem In Estonia, for example, by 2001 ICT innovation and drives adoption—twoas a whole. This requires policymakers companies had contributed to more elements that enable countries toto recognize the convergence among than €500 million in annual revenues progress in their digitization efforts.the telecommunications, media, and and created more than 400,000 jobstechnology industries; the integration since 1999.26 This encouraged Estonia Most developing markets see lib-of the various stages of the value chain, to launch a Development Fund in eralization as a key mechanism tofrom infrastructure to applications and 2007 to further develop its knowledge drive competition. Policymakers haveusage; and the need to look beyond economy, investing in resources such favored auctions to introduce competi-their local markets and capture poten- as ICT parks and innovation centers. tion, while simultaneously generatingtial export opportunities. revenues from finite resources such Finally, in addition to developing the as spectrum. In Saudi Arabia, forFirst, convergence among the telecom- local ICT ecosystem, countries should example, Saudi Telecom preparationsmunications, media, and information explore their ability to capture export for market liberalization led to a 9 per-technology sectors demands that opportunities. Countries targeting cent annual growth rate in digitizationgovernments address all three when export opportunities will need to build between 2000 and 2004. This spurredformulating ICT policies. For example, fairly robust innovation capabilities heavy investment in fixed and mobiledeveloping markets have thus far if they are to become international broadband by the two main servicefocused primarily on telecommunica- ICT players. Egypt, for instance, has providers, which in turn fueled a 17tions infrastructure, and as a result this introduced ICT into its educational percent annual growth in digitizationsector is fairly well developed. In many system, developed e-content, cre- between 2005 and 2010.developing markets, however, infor- ated technology parks, encouragedBooz & Company 21
  24. 24. In some cases, excessive competition competition in services. Similarly, in literacy and skilled human capital.can backfire. In India, for example, the United Kingdom, policymakers Policymakers therefore can investexcessive liberalization triggered are encouraging consolidation of the in digitization by providing trainingaggressive competition and unsustain- infrastructure—as evidenced by the programs and education returns for shareholders. In cases merger of Orange and T-Mobile— In addition, they can educate thewhere intense competition and market while maintaining a competitive population about the digital servicesfragmentation hinders investment and environment in services. available. Finally, they can boost usagecreates an innovation roadblock, poli- by promoting high-speed broadbandcymakers should consider strategies Stimulating Demand services and ensuring that theseto encourage consolidation to restore As countries move beyond providing networks both are widely availablebalance to the sector. access to ICT, they need to encourage and affordable. the adoption of connected digital appli-Developed economies are even cations by individuals, businesses, and A number of countries in advancedconsidering regulated monopolies for government agencies. Developing mar- stages of digitization offer lessons incertain telecommunications services, kets in the early stages of digitization effectively stimulating demand. Forsuch as passive infrastructure, where should focus on boosting demand for instance, France has increased ICTthey recognize the need for protected, basic telecommunications services such spending at a yearly rate of 5 percentutility-like returns. In such circum- as fixed, mobile, and broadband across for the past eight years through astances, regulators need to ensure both public and private sectors. As number of initiatives.29 Among thesethat the monopolistic entity is well countries move to more mature stages, are the Villes Internet association,regulated and that there is significant governments should focus on boost- which works with local authoritiesservice-level competition to spur ing service adoption. Governments to develop Internet-literate citizens;30innovation. Singapore, for example, can also stimulate demand by ensuring and the Comité interministériel pourcreated a regulatory framework for that all public services—such as paying la société de l’information, whichnext-generation broadband that effec- taxes, renewing drivers’ licenses, and was created in 2003 to encouragetively gave Opennet a monopoly in enrolling in school—can be performed Internet usage, improve public ser-building and operating the country’s using broadband networks. vices via technological innovation,passive networks. This framework and strengthen the competitiveness ofallows regulated returns on invest- Creating demand for ICT services French companies.31ment in infrastructure while ensuring requires a high level of ICT22 Booz & Company
  25. 25. About the Authors Karim Sabbagh is a senior partner with Booz & Company in Dubai and Riyadh. He leads the firm’s communications, media, and technology global practice. He specializes in sector-level development strategies, institutional and regulatory reforms, large-scale privatization programs, and strategy-based transformations focused on strategic planning, partnerships and alliances, marketing, and business process redesign. Bahjat El-Darwiche is a partner with Booz & Company in Beirut. He specializes in communications, media, and technology and has led engagements in the areas of telecom-sector liberalization and growth strategy development, policy making andCONCLUSION Readiness Index, are taking steps in that direction. Our hope is that this regulatory management, business develop- ment and strategic investments, corporate analysis, which illustrates the need and business planning, and privatization to define and measure ICT beyond and restructuring. broadband access, can provide an input on such efforts. Roman Friedrich is a Booz & Company partner based in Düsseldorf and Stockholm. He leads the firm’s communi-It has been clear to policymakers for However, realizing the opportunity cations, media, and technology practiceseveral years that digitization has that broadband presents will require in Europe, and specializes in the strategicthe potential for dramatic economic, that policymakers undergo a shift in transformation of fixed-line and mobilesocial, and political improvements. their thinking. They must go beyond communications, technology-basedAnecdotal evidence abounds: water considering ICT and focus instead on transformation, and sales and marketingutilities have installed sensors that digitization, with an emphasis on ICT in the communications, media, andreduce leakage, saving water and usage rather than just access. They technology; healthcare organizations send must take into account their current Milind Singh is a principal withtext messages to pregnant women level of digitization in order to ensure Booz & Company in Dubai. He specializeswith advice on prenatal care, creat- that they are focusing on the right in sector policy and development strategying a healthier new generation before investments to advance to the next for the telecommunica­ions industry. tchildren are even born; fleets of trucks stage. And they need to look withuse digital GPS devices that direct fresh eyes at policies that were devel-them to shorter routes, cutting down oped a decade ago to understand howon their greenhouse gas emissions. they can be updated for a new era.The challenge for all stakeholders Policymakers are hopeful about thisin the ICT ecosystem has been to opportunity, and many are commit-quantify the impact of digitization. ted to action. The steps they takeNumerous organizations, including in the coming years will determinethe World Economic Forum with whether they can translate opportu-its evolution of the Networked nity into reality.Booz & Company 23
  26. 26. ReferencesBroadband Prime. 2009. “Estonia Jumps on the FTTH Koutroumpis, P 2009. “The Economic Impact of Broadband on .Bandwagon,” April 27. Available at www.broadbandprime. Growth: A Simultaneous Approach.” Telecommunications Policycom/2009/04/ estonia-jumps-on-ftth bandwagon.html. 33 (9): 471–85. Available at article/pii/S0308596109000767.CISI (Comité interministériel pour la société de l’information). 2003Archives. Services en ligne: Dossiers. “Comité interministériel pour Lallana, E. C. 2004. An Overview of ICT Policies and e-Strategiesla société de l’information 2003,” December 12. Available at http:// of Select Asian Economies. New Delhi: UNDP ADPIC. Available (Communications and Information Technology Commission). Morgan Stanley. 2009. The Mobile Internet Report. Available at2010. Annual Report 2010. Available at internet_report122009.html.Digital Europe. 2010. “Digital Europe’s Vision 2020: A MCIT (Egyptian Ministry of Communications and InformationTransformational Agenda for the Digital Age.” White Paper. Technology). 2010. “The Evolution of Internet Usage inAvailable at Egypt,” November (in Arabic). Available at internet_inforeport.pdf.Gallup Global Wellbeing Surveys. 2010. Gallup Wellbeing ThrivingIndex. Available at ———. ICT Indicators Report 2006–2009. Available at http://www.Wellbeing-Eludes-Masses-Countries-Worldwide.aspx#2. ICT_Indicators_Report_en.pdf.Hartley, S. and M. Mackenzie. 2009. “Mobile Broadband Users andRevenues Forecast Pack to 2014.” London: Ovum Plc. April 2, Pub OECD (Organisation for Economic Co-operation andID: OV2270654. Development). 2009. “Policy Responses to the Economic Crisis: Investing in Innovation for Long-Term Growth,” June. Available atIdowu, P D. Cornford, and L. Bastin. 2008. “Health Informatics ., in Nigeria.” Journal of Health Informatics in DevelopingCountries 2 (1): 15–23. Available at OECD Better Life Initiative. OECD Better Life Index. Available atjhidc/article/viewFile/11/44. 2011. The Global Innovation Index 2011. Fontainbleu, Pihl, T. 2001. “Analysis of Estonian IT Sector Innovation System,”France: INSEAD. Available at October. Archimedes Foundation. Available at useful/evikings-analysis-cluster-state.pdf.ITU (International Telecommunication Union). 2003. Broadband 2011. “GOP Kills Full $700 Million inKorea: Internet Case Study, March. Geneva: International Rural Broadband Loans Slated by USDA,” April 11. Available atTelecommunication Union. Available at million-in-rural.html.Kamel, S. 2009. “The Evolution of the ICT Sector in Egypt: Telecommunications Council. 2006. “Contribution pour une EuropePartnership4Development.” Communications of the IBIMA 10 numerique,” June. Available at 39–49. Available at europnum.pdf.journals/CIBIMA/volume10/v10n7.pdf. TIF (Telecoms InfoTech Forum). 2007.”Singapore’s BroadbandKatz, R. 2011. “The Contribution of Broadband to Economic Future: The iN2015 Initiative.” Briefing Paper. Available at http://Development.” In V. Jordán, W. Peres, and H. Galperin, eds., Fast- .Tracking the Digital Revolution: Broadband for Latin America andthe Caribbean. Santiago: Economic Comisión for Latin America UNDP (United Nations Development Programme). 2010. Theand the Caribbean. 49–79. UNDP Human Development Index, 2010. Available at http://hdr.———. 2012. The Impact of Broadband on the Economy:Research to Date and Policy Issues. Geneva: International WITSA (World Information Technology and Service Alliance). 2010.Telecommunication Union. Digital Planet 2010. Vienna, VA: WITSA.Katz, R. L., S. Vaterlaus, P Zenhäusern, and S. Suter. 2010. . Zita, K. 2005. “Malaysia Telecom Brief.” Network Dynamics“The Impact of Broadband on Jobs and the German Economy.” Associates LLC. Available at 45 (1): 26–34. Available at http://www. Booz & Company
  27. 27. Endnotes1 See ITU’s World Telecommunication/ICT Indicators, the World 13 See Koutroumpis 2009; Katz 2012; Katz et al. 2010.dataBank World Development Indicators (WDI). 14 Given the lack of a large established set of data for historical2 Morgan Stanley 2009. analysis, this analysis was based on a simple correlation. We recognize that such analysis, although providing an indication of3 ITU’s World Telecommunication/ICT Indicators and World data- the relationship, does not provide a sense of causality. However,Bank World Development Indicators (WDI), available at http:// these results will be able to be better measured in the near as more data emerges. See INSEAD 2011.4 ITU’s World Telecommunication/ICT Indicators. 15 The Gallup Wellbeing Thriving Index is available at http://www. This attribute is the result of a combination of several measures, tries-Worldwide.aspx#2; the OECD Better Life Index is availabletaken from ITU’s World Telecommunication/ICT Indicators, Hartley at Mackenzie 2009, and Wireless Intelligence. 16 The UNDP Human Development Index, 2010, is available at6 This attribute is the result of a combination of several measures, from ITU’s World Telecommunication/ICT Indicators and theWorld dataBank World Development Indicators (WDI). 17 Again, the lack of time-series data prevented us from building a regression model.7 This attribute is the result of a combination of several measures,taken from ITU’s World Telecommunication/ICT Indicators. 18 Corruption Perceptions Index 2010 results are available at This attribute is the result of a combination of several measures, cpi/2010/results/.taken from ITU’s World Telecommunication/ICT Indicators andAkamai State of the Internet report, 2010. 19 UNPAN E-Government Surveys are available at http://unpan1. This attribute is the result of a combination of several measures, pan038858.pdf.taken from the Euromonitor World Retail Data and Statistics,the UNPAN’s “E-government Web measure index,” ITU’s World 20 See the UNDP Human Development Index, 2010, available atTelecommunication/ICT Indicators, Webometrics, Bgexpert, and World Stats available at 21 See the National Broadband Plan: Connecting America, avail-tion_Rate, Wireless Intelligence. able at This attribute is the result of a combination of several mea- 22 See Singapore’s Ministry of Information, Communications andsures, taken from the UNESCO Institutes for Statistics, available the Arts (MICA) at and the Singaporeat Telecommunications Regulator at the IDA website at http://www.aspx?ReportId=169, and ILO LABORSTA, available at http:// See Saudi Arabia’s Communication and Information Technology 2311 Proxy measures were used because exact and accurate data Commission, available at not available. For example, overall investment in the telecom-munications sector was used as a proxy to measure the reliability 24 WITSA 2010.of the underlying network; eight metrics were used to measureusability because of the lack of data that measure actual busi- 25 WITSA 2010.nesses online and other more indicative metrics. 26 Pihl 2001.12 We developed a classical growth model to assess the impact ofdigitization on national and per capita GDP This model controls . 27 See Egypt’s Ministry of Communications Information and Tech-for human capital and capital formation and provides an accurate nology, available at of relative impact of digitization on economic develop-ment. Similarly, to assess its impact on job creation, we con- 28 World dataBank World Development Indicators (WDI).trolled for gross capital formation, foreign direct investment, otherfinancial investments, and secondary school enrollment. In addi- 29 WITSA 2010.tion, we performed statistical tests on the index to ensure that thecomponents and subcomponents adequately measured different 30 See the Villes Internet website at of the same underlying concept. We performed factoranalysis among those tests and estimated the Kaiser-Meyer-Olkin 31 CISI 2003.measure of sampling adequacy.Booz & Company 25
  28. 28. The most recent Worldwide Officeslist of our officesand affiliates, with Asia Middle Eastaddresses and Beijing Brisbane Helsinki Abu Dhabi Detroittelephone numbers, Delhi Canberra Istanbul Beirut Florham Parkcan be found on Hong Kong Jakarta London Cairo Houstonour website, Mumbai Kuala Lumpur Madrid Doha Los Seoul Melbourne Milan Dubai Mexico City Shanghai Sydney Moscow Riyadh New York City Taipei Munich Parsippany Tokyo Europe Paris North America San Francisco Amsterdam Rome Atlanta Australia, Berlin Stockholm Boston South America New Zealand & Copenhagen Stuttgart Chicago Buenos Aires Southeast Asia Dublin Vienna Cleveland Rio de Janeiro Auckland Düsseldorf Warsaw Dallas Santiago Bangkok Frankfurt Zurich DC São PauloBooz & Company is a leading global managementconsulting firm, helping the world’s top businesses,governments, and organizations. Our founder,Edwin Booz, defined the profession when he estab-lished the first management consulting firm in 1914.Today, with more than 3,000 people in 60 officesaround the world, we bring foresight and knowledge,deep functional expertise, and a practical approachto building capabilities and delivering real impact.We work closely with our clients to create and deliveressential advantage. The independent White Spacereport ranked Booz & Company #1 among consult-ing firms for “the best thought leadership” in 2011.For our management magazine strategy+business,visit to learn more aboutBooz & Company.©2012 Booz & Company Inc.