ACCELERATING
EUROPE’S
COMEBACK:
DIGITAL OPPORTUNITIES FOR
COMPETITIVENESS AND GROWTH
CARRIED OUT BY
CONTENTS
3	FOREWORD
4	INTRODUCTION
6	 ACCELERATING EUROPE’S COMEBACK
8	 EXECUTIVE SUMMARY
10	 THE BUSINESS AGENDA FOR EURO...
3
FOREWORD
Accelerating the digitalisation of the economy is essential
to improve European competitiveness. The report pub...
INTRODUCTION
The issue of how to restore competitiveness and growth
to the European Union (EU) is a crucial one for all in...
5
There is a palpable sigh of relief among EU business leaders
that growth is returning. However, we must not make the
mis...
ACCELERATING
EUROPE’S
COMEBACK
Expect EU economy
to improve over next
three years
The EU is
internationally
competitive
20...
7
EU is
behind
China
EU is
behind
the U.S.
THE EU HAS A STRONG PERFORMANCE IN DIGITAL TECHNOLOGY ADOPTION…
…BUT WILL LAG B...
8
Improving economic conditions are
fuelling renewed optimism among
business leaders that the European
Union (EU) is final...
9
Yet these organizations have only scratched the surface of
what is possible. To sustain and build on this momentum—
and ...
THE BUSINESS
AGENDA FOR
EUROPE:
10
11
As European Union (EU) executives view the business
landscape and shape their strategies for the future, they are
feeli...
12
This confidence, however, belies underlying problems that
continue to plague the EU’s economies. Modest EU growth
rates...
13
Figure 4: GDP growth per head – EU, United States,
China and world 2011-2016.
Figure 5: Unemployment rate in EU, United...
14
THREE KEYS TO ADDRESSING THE
WIDENING EU COMPETITIVENESS GAP
”A competitive economy is an economy with
a consistently h...
15
“The nation that goes all-in on innovation today
will own the global economy tomorrow.”
— Barack Obama, President of th...
DIGITAL
DISRUPTION:
16
17
A disruption of societies, industries and economies is
underway as a result of the emergence and adoption of
digital te...
18
Yet despite executives’ enthusiasm for digital, most European
companies are not fully capitalizing on the full potentia...
19
While Europe’s business leaders expect to see China’s ability
to develop and implement digital technologies power ahead...
20
Looking further forward, business leaders believe a number
of priority actions can be taken at the EU level to develop
...
21
In terms of product and service innovation, digital
technologies are enabling European companies to develop
new and rel...
22
Music, books, art, maps, the ways
we communicate—these and countless
other things that used to be primarily
physical or...
23
BIG DATA ANALYTICS
Using sophisticated analytics, European
businesses, government agencies and other
public service org...
24
THE DIGITAL RE-
INDUSTRIALISATION
OF EUROPE
25
As noted earlier, Europe is well positioned to benefit from the
digital revolution. The region has a strong corporate b...
26
MANUFACTURING
The manufacturing industry is arguably the “engine” of the
European economy. A strong industrial base is ...
27
Companies can up the ante from merely producing
intelligent devices to adding more value by coupling the
product with a...
28
BANKING
While banks in the EU are recovering from the downturn,
growth is slow and profitability remains low. The retur...
29
Payments are the primary touch point with banks’
customers and account for up to 25 percent of the typical
bank’s reven...
30
ENERGY AND UTILITIES
Energy costs are a critical component of competitiveness
for EU-based companies, particularly for ...
31
Adoption of technologies such as smart grids, smart metering
and analytics can help make the EU a world leader in energ...
32
PUBLIC SERVICES
Public services are a crucial and substantive component
of the EU economy, accounting for more than 50 ...
33
Social networking and mobility provide the platform to
further engage citizens and create participative democracy.
In f...
34
HEALTHCARE
Healthcare is already a major public-spend item in most
European countries and will become unsustainable if ...
35
It is estimated that if Osakidetza’s programme was extended
and applied at the wider European level, it could lead not
...
SEIZING
THE
OPPORTUNITY
36
37
As the preceding sections have demonstrated, digital technologies
offer tremendous potential for organizations to drama...
38
BUSINESS RECOMMENDATIONS
As an economy’s competitiveness is, amongst other things,
an aggregate of the competitiveness ...
39
In addition, success in digital requires businesses to develop
eight foundational digital capabilities:
•	Strategy and ...
40
POLICY RECOMMENDATIONS
In parallel, EU governments, policy makers and businesses
must help create the vision and put in...
41
ADDRESSING THE DIGITAL SKILLS ISSUE
The region continues to struggle with a widening digital
skills gap that will impac...
42
FOSTERING GROWTH AND INNOVATION THROUGH
ENTREPRENEURSHIP
Innovation and entrepreneurship are vital to competitiveness
a...
THE REALITY IS THAT WITH-
OUT SIGNIFICANT POLICY
CHANGES TO STIMULATE THE
DEVELOPMENT AND GROWTH
OF ENTREPRENEURS, THE EU
...
44
THE NEED TO MEASURE PROGRESS
AND IMPACT—A DIGITAL INTENSITY
INDEX
Of course, one of the keys to effectively capitalizin...
Accenture report-accelerating-europes-comeback-digital-opportunities-competitiveness-growth
Accenture report-accelerating-europes-comeback-digital-opportunities-competitiveness-growth
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Accenture report "Accelerating Europe's comeback: Digital opportunities for competitiveness and growth released at the European Business Summit (EBS) on May 15, 2014

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  1. 1. ACCELERATING EUROPE’S COMEBACK: DIGITAL OPPORTUNITIES FOR COMPETITIVENESS AND GROWTH CARRIED OUT BY
  2. 2. CONTENTS 3 FOREWORD 4 INTRODUCTION 6 ACCELERATING EUROPE’S COMEBACK 8 EXECUTIVE SUMMARY 10 THE BUSINESS AGENDA FOR EUROPE: THE GROWTH AND COMPETITIVENESS CHALLENGE 14 THREE KEYS TO ADDRESSING THE WIDENING EU COMPETITIVENESS GAP 16 DIGITAL DISRUPTION: A CATALYST FOR EU GROWTH AND COMPETITIVENESS 24 THE DIGITAL RE-INDUSTRIALISATION OF EUROPE 26 MANUFACTURING 28 BANKING 30 ENERGY AND UTILITIES 32 PUBLIC SERVICES 34 HEALTHCARE 36 SEIZING THE OPPORTUNITY 38 BUSINESS RECOMMENDATIONS 40 POLICY RECOMMENDATIONS 40 IMPROVING THE REGULATORY ENVIRONMENT FOR DIGITAL UPTAKE 41 ADDRESSING THE DIGITAL SKILLS ISSUE 42 FOSTERING GROWTH AND INNOVATION THROUGH ENTREPRENEURSHIP 44 THE NEED TO MEASURE PROGRESS AND IMPACT—A DIGITAL INTENSITY INDEX 46 THE LAST WORD 48 ABOUT THE RESEARCH 48 ACKNOWLEDGEMENTS 49 APPENDIX 50 EU DIVERSITY: COUNTRY ANALYSIS UNVEILS A VARIED AND CONTRASTING LANDSCAPE 52 GERMANY 54 UK 56 FRANCE 58 ITALY 60 SPAIN 62 BELGIUM 64 RESEARCH RESULTS BY COUNTRY 72 REFERENCES
  3. 3. 3 FOREWORD Accelerating the digitalisation of the economy is essential to improve European competitiveness. The report published by Accenture on the occasion of the 12th European Business Summit identifies the challenges to be met in order to do so. BUSINESSEUROPE was delighted to collaborate on this effort. The European economy is starting to recover. But Europe has not yet fully recovered from the crisis. “Business as usual” is simply not an option if we want more growth and more jobs for European citizens. We have to make the necessary reforms to regain the ground lost compared to key competitors on world markets. We suffer from persistent unemployment because of excessive taxation and regulation, constrained access to finances, high energy prices, insufficient innovation, inadequate education and training and remaining labour markets rigidities. Over the past five years, Europe focussed on a defensive or reactive agenda. It brought badly needed economic stabilisation. While we were repairing our economic system, the rest of the world did not stand still. Instead, they made structural reforms, invested in infrastructure, machinery, skills and innovation. They worked hard to make the best of information technologies and improve their competitiveness.   It is time for European policies to become much more proactive. We have a lot to offer as a region. Many entrepreneurs and SMEs are keen to develop their potential. But they need a supportive environment to be successful.   The European Union aims to ensure that 20 percent of its GDP is generated by industry by 2020. In order to achieve that, Europe must stop regulating itself to death. It must unleash its innovation potential and accelerate the digitalisation of its economy. Financial resources are limited. They must be used for smart, future-oriented public and private investment. This will lead to jobs with a real future.   If we want to have more growth and create more jobs, a reactive agenda is not enough. Europe must act now. There is no time to waste. Emma Marcegaglia, President, BUSINESSEUROPE
  4. 4. INTRODUCTION The issue of how to restore competitiveness and growth to the European Union (EU) is a crucial one for all involved: the region’s businesses, governments and citizens alike. While important steps to that end have been taken over the years, much more must be done to move the region forward and keep it from slipping further behind other economies such as the US and China. 4
  5. 5. 5 There is a palpable sigh of relief among EU business leaders that growth is returning. However, we must not make the mistake of conflating this more optimistic outlook with Europe’s competitiveness. The EU lags its competitors on productivity and on crucial aspects of innovation. And the recent economic crisis has set efforts back, so now is the time to accelerate our return to competitiveness. The following report is designed to contribute to that effort. Based on research jointly conducted by Accenture in collaboration with BUSINESSEUROPE and the European Business Summit (EBS), it explores the on-going economic challenges Europe faces and proposes tangible, practical steps leaders can take to address critical drivers of competitiveness. The solution to the challenge is neither easy nor simple. However, according to EU business leaders participating in our research, concerted effort focusing on three key areas could help considerably: smarter regulation, innovation resulting in the creation of new products and services, and the adoption of new technologies to drive productivity. The development and implementation of digital technologies, in particular, will play a very important role. Digital is fundamentally reshaping individual organisations and disrupting entire industries. And digital technologies offer great promise in addressing the dual challenges of productivity and innovation—areas in which the EU is rapidly falling behind other regions and countries. The vast majority of businesses see the potential in digital to support growth. But in many cases, their focus is still too heavily on using digital investments to drive efficiencies, rather than on making their products and services digital. That balance must reverse. And a more aggressive and ambitious approach to digital adoption is needed to build on current momentum and capitalize on the numerous assets Europe already has that are prerequisites for digital transformation. That is where new thinking and actions on regulations can help. EU business leaders in our research agreed that to pave the way for the digital transformation of Europe, policy makers should focus on efforts to create a supporting regulatory environment for investment in technology, innovation and digital infrastructure; tackle the ‘digital skills issue’ by addressing both the shortage of digital skilled people and the reskilling of workers displaced by automation; and encourage the development of new businesses and a culture of entrepreneurship to facilitate the creation of new jobs. Accenture would like to thank BUSINESSEUROPE and the EBS for their support and assistance with this important research. We hope that, through our combined efforts and insights, we have been able to contribute substantively to the conversation about how to re-energise the EU economy. Jo Deblaere, COO and Group Chief Executive-Europe, Accenture
  6. 6. ACCELERATING EUROPE’S COMEBACK Expect EU economy to improve over next three years The EU is internationally competitive 2014 60% 2013 46% 61% Competitiveness of EU will increase over next three years 47% 6
  7. 7. 7 EU is behind China EU is behind the U.S. THE EU HAS A STRONG PERFORMANCE IN DIGITAL TECHNOLOGY ADOPTION… …BUT WILL LAG BEHIND THE U.S. AND CHINA IN IMPLEMENTING DIGITAL TECHNOLOGY BUSINESS LEADERS SAY DIGITAL TECHNOLOGIES ARE IMPORTANT OR CRITICAL TO BOOST: …AND MUST URGENTLY CONSIDER MORE FOCUS ON DIGITAL INNOVATION AND GROWTH DIGITAL PRODUCTIVITY, ENTREPRENEURIAL INNOVATION AND SMART REGULATION ARE KEY TO FUTURE EU SUCCESS: Now 38% In 3 years 50% PRIMARY FOCUS OF DIGITAL INVESTMENT: Now 61% In 3 years 53% 96% EU competitiveness Broadband coverage Mobile broadband penetration Population purchasing online Accessing Government services online 93% EU economic growth 75% EU job creation 96% 47% 41%59% 60%62% Digital will drive major change in their industry in next 12 months 63% Fear losing customers if they do not embrace digital during this time Increase productivity and reduce costs through automation and new production methods Use analytics and real time information to improve financial performance, better control the business and increase speed to market Improve the regulatory environment for digital uptake Become a disrupter in your own industry by selling fundamentally new products and services, created in new ways Driving process efficiency 40% Product/Service innovation and growth Develop and implement new ways to serve customers through multiple channels Address the digital skills issue through education, training and mobility Foster growth and innovation through entrepreneurship
  8. 8. 8 Improving economic conditions are fuelling renewed optimism among business leaders that the European Union (EU) is finally on the road to recovery. And at an objective level, it is. EU forecasts expect the euro area to grow 1.5 percent in 2014 and 2.0 percent in 2015, on the back of two straight years of decline or flat growth.i But these more promising numbers and executive confidence mask underlying problems that continue to challenge Europe’s competitive position in the global economy. Projected EU growth still has not reached historic levels, and it trails by a wide margin the estimates for emerging markets and the US. Furthermore, European unemployment remains stubbornly high—well above that in China and the US—which threatens to dampen any momentum the region can muster. The reality is that while conditions in Europe certainly are more positive than they were a year or so ago, they still do not compare favourably when viewed in the broader global context. In fact, rather than narrowing, the gap in Europe’s competitiveness with other major economies is forecast to grow. Business leaders and policy makers need to urgently address two critical areas of competitiveness—productivity and innovation—while creating the regulatory environment needed to help the EU compete on a global basis. A powerful lever to that end are digital technologies, including “connected everything,” or the internet of things; social media; mobility; big data analytics; and cloud. These technologies can both help boost productivity by automating and streamlining business processes to make them more efficient and increase output per employee, as well as foster growth through the creation of new products, services and business models that appeal to customers in domestic and foreign markets alike. The EU is actually in a favourable position to capitalize on digital’s potential. Its strong legacy of innovation, education system, and entrepreneurial spirit—not to mention significant adoption to date of digital technologies by consumers and businesses alike—give the region a robust foundation on which to build. In fact, examples abound of organizations across the EU—in manufacturing, banking, energy, public service, and healthcare—that already are using the power of digital to help them save millions of euros in operating expenses and launch new businesses generating millions of euros in new revenue. These enterprises provide a glimpse of how these technologies can dramatically improve business performance and, in the process, transform industries and entire economies. EXECUTIVE SUMMARY At the root of the challenge are three main factors: PRODUCTIVITY The EU is forecast to lag behind the US and China in labour productivity growth (real GDP growth per person employed). INNOVATION EU R&D intensity (as a proportion of GDP) is behind the US and, for the first time, China surpassed the EU in 2012. REGULATION The fragmented regulatory environment is making it difficult for companies to boost productivity and innovation through the adoption of digital technologies at scale.
  9. 9. 9 Yet these organizations have only scratched the surface of what is possible. To sustain and build on this momentum— and rise to the level of other economies—businesses and governments in the EU must create an environment in which digital technologies can flourish. Businesses must embrace new principles and capabilities that enable them to fully exploit digital’s potential. At a high level, this means not just applying digital technologies to current offerings and business models to incrementally improve them. Rather, it means thinking completely differently about the business and what it could achieve: identifying the new customer-driven outcomes that digital makes possible, considering how the company’s business and operating models need to change to deliver these new outcomes, and then defining the combination of digital and traditional technologies, operations, and information required to realise these outcomes. Making this mindset shift is fundamental to putting digital technologies and information at the heart of the business so they can drive substantially greater productivity and internal efficiency (and, as result, greatly lowered costs), as well as new levels of innovation that generates more robust growth. For their part governments, working in concert with businesses, must address a number of key policy and regulatory issues to help pave the way for increased development and deployment of digital technologies. For instance, they must modernise and harmonise country- specific and cross-border regulations to encourage the uptake of digital technologies and solutions at scale. They need to focus on reducing unemployment and closing critical digital skills gaps through investments in new education and training programs, as well as on enhancing the mobility of qualified talent within, and into, the EU. And they must further develop policies that nurture the current and coming generations of entrepreneurs and start- ups that will play a central role in Europe’s recovery through boosting innovation, the launch and development of new businesses and the creation of new jobs. Businesses and governments alike also will need a way to understand how effectively they are executing their digital initiatives to illuminate what has worked and where opportunities exist. Thus, a final key to success is a methodology that measures the impact of digital on EU competitiveness—both from a country and industry perspective—against which progress can be evaluated and quantified over time. Restoring growth and competitiveness to the EU economy will not be easy, as significant challenges still must be addressed. However, digital technologies offer significant promise as a tool to help the EU rebuild its economic future. The development and deployment of digital technologies at scale to address two of the critical elements of competitiveness—productivity and innovation—coupled with the implementation of new policies and regulations that foster the widespread adoption and use of such technologies, can serve as a powerful catalyst for transforming the EU economy.
  10. 10. THE BUSINESS AGENDA FOR EUROPE: 10
  11. 11. 11 As European Union (EU) executives view the business landscape and shape their strategies for the future, they are feeling a growing sense of optimism about the prospects for growth in the EU. For example, in the recent Accenture survey of business leaders from across the EU conducted for this report, 53 percent of respondents believed the economies of the EU member states would improve in 2014. A higher proportion (60 percent) also believed that the EU economy would continue to improve in the next three years—a major increase over the 46 percent who held such a view last year (Figure 1). While this view is consistently held across most EU economies, there are divergent opinions in France and Belgium, where respondents were less positive (38 percent and 43 percent, respectively).1 These survey findings echo official economic forecasts for the EU, which see a continuation of the economic recovery, a strengthening of domestic demand, substantial improvements in public finance, and gathering momentum expected in investments.ii Figure 1: How confident are you about Europe’s economic growth prospects in the next three years? Business leaders also are remarkably positive about the ability of the EU to compete, with 61 percent of respondents indicating they considered the EU to be competitive internationally.2 Furthermore, when asked how they expect the international competitiveness of the EU to evolve in the next three years—assuming the current level of actions by businesses and policy makers—three quarters of respondents (74 percent) stated their confidence that the EU’s international competitiveness will at least remain at this level, with almost half of all respondents (47 percent) confident it will increase in the next three years (see Figure 2). Figure 2: Based on the current level of actions by businesses and policy makers, how do you expect Europe’s international competitiveness to evolve in the next 3 years? 60% 31 3 7 53 46% 33 36 18 3 43 Very optimistic Optimistic Pessimistic Neutral Very pessimistic 2013 2014 Source:Accenture European Business Summit Survey 2014 47% 26% 27% Europe’s international competitiveness will increase in the next 3 years Europe’s international competitiveness will decrease in the next 3 years Europe’s international competitiveness will remain the same in the next 3 years Source:Accenture European Business Summit Survey 2014 THE GROWTH AND COMPETITIVENESS CHALLENGE 1 Appendix: Q2 2 Appendix: Q3
  12. 12. 12 This confidence, however, belies underlying problems that continue to plague the EU’s economies. Modest EU growth rates have not yet returned to historic trend levels and, in fact, still fall short of the higher growth rates forecast for the BRIC economies as well as mature markets (see Figure 3). The International Monetary Fund (IMF) forecasts average developed-economy growth in 2014 at 2.2 percent, nearly double that forecast for the EU.iii Other forecast data highlight the continuing growth gap in the next few years with competing economies such as the United States and China (see Figure 4). Additionally, with few exceptions, unemployment is projected to remain stubbornly high across the EU member state economies, well above that of the US and China, during the next several years (see Figure 5). Economic recovery is expected to lead to only a minor positive impact on employment in 2014, but a more visible impact in 2015 and 2016. The US, in particular, is gaining momentum, fuelled by low energy prices, greater labour market flexibility, and greater openness to innovation. For instance, research and development (R&D) investment in the US has been outgrowing that in the EU significantly— 8.2 percent versus 6.3 percent growth compared with the previous year (above the global average of 6.2 percent).iv This momentum is also evident in higher productivity growth. In 2013, productivity—output per hour worked—grew one-third faster in the US than it did in the EU area.v In other words, while the growing optimism of EU business leaders is welcome, as is the forecast of a modest return to growth, significant challenges remain when one places this economic improvement in the wider context of competing economies on the global stage. -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 1.8% 2.3% 2.9% 1.5% 6.0% 4.9% 7.2% 7.7% 3.0% 1.9% 2.7% 1.9% 0.7% -0.2% 0.5% -1.9% 1.4% 0.5% 0.8% 0.2% % real change pa France Germany Italy Spain UK US China India Russia Brazil 2014 forecast 2013 data Source:The Economist Intelligence Unit 2013 data and 2014 forecast Figure 3: GDP growth: Percentage change in real GDP, over previous year.
  13. 13. 13 Figure 4: GDP growth per head – EU, United States, China and world 2011-2016. Figure 5: Unemployment rate in EU, United States and China 2011-2016. 10 8 6 4 2 0 -2 % Percentage change in real GDP per head 2011 2012 8.9 1.7 1.4 1.3 1.4 7.2 1.4 2.0 1.8 1.6 1.7 0.9 6.9 1.8 6.6 2.0 6.5 2.1 7.3 1.1 2013 2014 2015 2016 -0.61.1 China World United States of America EU27 Source: Economist Intelligence Unit Country Database 2014 -0.2 1.0 12 10 8 6 4 2 0 6.5 6.1 5.8 5.5 6.4 2011 2012 2013 2014 2015 2016 6.5 8.9 6.9 6.4 6.1 7.2 8.1 9.7 10.3 11.110.6 11.0 10.7 % Official unemplyment as a percentage of total labour force China United States of America EU27 Source: Economist Intelligence Unit Country Database 2014
  14. 14. 14 THREE KEYS TO ADDRESSING THE WIDENING EU COMPETITIVENESS GAP ”A competitive economy is an economy with a consistently high rate of productivity growth. The EU must outperform its competitors in terms of research and innovation, information and communication technologies, entrepreneurship, competition, education and training.” —The European Commissionvi While the EU is slowly recovering from the recession and maintains a strong legacy position in a number of key industries (including Pharmaceuticals, Aerospace, Testing and Control Instruments and knowledge-intensive servicesvii ), the Eurozone crisis has slowed the recovery process further. Thus, the gap in competitiveness with other major economies globally has continued to grow. Policy makers, business leaders, academia, non-governmental bodies, and other interest groups have been debating—and searching for—responses to the challenges of growth and job creation in the EU. The survey carried out for this report highlights what business leaders believe would help the most. When asked which initiatives would most improve EU competitiveness in the next three years, leaders cited smarter regulation (41 percent), innovation resulting in the creation of new products and services (40 percent), and the adoption of new technologies to drive productivity (35 percent) as the top-priority initiatives. Other notable initiatives included easier access to credit and financing (34 percent), cheaper energy resources (33 percent), better education and training of the workforce (33 percent), and less-expensive and more flexible labour resources (31 percent).3 Indeed, productivity is a major challenge for EU economies. While labour productivity growth (real GDP growth per person employed) has been recovering in the EU with a 0.5 percent growth in 2013, and 1 percent and 1.2 percent growth forecast for 2014 and 2015 respectively, a comparison shows productivity growth below that in the United States in the forecast period (see Figure 6). China’s labour productivity, while still below that of the EU, is forecast to grow at four times the EU rate in 2014.viii Figure 6: Labour Productivity growth in percent for EU, USA, Japan and China. Productivity growth below that of the USA Productivity growth above that of the USA China data: Conference Board Total Economy database, 2014 Source: EU Eurostat Economic Forecast, February 2014 EU USA Japan China* France Germany Italy Spain United Kingdom 1.2 1.6 1 NA 1.2 1.4 0.7 0.6 1.4 2015 Forecast 0.5 0.9 1.2 7.1 0.6 -0.1 0.8 2.1 0.8 2013 1.0 1.4 1.1 4.1 0.6 1.2 0.4 1.0 1.2 2014 Forecast 3 Appendix: Q5
  15. 15. 15 “The nation that goes all-in on innovation today will own the global economy tomorrow.” — Barack Obama, President of the United Statesix Despite some areas of weakness, the EU boasts pockets of innovation capability4 —especially in Sweden, Denmark, Germany and Finland—that match and exceed many countries globally (see Figure 7). Internationally, the EU continues to compare favourably to the leading economies (including Australia, Canada and all BRIC countries, which the EU leads). However, South Korea, the US and Japan have a performance lead in innovation over the EU. In addition to having a relatively larger skilled workforce than the EU, these three countries’ collaborative knowledge- creation between public and private sectors is better developed and enterprises in these countries invest more in research and innovation.x Figure 7: Global innovation performance. Some interesting trends emerge when you consider research and development (R&D) expenditure—another key indicator of innovation in an economy. The EU has set a headline target of 3 percent of EU GDP to be invested in R&D by 2020, as part of Europe 2020 Strategy. Yet comparing R&D intensity (R&D expenditure compared to GDP) for the United States, China and the EU is striking. China in 2011 already had a higher R&D intensity than Italy, Spain and even the United Kingdom, and has been growing its R&D investment at about 18 percent annually in the past 10 years. At current investment rates, China’s total spend on R&D is expected to surpass that of the U.S. by about 2022.xii Of course, regulation continues to be an on-going challenge within the EU business community as well—particularly as it applies to digital technologies. As mentioned, 41 percent of executives said smarter regulation would most improve EU competitiveness in the next three years.5 An even greater percentage—46 percent each—indicated excessive regulation and lack of adequate EU policies due to the fragmented landscape of Europe were impeding the development of digital technologies in the EU. These were the two most frequently cited among all the prospective challenges covered by the survey.6 Perhaps an area of greater concern is the general lack of awareness among the business community towards EU policy on digital with 80 percent of respondents being either unaware of the Digital Agenda for Europe or having no awareness of the objectives and content. The main conclusions from this is clear: To prevent the gap in European competitiveness from growing and to potentially begin closing it, business leaders and policy makers will need to urgently address two critical areas of competitiveness—productivity and innovation—while creating the regulatory environment needed to help the EU compete on a global basis. South Korea United States Japan EU Canada Australia China India Russia Brazil South Africa 0,105 0,178 0,191 0,207 0,275 0,389 0,497 0,630 0,711 0,736 0,740 0,000 0,200 0,400 0,600 0,800 1,000 Source: Innovation Union Scoreboard 2014, Executive Summary 4 Innovation capability index measurement goes beyond RD expenditures and includes other factors like human resources, research systems, public‐ private co-publications and intellectual assets. 5 Appendix, Q5 6 Appendix, Q17
  16. 16. DIGITAL DISRUPTION: 16
  17. 17. 17 A disruption of societies, industries and economies is underway as a result of the emergence and adoption of digital technologies. These include the internet of things, mobile computing, business analytics and big data, cloud, social media and other technologies like connected devices and sensor networks that have both reached critical mass and are working together to define the digital world (see “Five key digital technologies”). They are forces of change, creating opportunities that previously were either technically impossible or uneconomical. In fact, examples abound of how connected vehicles, connected workers, digital factories, intelligent pipelines, smart grids and many other applications of digital technologies are transforming products and services and the way people work. In fact, an overwhelming majority of business leaders believe digital technologies will play an important or a critical role in boosting EU competitiveness (96 percent), EU economic growth (93 percent), and EU job creation (83 percent) in the next three years.7 With the impact of traditional levers such as fiscal and budgetary policy currently limited, the EU finds itself in a unique set of circumstances in which digital presents itself as a powerful lever that can be effectively used to bridge the ever-widening competitiveness gap. Digital technologies can make processes more efficient and reduce operating costs while creating substantial new growth opportunities through innovation in products, services and new ways of reaching customers. Furthermore, business leaders expect digital to have an immediate and profound impact on their industries in the short term. Sixty-two percent of respondents believe that digital will result in major change or a complete transformation of business models in their industry in the next 12 months, and almost two-thirds (63 percent) are concerned they will lose customers to competitors if they do not embrace technology in that timeframe (see Figure 8). Total 62% 63% Belgium 49% 53% France 52% 46% Germany 42% 45% Italy 77% 74% Spain 71% 77% UK 58% 82% Other EU countries 72% 62% Very concerned or somewhat concernedComplete transformation or major change Source:Accenture European Business Summit Survey 2014 A CATALYST FOR EU GROWTH AND COMPETITIVENESS Figure 8: Impact of digital technologies on industry business models in the next 12 months and concerns about losing customers if businesses fail to embrace digitally transformation over this period. 7 Appendix: Q7
  18. 18. 18 Yet despite executives’ enthusiasm for digital, most European companies are not fully capitalizing on the full potential of digital. For instance, the major focus of executives’ digital investments to date has been primarily on driving efficiencies (60 percent) instead of making their products and services digital (40 percent).8 Additionally, a majority of respondents (54 percent) said the primary impact of digital technologies is to make processes more efficient and reduce costs rather than create substantial new growth opportunities through the development of new products and services and reaching customers in new and innovative ways (46 percent).9 There’s no question of the positive impact digital can have to drive process efficiencies and cost reductions. However, organisations must not underplay the capacity of digital technology to drive innovation and growth. Companies should consider allocating the balance of their current digital investment to better support their strategic growth agenda. Figure 9: Even as they express enthusiasm for digital’s ability to help improve EU competitiveness, business leaders fear the EU will struggle to compete with other major economies in digital adoption. While 51 percent think Europe is ahead of China in the development and use of digital today, 50 percent believe China will overtake the EU within the next three years. Additionally, 61 percent believe that Europe lags the U.S. today, and more than half (53 percent) expect this to still be the case in three years’ time (see Figure 9). 51% 30% 11% 20% 38% 50% Now EU compared with China regarding the development and implementation of digital technologies EU compared with the US regarding the development and implementation of digital technologies 22% 24% 17% 23% 61% 53% In 3 years Now In 3 years 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Europe is/will be behind China Europe is/will be level with China Europe is/will be ahead of China Europe is/will be behind the US Europe is/will be level with the US Europe is/will be ahead of the US Source:Accenture European Business Summit Survey 2014 8 Appendix: Q10 8 Appendix: Q9
  19. 19. 19 While Europe’s business leaders expect to see China’s ability to develop and implement digital technologies power ahead of Europe in the next three years, that does not necessarily equate to the level of competitive impact China can achieve through these efforts. At the same time, business leaders and policy makers should not underestimate the strength of the US and its capacity for innovation. It is likely the US will continue to maintain its healthy advantage over both Europe and China based on its proven ability to develop and implement technology-based innovation. That said, there appear to be strong foundations in the EU on which companies can build in their pursuit of digital. For instance, when asked to identify EU’s most important strengths to help improve its competitiveness in digital, business leaders pointed to the large base of EU companies with international presence (49 percent), strong innovation capabilities (47 percent), highly-reputed educational system (38 percent), thriving entrepreneurship (35 percent), and strong local demand in both business (34 percent) and consumer (33 percent) markets.10 The education system in the EU is clearly considered to be a competitive strength. In fact, surprisingly, two out of three business leaders believe the EU currently has enough skilled workers in digital (e.g., data scientists and engineers).11 However, 52 percent of business leaders said they plan to increase the number of recruits from outside the EU to fulfil the digital skill requirements for their own business.12 This suggests an expectation that demand for skilled workers in digital will outpace supply rise in the coming three years as competition for resources intensifies (see Figure 10). In the near term, one course of action is to retrain and up-skill existing workers to meet the increasing demand for digital skills. When asked what initiative should be taken at the EU level to help address this issue, executives most frequently cited the use of technology to enable lifelong learning and development of skills (58 percent); promoting re-skilling/retraining programs for older age groups (51 percent); and promoting the direct involvement of business in the professional education system (51 percent).13 Figure 10: In the EU, there could be a shortfall of up to 900,00 digitally skilled people by 2015 at a time when average youth unemployment is nearly 24 percent. 0 100 200 300 400 500 600 700 800 900 2011 2012 2013 2014 2015 In ‘000 Digital jobs: vacancies and graduates Vacancies in the digital sector New ICT graduates Source:Accenture European Business Summit Survey 2014 10 Appendix: Q18 11 Appendix: Q23 12 Appendix: Q24 13 Appendix: Q27
  20. 20. 20 Looking further forward, business leaders believe a number of priority actions can be taken at the EU level to develop the digital skills of graduates and first-time workers to meet demand. Educational programs with specific training on digital technologies and business (49 percent), developing entrepreneurial skills (45 percent), and promoting the direct involvement of business in curriculum development for the tertiary educational system (43 percent) were the top- ranked initiatives.14 A third element on which Europe can build is its entrepreneurial skills and culture, which business leaders across the EU recognise as key to success in the digital economy (59 percent deemed them important and 35 percent said they are critical15 ). And within this context, 87 percent of respondents said it is important or critical to foster closer collaboration between large corporations and entrepreneurs/SMEs for the EU to succeed in its digital transformation. Among the actions business leaders see as vital to fostering such collaboration are stimulating joint investment (cited by 60 percent), supporting the development of local clusters (57 percent), and supporting collaborative initiatives with universities and education (52 percent).16 Arguably the biggest asset that can fuel digital transformation in Europe is the fact that digital technologies already are pervasive across the EU’s consumers and businesses. Broadband penetration is at 95.5 percent across the EU and mobile broadband at 59 percent. There are more than 400 million unique mobile subscribers in the region, where smartphone penetration is at 49 percent. Nearly half of the population routinely purchases products or services online and more than 40 percent use eGovernment services. However, consumer activity varies widely across the EU with relatively low online purchases in Eastern and Southern European countries and cross-border activity lower still.xiii Many businesses are still reluctant to sell online and online sales are still a relatively small part of overall sales activity for many organisations.xiv This is reflected in the Digital Agenda for Europe, where the near term targets for cross- border online purchases and small and medium enterprises selling online still look far from being achieved.xv Just as consumers are embracing digital technologies, a number of businesses and governments in the EU also are demonstrating how digital can help boost productivity and foster growth. On the productivity side, digital technologies are helping European organisations automate and streamline business processes to make them more efficient and increase output per employee—as these real-life examples illustrate: • A major private Italian bank developed and deployed a mobile iPad® application to support personal financial advisors in their sales conversations with customers. The app provides the ability to take a real-time snapshot of customer accounts and incorporate this information into a presentation highlighting the bank’s investment products. As a result of using the app, the bank has increased the effectiveness of its personal financial advisors, eliminated costs associated with paper management, and boosted advisor productivity by minimising rework and repeat trips between the office and clients.xvi • One hospital in Spain has deployed a technology solution for chronic disease management that includes patient segmentation, modelling, self-management, connected patient network, electronic medical record, telemedicine, and new roles and responsibilities for homecare, hospitals, and nurses. It is estimated that if this type of program were extended and applied at the European level, it could lead not only to better services but also to health management-related cost savings that could amount to €62 billion, or 5 percent of European governments’ health spendingxvii . • In the energy sector, the United Kingdom is embarking on a deployment of smart meters, supported by mobile and analytics technologies, to more than 50 million electricity and gas meters.xviii The effort is expected to enable the UK’s energy producers to manage and analyse high volumes of meter data more effectively to help customers conserve energy and to enhance providers’ outage management processes with near real-time outage and restoration verification capabilities. 14 Appendix: Q26 15 Appendix: Q25 16 Appendix: Q36
  21. 21. 21 In terms of product and service innovation, digital technologies are enabling European companies to develop new and relevant products and services to sell to today’s digitally inclined customers, both in domestic and international markets. For example: • A European carmaker launched a new range of connected vehicle services designed to meet the increasing wants and needs of drivers and passengers to have access to connected services in their vehicles. The services deliver the latest in-vehicle technologies providing consumers with entertainment and information, enhanced safety features, and seamless integration with their mobile devices. The company benefits through revenues from subscription fees from end customers for the connected services. • A French bank adopted a cloud-based analytics solution that automates risk assessment to help it fulfil state- mandated obligations to provide short-term lending while managing credit quality. Ten days after rollout, the system was handling more than 300 loan applications worth more than €250 million.xix In effect, the analytics approach is helping the bank grow and is also enabling the bank to contribute to economic growth by providing liquidity to businesses while managing risk. • A European tire manufacturer has created a solutions- oriented business for its commercial customers—based on selling “tyres as a service” with fees charged per kilometre driven—to complement its existing product- oriented business model (i.e., selling tires outright). The company uses data transmitted by the tires, combined with other metrics (such as fuel savings data and driving style), to optimise customers’ total cost of ownership. With high penetration rates across broadband, mobile and smartphones, extensive use of eGovernment services, and strong digital initiatives already under way in many European companies, the EU is in a good position to build on this progress. However, to sustain this momentum and succeed in rebuilding competitiveness in both the short and long term, Europe’s business and policy makers must take urgent steps to convert the region’s digital potential into higher levels of productivity, innovation, and growth to ensure the EU can become a leader in a new era of digital business.
  22. 22. 22 Music, books, art, maps, the ways we communicate—these and countless other things that used to be primarily physical or analogue are now digital as well, and that has changed the ways we live, work, learn and play. But that is just the tip of the iceberg. Today, technology is enabling the digitisation of almost everything. Five such technologies are particularly influential in transforming the lives of consumers and the organisations that serve them. CONNECTED EVERY- THING – THE INTERNET OF THINGS Connected devices of all kinds and sensors integrated nearly everywhere have tremendous potential to enable new ways of automated and personal interaction. They allow businesses and public sector organisations to manage assets more effectively; optimise performance and improve operational efficiency (through, for instance, better supply chain tracking and management); and create new business models and lines of business. MOBILITY Mobility simply used to be another forum for enterprises to deliver information—that is, develop an application that would let employees (and later, customers) use a browser to navigate through company data on a mobile device. Now, mobility enables companies to do so much more. Companies can use mobility to optimise business processes, simplify tasks and enable employees to be more productive. And they can use it to improve user engagement—interacting with customers and prospects no matter where they are—and create new revenue streams for their businesses. FIVE KEY DIGITAL TECHNOLOGIES
  23. 23. 23 BIG DATA ANALYTICS Using sophisticated analytics, European businesses, government agencies and other public service organisations can generate deep insight from the data they collect— insights that can help them improve their business in a myriad of ways. For instance, analytics can increase growth by helping companies understand and reach new customer segments more effectively. It also can drive operational excellence by helping to identify ways to improve key business processes and enhance workforce skills. CLOUD Cloud computing can improve the economics of IT for companies and governments, as well as provide greater operational flexibility and responsiveness. It also enables organisations to shift to operational costs and entirely new business models, including flexible “pay-as- you-go” service models. SOCIAL MEDIA Social media excels in its ability to personalise interactions with customers and support new ways of interacting within and outside of the organisation. Social media can be a powerful tool for helping European companies keep in tune with changing customer demands and behaviours, as well as serve as an efficient channel for reaching today’s digital consumer —especially those in fast-growing markets.
  24. 24. 24 THE DIGITAL RE- INDUSTRIALISATION OF EUROPE
  25. 25. 25 As noted earlier, Europe is well positioned to benefit from the digital revolution. The region has a strong corporate base (it is home to 14 of the world’s 50 largest companies by market capitalisation) with a significant innovation capacity. Europe also boasts a significant number of entrepreneurs and young businesses, (which account for half of the jobs created in Europe each year),xx that tend to be experienced with and receptive to the use of a wide variety of technologies. European consumers are similarly sophisticated and open to innovation—they are asking for and actively using digital technologies in their daily lives. And the high esteem in which the education system in Europe is held is one of the most important strengths that will help to improve digital competitiveness in the EU.17 But while the impact of digital is being felt everywhere, the real change has barely started. The power of digital is in the interplay of the different technologies. It is not about social media, but the potential for social collaboration at any time or place. It is not about using analytics to create a better marketing campaign, but leveraging enterprise data across the whole supply chain. It is not about smart tollgates on motorways, but the opportunity to use the data from millions of real-time traffic movements and from road sensors to help optimise traffic flows across a whole region. It is not about online back-up, but giving a young business access to near-unlimited computing power that years ago only massive organisations could afford. It is about helping to solve everyday challenges for citizens, consumers and organisations in new ways based on new combinations of information, resources, and technologies. To illustrate this, we explore how specific digital technologies are helping to transform five key sectors of the European economy—and further demonstrate the potential digital has to rebuild competitiveness and create economic growth across the EU. 17 Appendix: Q18
  26. 26. 26 MANUFACTURING The manufacturing industry is arguably the “engine” of the European economy. A strong industrial base is essential for Europe’s recovery and long-term competitiveness, growth and job creation.xxi Digital technologies offer manufacturers a variety of opportunities to close the competitive gap. Industry 4.0, a ground-breaking approach to production with digital technologies as its foundation, promises to usher dramatic changes into the industrial world and serve as a catalyst for the reindustrialization of Europe (see Figure 11).18 Billed as the fourth Industrial Revolution, Industry 4.0 is poised to combine classic production techniques with cyber-physical production systems (CPPS), leading to the creation of an “Internet of things, data, and services.” Industry 4.0 represents a tectonic shift from centralised to decentralised production. This means that industrial production machinery no longer simply “processes” the product, but that the product communicates with the machinery to tell it exactly what to do. Decentralized intelligence helps create intelligent object networking and independent process management. The interaction of the real and virtual worlds represents an entirely new way of approaching the manufacturing and production process. Industrial processes, for example, can be made more efficient by connecting them to the Internet in a “Smart Factory.” Cyber-physical production systems also signal a paradigm shift from existing business models, as revolutionary new applications are developed, new service providers emerge, and new value chains become possible. The new and intelligent products, embedded in intelligent networks, can be harnessed to spin off a host of new business models. The horizontal integration of these intelligent products and networks can also help expand the value chain. Figure 11: The fourth Industrial Revolution. 4. Industrial Revolution based on Cyber-Physical Production Systems 3. Industrial Revolution through introduction of electronics and IT for a further automatization of production 1. Industrial Revolution through introduction of mechanical production facilities powered by water and steam 2. Industrial Revolution through introduction of mass production based on the division of labour and powered by electrical energy Cyber physical systems combine communications, IT, data and physical elements using the following core technologies: • Sensor networks (receptors) • Internet communication infrastructure (IP) • Intelligent real-time processing and event management (CPUs) • Actors for mechanical activities • Embedded Software for logic • Big Data and Data Provisioning • Automated operations and management of system activities Industry 4.0 Industry 3.0 Industry 2.0 Industry 1.0 End of 18th Century Start of 20th Century Start of '70s Today DegreeofComplexity Source:Accenture analysis 18 Accenture, “Digital Industry 4.0”, 2013
  27. 27. 27 Companies can up the ante from merely producing intelligent devices to adding more value by coupling the product with a host of services brought about by the deep analysis of data. New big data processing technologies allow the analysis of large amounts of data collected from digitized products and networked sensors. They can also help accelerate the entire data cycle from insight to action, enhancing the enterprise’s ability to deal with data velocity. For example, Trumpf GmbH, a German producer of intelligent machine tools and industrial laser systems is taking the next step beyond efficiently manufacturing its machines.xxii Instead, Trumpf is interested in mining the information provided by the machines, to gain deeper, actionable insights and to network machines in an intelligent way to create smart factories. In this way, they autonomously exchange information, trigger actions, and control each other, improving productivity and speed and reducing costs. At Trumpf, networking has already advanced greatly. Apart from a cloud-based platform for remote diagnostics, there is the Trumpf software for production control, which takes the inventories and the urgency of order processing into account and allows the production status to be remotely monitored via an app. According to Trumpf, all of its Industry 4.0 activities are designed to further increase its machines’ productivity, making better use of resources and thereby helping to improve the performance of Trumpf’s customers.xxiii The common denominator enabling Industry 4.0 is greater leverage of industrial software. Driven by the continuous need to reduce costs and increase process transparency and flexibility, manufacturing companies increasingly embed industrial software in their installed machine base. This enables them not only to better manage the entire automation processes, but also creates new opportunities to transform their current business models from one focused on making products to one that is oriented toward providing solutions. Four solutions, in particular, are poised to support the entire set of operations along the value chain in an integrated manner, adding value in the process. One solution is nextgeneration corporate optimization and execution systems that can help manufacturers drive down costs. Enterprise Resource Planning (ERP) systems already provide many applications, from customer relationship management (CRM) to sourcing, manufacturing and forecasting. Future ERP systems will leverage in-memory computing, advanced Web portals and cloud computing, thereby offering all the entities along the supply chain access to real-time data and need-based data processing. Benefits include lower capital expenditure, reduced costs and quicker implementation. By harnessing the cloud skilfully, companies can also enter completely new businesses or quickly launch new products. Crowdsourcing is another solution that can help manufacturers to further leverage the power of social media to boost innovation. As several successful innovators have learned, opening up the innovation process to the collective wisdom of ‘the crowd’ can dramatically increase the odds of coming up with the next big idea before someone else does. It is possible that the future will see entire parts of the supply chain outsourced to an undefined, anonymous ‘crowd’ using technologies such as the Internet. A third solution is next-generation 3-D printing. This powerful tool is likely to be one of the leading technologies in the future that will significantly change the way products are developed, produced, delivered and serviced. Consumers may have the opportunity to design products on their own personal computers or co-design them with companies using the Internet, producing them within the confines of their own homes. With further refinement in technology and a reduction in printing costs, 3-D printing could render an entire phase of traditional supply chains obsolete. Finally, Product Lifecycle Management (PLM) can have a major impact on manufacturers’ operations by helping them organize, develop and manage new products and services throughout their lifecycle. Integrated PLM—which closes the loop between product usage and engineering, and provides a foundation for collaboration among engineers and other experts around the globe—can enable manufacturers to get products to market faster and more efficiently. Manufacturers using PLM have increased the speed of product launches by up to 55 percent and reduced operational and product development costs by 10 percent to 30 percent.xxiv
  28. 28. 28 BANKING While banks in the EU are recovering from the downturn, growth is slow and profitability remains low. The return on equity (ROE) at the average large EU bank in the first half of the 2013-2014 financial year was 8.2 percent, compared with 8.7 percent for the United States. ROE of large EU banks is forecast to remain below 10 percent in 2015.19 Digital offers a multitude of benefits for banking institutions that can help them achieve stronger growth and profitability—including cost containment through automation, risk management, increased revenues through new digital products and services, enhanced quality of services through digital channels, and ultimately increased profitability (an estimated ROE uplift by 3.8pp through technology-enabled business transformationxxv ). A French bank for example, adopted a cloud-based analytics solution that automates risk assessment to help it fulfil state-mandated obligations to provide short-term lending while managing credit quality. Ten days after rollout, the system was handling more than 300 loan applications worth more than €250 million.xxvi In effect, the analytics approach is helping the bank to grow and is also enabling the bank to contribute to economic growth by providing liquidity to businesses while managing risk. Despite such benefits, however, EU banks appear to be slow in adopting digital. Across Europe, retail banks have only digitized 20 percent to 40 percent of their processes. In addition, 90 percent of European banks are investing less than 0.5 percent of their total spending on digital.xxvii Making their outlook worse is the aggressive entry of non- banks with digital innovations such as mobile and online payments, and capturing a growing part of the banking value chain. By being slow to embrace digital technologies, banks risk being consigned, by digitally enabled competitors from other industries, to a limited role as utilities. Bank- customer loyalty has also become more tenuous (on average, 20 percent of banking customers switch banks or banking products each yearxxviii ). Together, these factors could have a devastating impact on banks’ customer bases. To avoid being relegated to a form of utility banking, where they become a back-office function for their customers, banks must innovate through digital products and services to fight back and gain new market share. It is estimated that 40 percent of revenues and 55 percent to 60 percent of operational processes in the average financial institution, could be impacted by technology.xxix Up to two-thirds of the profitability uplift required by banks to be in the high performer category is linked to technology-led transformation (see Figure 12).xxx Figure 12: For a bank, up to two-thirds of the profitability uplift required to be a high performer could come through technology-led transformation. Technology Enables business transformation ROE uplift 5.7 Strategic cost reduction 12.0 Asset quality normalization ROE potential2012 2.82.6 1.9 0.9 0.2 1.3 Regulatory adjustment 1.3 Momentum growth Balance Sheet efficiency 0.6 Delivering performance improvement through technology enabled change Business transformation Economic ROE uplift Source:Accenture analysis 19 Accenture, “Technology that matters, Harnessing the technology wave in banking,” 2013.
  29. 29. 29 Payments are the primary touch point with banks’ customers and account for up to 25 percent of the typical bank’s revenues. Right now, banks have vast amounts of big data—information clarifying where people shop, how much they spend, and what they use to make payments. If they lose that to alternative providers, they lose customer insight and customer touch points. But they are beginning to fight back. BNP Paribas Fortis, SA/NV, for example, has teamed up with Belgium’s largest telecom company and Accenture to create Belgium’s first mobile wallet. It will allow consumers to use their mobile devices to purchase goods or services, redeem coupons, or use their loyalty cards when visiting the mobile application of participating merchants. It is not just a mobile payments tool; they are creating a commerce “ecosystem” for Belgian merchants and consumers. The program is currently in the pilot stage with major Belgian merchants. In mature markets, where banks have been busily cutting costs for five years, they are now using digital for growth. Accenture estimates that if a bank can shift a customer fully from physical branches to a digital platform, it can reduce costs by around 70 percent. But a bank also can provide value-added digital products to its customers to grow both revenues and market share. For instance, Lloyds Bank plc analyses its data to offer cash back for goods and services that its customers buy using their debit cards, all based on customers’ past spending habits and merchant promotions. T. Garanti Bankası A.S. (Garanti Bank) in Turkey has designed a highly sophisticated mobile banking app that uses GPS data and analytics to provide customers with discounts relevant to the stores they happen to be passing by. It also helps them manage their money based on past spending behaviour and withdraw cash using their mobile phones. Barclays Bank PLC’s number-one digital avenue for attracting new customers has caught on quickly amongst young people in the UK. The service, called Barclays PingitTM App , allows customers to transfer money to one another using a mobile phone. All these digitally enabled products will help generate growth and protect customer relationships because they allow banks to become more a part of people’s everyday lives, not just a utility for processing transactions and holding deposits. Following the financial crisis, governments in mature markets are encouraging competition in banking. That will include efforts to make it easier for customers to switch providers. Banks know they need to improve their image with customers. With digital products and services, they have an opportunity to differentiate themselves, not least through establishing these innovative services with leaders in other industry sectors.
  30. 30. 30 ENERGY AND UTILITIES Energy costs are a critical component of competitiveness for EU-based companies, particularly for manufacturers in energy-intensive industries, which account for about 25 percent of industrial employment and 70 percent of industrial energy use, according to the International Energy Agency20 . In 2011, the EU was the world leader in the production of energy-intensive goods with a 36 percent market share, far outpacing other countries such as the United States (10 percent), China (7 percent), and Japan (7 percent).xxxi Today, this leadership position is threatened by the disparity in energy costs between EU and other countries. In fact, partially because of their lower energy costs, the US and key emerging economies are expected to see a rise in export shares of energy-intensive goods up to 2035, while EU and Japan are likely to see a sharp decline. (See Figure 13)xxxii . Figure 13: The United States and key emerging economies are forecast to increase their share of energy-intensive goods, while the EU and Japan are likely to see a sharp decline. As it is unlikely that the EU will be able to compete with the United States on energy costs in the foreseeable future, it needs to become more energy efficient and take fundamental market model decisions regarding fuel mix, interconnection, the EU Emissions Trading System, and capacity remuneration to optimize the overall energy system. Digital technologies can play a role in helping the EU’s transition to this ‘new energy architecture’. Technologies such as smart grids, smart metering and analytics can help make the EU a world leader in energy efficiency and intelligent, distributed energy, compensating to some extent for the EU’s energy cost disadvantage. These technologies also provide opportunities for global leadership in high-value exports of energy technology. In fact, 58 percent of European business leaders believe digital technologies are important to enabling access to competitive energy and 56 percent agreed they are important to improving energy efficiency. Just over one third said digital technologies are critical to addressing both of those issues (see Figure 14). Figure 14: Digital technologies will be key to address key energy challenges Europe is facing. How important are the digital technologies (connection of renewable energy to efficient smartgrid, smartmetering) to address challenges Europe is facing? European Union -10 36 Japan -3 7 +3 China 7 +2 Middle East 3 +2 India 3 USA 10 +1 Export share in 2011 Expected changes for 2035 in pp Source:Accenture, IEA,WEO 2013 Critical Important 93% 35% 58% 92% 38% 56% Access to competitive energy Energy efficiency Source:Accenture European Business Summit Survey 2014 20 International Energy Agency (IEA), “World Energy Outlook, 2013”.
  31. 31. 31 Adoption of technologies such as smart grids, smart metering and analytics can help make the EU a world leader in energy efficiency and intelligent, distributed energy, compensating to some extent for the EU’s energy cost disadvantage. These technologies also provide opportunities for global leadership in high-value exports of energy technology. Business leaders believe there are three key priority actions that should be taken at a European level to boost the adoption of digital technologies to address energy challenges in the region: the promotion of energy efficiency (cited by 73 percent); support and investment in Smart Grids (61 percent); and support and investments in renewables (60 percent) (see Figure 15). Figure 15: Digital technologies will be a key driver of energy efficiency. What priority actions should be taken at European level to boost the adoption of digital technologies to address energy challenges in Europe? Smart technologies, in particular, hold massive promise. Smart grids can convey real-time information on the state of the grid and, in conjunction with advanced analytics, help reduce electricity waste, spending on monitoring and diagnosis of network problems, and maintenance costs. They also are key enablers of distributed energy generation (for example, district heating and cooling systems and photovoltaic (PV) panels), which allows for more responsive demand management and a reduction in transmission and distribution (TD) losses. The European smart grid market is projected to be worth more than $82 billion by 2020, and represents 20.6 percent of the global smart grid opportunity.xxxiii Amongst a majority (60 percent) of energy executives globally, analytics solutions will be the highest- priority smart grid investment for their company in the coming years.xxxiv Similarly, smart metering deployment can help energy producers manage and analyse high volumes of meter data more effectively while providing customers with detailed energy usage data—which in turn, results in decreased peak energy consumption and electricity bills. By integrating the meter data management system with existing utilities network management systems, an energy company can enhance its outage management processes with near real-time outage and restoration verification capabilities. While new technologies are an important component of driving energy efficiency, there also needs to be a fundamental change in industrial, commercial and residential consumer behaviour to encourage them to be more proactive about the way they manage their energy use. From a residential perspective, mobility, combined with products such as NestTM home automation products and services (recently acquired by Google, Inc.), can help consumers regulate energy use when they are out of their homes, thus reducing overall consumption. Of course, there is no single pathway to this ‘new energy architecture’. However, the most effective approaches all share several common features, including a long-term approach to energy policy that helps to support investor certainty; low-carbon fuel mix with base-load hydro and nuclear power-generating capacity; and energy efficiency across industrial, commercial and residential sectors. 73% 61% 60% 53% 52% Promote energy efficiency Support and invest in Smart Grids Support investment in renewables Support and invest in storage technologies Support the development of new transportation modes (e.g., Electic car) Ranked within top 3 Sample base = All respondents (N=513) Source:Accenture European Business Summit Survey 2014
  32. 32. 32 PUBLIC SERVICES Public services are a crucial and substantive component of the EU economy, accounting for more than 50 percent of GDP across the EU as an average. That gives European governments’ significant leverage in orchestrating economic activity as well as creating strong foundations for competitiveness and growth. However, doing so will require significant effort, both within public service to increase productivity, as well as innovation through the public service to create ripe conditions for businesses and citizens to thrive. Political and economic realities such as an aging population, high unemployment, cyber security, and environment sustainability—all against the backdrop of fiscal tightening—are putting enormous pressure on public services. In addition to this, citizens’ expectations from their governments have risen significantly in recent years, encouraged in part, by their experiences with the private sector, such as banking, consumer goods, media and entertainment services. Citizens and businesses are consequently expecting better and more personalised services, multichannel and ubiquitous access, real-time information, increased transparency, and participation. The public service ecosystem is changing dramatically as well. Disruptive technological trends like social media and collaboration, mobility, analytics, big data, and cloud are creating a paradigm shift in how people live, work and interact. European Governments will need to fully embrace this if they want to be seen as relevant and in touch with citizens. This is also a clear expectation from business leaders. As shown in the survey carried out for this report, when asked how confident they are that public services in Europe will be able to leverage digital technologies to improve the quality of service to citizens and businesses in the next three years, 68 percent of respondents were optimistic, while 32 percent were pessimistic (see Figure 16). Digital technologies can help public service organisations in a number of ways. For starters, integrated online portals— underpinned by cross-agency data sharing and providing a “onestop shop” experience for all citizens’ requests—such as taxes, pensions and benefits—can help drive significant cost efficiencies through self-service and automation, while providing a much higher quality of service. Such an improvement would be welcomed by citizens. On a global level, according to a separate survey in 2012, 46 percent of citizens would prefer a single website to deal with the government.xxxv A significant element of the portal is the ability for organisations to personalise services to meet citizens’ specific circumstances and needs. Figure 16: Digital technologies will support the improvement of public services. How confident are you that public services in Europe will be able to leverage digital technologies to improve the quality of service to citizens and businesses in the next three years? At the same time, digital fosters and supports the transformation of public-services delivery by allowing new types of partnerships across public, private, and third-sector actors. Through much stronger integration of data, using common and open standards and being device- or channel- agnostic, digital offers fundamental shifts in the interaction between governments and citizens as well as businesses to create a seamless experience. For example, in the future, citizens should be able to access, in real-time, individual pensions holding through a portal, which could indeed be co-managed by public and private sector. In this co-production model, the citizen has access to updated pensions information, but can also correct and modify personal data. Digitally skilled officials could be on stand-by for exception handling, via chat or other remote technologies, to guide the user through to service fulfilment. Very optimistic Optimistic 65% 29% 3% 6% 62% Pessimistic Very pessimistic Source:Accenture European Business Summit Survey 2014
  33. 33. 33 Social networking and mobility provide the platform to further engage citizens and create participative democracy. In fact, overall, 64 percent of citizens already use social media or would like to use it in the future as a means of interacting with their government (see Figure 17).xxxvi In return, they call for Governments to be more responsive and accountable. Crowdsourcing initiatives encourage citizens to discuss and debate issues or voice their concerns, exchange information, petition governments to make improvements in public services, and even to work together to improve the quality of life in their communities. Figure 17: Adoption of social media by citizens. The co-design and co-delivery of public services with stronger ownership and participation of recipients of these services will lead to a repositioning of public services, whether it is with “government as a platform” or “new public movement” initiatives, but in any case enabled by digital. For example, through labour market analytics solutions governments would be better placed to forecast future supply and demand of skills and, as a result, be able to facilitate much higher-quality matching between vacancies and skills, target investment in educational programs to address skills shortages, and thereby improve overall competitiveness of industry. In taxation, such tools help reduce fraud and errors, identify revenue leakage opportunities, and reduce costs through streamlined operations or crossagency collaboration. Finally, digital technologies can help public service organisations solve the “public productivity puzzle” and deliver better outcomes for the same or lower cost. For instance, a Digital Efficiency Report commissioned by the UK government found that the average cost of a central government digital transaction can be almost 20 times lower than the cost of one done by telephone and 50 times lower than one executed face to face.xxxvii In Portugal, an initiative called “Zero Licensing” spearheaded by the agency for administrative modernization (AMA), was able to reduce the time to start a business to just one day from more than 30 days.xxxviii The impact of efficiency improvement on the bottom line is significant: One percent annual productivity gains would amount to cost savings of US$180 billion in France, US$190 billion in Germany, and US$140 billion in the United Kingdom.xxxix At a macro level, digital can drive significant benefits for public services organisations. Accenture’s research and analysis shows that adoption of digital technologies in government brings substantial benefits to society and the economy: A 1 percent increase in digitization (in the economy) correlates with a 0.5 percent gain in gross domestic product level, and a 2 percent increase in international trade levels. Increasing digitization also has a positive impact on addressing social challenges: A 10-percent increase in digitization correlates with a drop of 0.9 percent in the unemployment rate.xli Overall, our research tells us that an enthusiastic adoption and facilitation of digital technologies could improve overall productivity, transform the relationship between citizens and governments and play a major role in economic growth and competitiveness in Europe. 64% of citizens stated they already use social media or would like to use it in the future to interact with their government. Source:Accenture, 2014
  34. 34. 34 HEALTHCARE Healthcare is already a major public-spend item in most European countries and will become unsustainable if not urgently addressed. People are living longer and often face multiple health conditions that require long-term care. In some countries, a small minority of the population with serious, long-term medical conditions accounts for more than half the healthcare budget. Increasingly, life diseases such as obesity will put pressure on providers as the range of healthcare requirements becomes even more diverse.xlii Patients want access to top-quality healthcare, which means governments will need to make healthcare reformation a priority if they are to provide equal, accessible and affordable care. In the current economic climate, they will need to find ways to not only maintain but improve patient outcomes at a lower cost. The answer for Europe lies in transforming the way that health services are provided and managing legal, business, credit, political and strategic risks proactively. Digital tools can play a major role in this effort, as they can help promote wellness and preventive care to reduce the incidence of costly treatment for chronic diseases, deliver better treatment outcomes, and cut overall operating costs. These tools include remote patient monitoring, proactive health, fact-based personal analytics and coaching, patient monitoring and education, disease management, and home health. Mobile platforms are also enabling, through smartphones and tablets, the adoption of greater patient access to healthcare on a “do it yourself” basis, as well as telemedicine solutions for chronically ill patients. Technological innovation is also fostering organisational changes—such as “connected health” and integrated healthcare service models—that are enabling providers to deliver more cost-effective services and better quality of care. In this scenario, health management efficiencies and improved care integration may be found by integrating treatments amongst community-based care, primary care, hospitals, nursing homes and other providers, rather than silos. Many telehealth pilot programs, for instance, have reported success in reducing the number and length of hospital stays and emergency visits (as well as increasing patient satisfaction). One of these, a three-year telemonitoring pilot in the United Kingdom across three sites, has resulted in a 45 percent reduction in mortality rates, a 15 percent cut in emergency visits, a 20 percent drop in emergency admissions, and a 14 percent cut in number of bed days of care.xliii Predictive analytics may potentially enable interventions ahead of long-term hospital admissions and may ensure that the right facilities are available to meet future public needs. Health Information Technology (IT) systems with telehealth techniques that remotely monitor patients’ vital signs, may also facilitate new care-models. Innovative payment structures that reward outcomes rather than activity may also be prudent.xliv In Spain, for instance, Osakidetza, the Basque public health service, deployed a technology solution for chronic disease management that included patient segmentation, modelling, self-management, connected patient network, electronic medical records, telemedicine, and new roles and responsibilities for homecare, hospitals, and nurses. This holistic approach to tackling the challenge of chronic diseases in the Basque Country generated €59.5 million in cost savings in 2012 (see Figure 18). In addition, pharmaceutical prescription costs have decreased by 2.5 percent.xlv
  35. 35. 35 It is estimated that if Osakidetza’s programme was extended and applied at the wider European level, it could lead not only to better services but also to health management-related cost savings that could amount to €62 billion, or 5 percent of EU governments’ health spending.xlvi In Valencia, Spain, digital technologies are the foundation of a health management solution that enables La Fe Hospital to address multiple population segments, with a particular focus on the “top of the population pyramid”— the 17 percent of the patients who drive approximately 60 percent of the total health system’s expenditure. Use of predictive analytics along with case management could help a region like Valencia reduce its total health expenditures by approximately 10 percent. Transitions in healthcare delivery will bring with them their own new challenges for public and private healthcare providers and payers, which may include cost pressures relating to advances in healthcare technology, or regulations protecting patient information. Digital technology is, however, a key lever that could help to lower costs and help improve the productivity of Europe’s healthcare systems. Digital health information is a critical requirement, and “one patient, one medical record,” must become the industry’s mantra. Through connecting the fragmented healthcare information, a single view of the patient becomes possible allowing for efficient allocation of resources required for quality care and effective cost management to reduce overall country spend. Figure 18: Cost savings in chronic disease management in the Basque public health service in 2012. 59.5 million in health cost savings through Patient Segmentation Modelling Self-Management Connected Patient Network Electronic Medical Records Telemedicine New roles and responsibilies for homecare, hospitals, and nurses Source:Accenture client experience
  36. 36. SEIZING THE OPPORTUNITY 36
  37. 37. 37 As the preceding sections have demonstrated, digital technologies offer tremendous potential for organizations to dramatically improve their performance and the overall economy of the region. This is something the European Commission recognized in adopting the Digital Agenda for Europe, as part of its Europe 2020 growth and jobs strategy. Yet the only way the EU can realize the promise of digital as an accelerator for competitiveness and growth, is if businesses—large and small—and governments work closely together to create an environment in which digital technologies can flourish. To that end, we have identified a number of key actions businesses and governments should take to help pave the way for increased development and deployment of the digital technologies that are crucial to improving their own and the region’s competitiveness. Of course, the EU is made up of many countries, industries and businesses all starting at vastly different points of the journey, which means a “one size fits all” strategy is neither advisable nor practical. Combined with this, countries and industries are emerging from the recent crisis at different speeds with some needing to do more to accelerate their progress towards adopting best practice. And there are a number of important challenges that need to be addressed, by both businesses and governments, to seize the opportunity and create a foundation for renewed growth and prosperity.
  38. 38. 38 BUSINESS RECOMMENDATIONS As an economy’s competitiveness is, amongst other things, an aggregate of the competitiveness of its businesses, business leaders in the EU have a defining stake in creating prosperity through transforming existing businesses into digital businesses and creating new digital enterprises. We refer to a digital business as one that achieves growth and results by creating unique customer experiences through new combinations of information, business resources, and digital technologies.xlvii In pursuing their own strategies for renewal in a digital world, companies in the EU should concentrate on using digital technologies in two critical ways. The first is to increase productivity and internal efficiency to reduce costs. This includes improved process efficiency, better asset utilization to optimise production and inventory costs, a more responsive organisation to reduce the cost to serve and implementing new cost models like self-service, and reduced time spent on non-selling activities. The second is to generate new levels of innovation and growth by better serving customers and consumers demanding new products, services, and better experiences. This includes defining digital business strategies that target new business outcomes, the development of new and improved products and services, new and optimised channels to customers, efficient expansion into new markets, and new pricing and earnings models to maximise profitability. A digital business can create revenue and results by using innovative strategies, products, processes, and experiences. Being digital requires the adoption of four key principles: • Growth tends to come through customer experiences and relationships that adapt to their customer dynamics and demands. • Operational results can be delivered via new combinations of information, processes, channels, and workforce abilities that leverage new high-performance business and operating models. • Information is at the centre of the business model. It is usually the basis for differentiating customer experiences and the fuel for more efficient operations that deliver these experiences. • IT infrastructures become digital platforms. Companies may not be able to realise digital ambitions if they continue to be shackled by the cost, complexity, and limited capacity of their legacy infrastructures. A digital business platform supports a diverse set of customer and operational requirements with a single set of resources.
  39. 39. 39 In addition, success in digital requires businesses to develop eight foundational digital capabilities: • Strategy and governance, which focuses on how the company develops strategy that is aligned within business functions; evaluates opportunities to generate new areas of growth throughout the business; and makes, evaluates, and enforces decisions across the enterprise. • Organisation and collaboration, which involves how the company organises resources and responsibilities to achieve business goals; fosters collaboration among teams in their daily work; and builds the capacity to enhance the workforce and its abilities. • Customer experience and interaction, which includes how the enterprise interacts with its customers and incorporates digital solutions in creating unique and marketmaking experiences. • Technology and platforms, which concerns how the enterprise leverages digital technologies and platforms to generate business results. • Information and insights, which targets how the company leverages information in products, services, experiences, and company decisions. • Growth and innovation, which considers the agility with which the enterprise uses innovation and operations to define new and uniquely valuable products and services and take them to market. • Operations and ecosystem, which concentrates on the efficiency and effectiveness of operations and the business ecosystem. • Security and privacy, which involves how well the company controls and secures business and customer data, information, and intellectual property. Critically, executives need to recognize that an organisation that simply applies new digital technologies to existing products and services is not the same as a digital business. These applications can represent important steps forward. However, they will not be sufficient to capture the digital growth opportunity or address disruption from more digitally sophisticated competitors. Companies should identify the new customer-driven outcomes that digital makes possible, consider how their business and operating models need to change to deliver these new outcomes, and then define the combination of digital and traditional technologies, operations, and information required to realise these outcomes.
  40. 40. 40 POLICY RECOMMENDATIONS In parallel, EU governments, policy makers and businesses must help create the vision and put in place the enablers for the digital transformation of the economy, to drive productivity, innovation and growth and accelerate a return to competitiveness. This includes improving the regulatory environment for digital uptake, addressing the digital skills’ issue, and fostering growth and innovation through entrepreneurship. IMPROVING THE REGULATORY ENVIRONMENT FOR DIGITAL UPTAKE As highlighted earlier in the report, 41 percent of executives surveyed believe smarter regulation will make Europe more competitive.21 When it comes to digital, this means addressing the current fragmented regulatory environment faced by businesses operating across the EU, which is preventing the uptake of digital technologies and solutions, at scale, and thus limits the full potential of the digital single market. It has been estimated that Europe could gain 4 percent of GDP by fully developing the digital single market by 2020 (based on 2010 figures).xlviii If we look at the adoption of cloud computing in the EU, the current regulatory—and particularly data protection— framework poses several barriers, for both cloud users and providers. A lack of harmonised requirements across the EU means that cloud users—and by extension their cloud service providers-are subject to many country-specific data protection and data security obligations, with many countries placing restrictions on data location. The associated compliance and liability concerns mean that the cloud market in the EU is not reaching its full potential or scale, thus limiting the benefits of cloud, including lower IT costs and flexibility in IT usage, greater speed, and the ability to fully leverage new and innovative technologies and services. In addition, in today’s globalised and data-driven world, traditional regulatory approaches are being challenged, as the evolution of technology outpaces the regulatory response. Europe therefore needs to adopt a strategic approach to regulation that recognises the blurring of both geographic and industrial boundaries and leaves room for innovation, while ensuring the protection of personal data. The promise of digital is based on the ability to gather, store and analyse various types of data so organisations can make better decisions about key aspects of their business, to drive productivity and the development of new business models. By modernizing and harmonizing rules to protect personal data and streamlining compliance, policy makers can enable businesses and consumers to leverage the full benefits of new data and technology-based products and services. Finally, in addition to adopting data-friendly policies, policy makers must put in place a supporting regulatory environment for investment in technology, innovation and digital infrastructure, which are the backbone of the digital transformation of the economy and essential ingredients to the success of innovative entrepreneurs. The harmonisation of rules in the communications markets is equally critical to enabling players with operations in multiple EU countries to capture the full potential of cross-country synergies, the development of pan-European IT platforms and services. For example, the allocation of radio spectrum and the harmonisation of its management across the EU level are essential to supporting investment in wireless broadband networks. 21 Appendix: Q5
  41. 41. 41 ADDRESSING THE DIGITAL SKILLS ISSUE The region continues to struggle with a widening digital skills gap that will impact the ability of EU businesses and governments to leverage the digital opportunity. Jobs growth in the Information and Computer Technology (ICT) sector is forecast to run at 7.6 percent in the next decade, more than double the overall rate of job creation forecast.xlix The EU produces nearly 1 million science, technology, engineering and maths (STEM) tertiary education graduates every year, almost double the number in the United Statesl but far behind emerging countries such as China (1.7 million) and India (nearly 1.2 million).li Yet the number of graduates in Europe is not sufficient to close the gap between skills supply and demand. According to the European Commission, if nothing is done to change the situation, about 900,000 vacancies may go unfilled in EU by 2015, which will greatly reduce the opportunity for growth and for the digital transformation that is required in Europe’s economy.lii At the same time, unemployment remains stubbornly high and there is the real possibility that digital disruption, while accelerating economic growth and competitiveness, will displace workers due to automation and changing skill requirements. Solutions for these two complementary problems must be linked, targeting relevant technical and vocational training while employing digital platforms and tools, such as online learning through Massive Open Online Courses (MOOC) and Open Educational Resources, which will improve and accelerate access to the right skills while providing the unemployed or those in danger of losing their job the skills to gain or maintain employment. These initiatives should be promoted and implemented across the 28 EU member states. While the dropout rate for MOOC is high and standards may not be quite so rigorous, such courses are still a very cost-effective way of reaching people who may otherwise not have access to such training. There are a number of examples of successful partnerships among governments, businesses, educational institutions, and non-governmental organisations (NGOs) that are providing these groups with the opportunity to get and maintain the necessary skills. EU governments, businesses and educational institutions also need to forecast future skills needs and make targeted investments in new educational and training policies to continuously up-skill and re-skill existing and future employees to address structural changes in skills requirements. Other initiatives should include the joint development of innovative educational partnerships among governments, businesses and educational institutions, aimed at increasing the employability of non-STEM students through the development of courses and apprenticeships that help students develop and use digital skills in a professional environment. Policies that enhance the mobility of qualified talent within, and into, the EU, and promoting older workers to remain in the work force must also be part of the solution. This includes reexamining the framework for the recognition of skills across the EU to enhance the quality of information available to potential recruiters; promoting the development of language skills; and providing incentives to remain in the workforce longer. One successful example is the development of a new intermediary “YourEncore,” which focuses on engaging a growing segment of experienced talent: retirees and provides short-term solutions to skills needs YourEncore, Inc. maintains a network of specialists – retired scientists and engineers – who are called on to work on projects at more than 50 companies, such as Procter Gamble Company, Eli Lilly and Company, and General Mills, Inc. One “YourEncore” Expert, a retired chemical engineer who had spent 35 years specialising in colour for Eastman Kodak Company, helped a consumer products client solve a colour challenge with a new hair-care product.liii
  42. 42. 42 FOSTERING GROWTH AND INNOVATION THROUGH ENTREPRENEURSHIP Innovation and entrepreneurship are vital to competitiveness and job creation. The EU is no different, with many young and innovative businesses already contributing the majority of employment growth in the region. In fact, 40 percent of executives surveyed believe that innovation and the creation of new products and services will lead to greater competitiveness in Europe and are looking to EU governments and policy makers to make a concerted efforts to attract and retain inventors, innovators, and entrepreneurs— particularly those that are young and digitally proficient. Appropriate steps must therefore be taken to develop and nurture the current and coming generations of entrepreneurs that will play a central role in Europe’s recovery through the launch and development of new business models, the creation of new products and services and innovative partnerships between large and small companies. Some current actions in place to help entrepreneurs are still valid and should continue to be an area of focus. Policy makers should further promote the delivery of public advisory services, such as those regarding tax or fiscal matters, and simplified online administrative processes, while strengthening “second chance” policies to promote a higher acceptance of failure—such as adapting bankruptcy rules to the new unstable business environment to make it easier for businesses to start, grow, and further flourish. Amid these on-going initiatives, however, European governments should consider two other efforts that could help create a more entrepreneurial culture: virtual clusters and non-traditional sources of funding. While many factors contribute to entrepreneurial success, one of the biggest—and hardest to measure—is the ability to consort with other entrepreneurs in a cluster, the most famous of which is Silicon Valley. Having other like-minded individuals nearby who can serve as both a sounding board for new ideas and a support group when times get tough is something that has been proven valuable to entrepreneurs time and again. There are a number of examples of cluster development in Europe, including those in London, Berlin, and Paris,liv yet, while entrepreneurs value clusters, oftentimes geographic barriers can make it difficult for many to join them.lv Thus, virtual clusters, supported by digital technologies, can bring together educators, large and small businesses, and talent—wherever they are in the world, to accelerate the pace of innovation and job creation. Governments and businesses need to support the further development of virtual clusters in the EU. By collaborating via virtual clusters, entrepreneurs gain access to new markets, specific skills, expensive technologies, funding, economies of scale, and the possibility to eventually sell one’s business to a collaboration partner. Large companies will benefit from greater exposure to a wide range of innovation that may potentially disrupt their markets, gain access to a new talent pool, and indirectly stimulate internal entrepreneurship among their own employees.lvi Virtual clusters, supported by digital technologies, can bring together all these players to accelerate the pace of innovation and job creation. Entrepreneurs also need money to make their ideas a reality; therefore, greater strides toward fostering access to non- traditional sources of financing must be made. The EU should continue to explore ways to facilitate access to traditional sources of financing such as private loans, credits, and public support—which was a major issue for 34 percent of European executives, not only entrepreneurs—and complement those with efforts to promote non-traditional, innovative and digital forms of financing such as crowd funding. Crowd funding in the region has already become more widespread, growing in 2012 by an estimated 65 percent over 2011 for a total of €735 million.lvii This figure is all the more important given the shrinking European venture capital market, as crowd funding helps bridge the finance gap for small firms with innovative projects. The EU, together with national governments, should further explore opportunities to support the development of crowd funding, including how EU and other traditional public funding can be better utilised in this area, as outlined in the European Commission Communication, “Unleashing the potential of Crowdfunding in the European Union.”lviii
  43. 43. THE REALITY IS THAT WITH- OUT SIGNIFICANT POLICY CHANGES TO STIMULATE THE DEVELOPMENT AND GROWTH OF ENTREPRENEURS, THE EU WILL BE DEPRIVING ITSELF OF ONE OF THE MOST PROVEN DRIVERS OF COMPETITIVENESS, GROWTH AND JOB CREATION. 43
  44. 44. 44 THE NEED TO MEASURE PROGRESS AND IMPACT—A DIGITAL INTENSITY INDEX Of course, one of the keys to effectively capitalizing on the potential of digital technologies to accelerate competitiveness and growth in the EU is to understand where one is and how far one still needs to go from a business, government and policy-making perspective. In addition, businesses need to assess their current position and set out a roadmap of initiatives and targets for integrating digital technologies into processes, products, and services—all of which can be tracked. Accenture has recently measured the progress of large German companies in leveraging digital technologies, using an Accenture- developed digital index that measured progress in three areas: development of a digital strategy aligned to the overall corporate strategy; digital product and service innovation; and digital enablement and automation of the organisation. The research found there are a number of large, high- growth businesses that are already well advanced in leveraging digital technologies (see Figure 19).lix One such company is BMW Group, a traditional industry leader that has developed a comprehensive digital transformation strategy and is aggressively pursuing new digital-based offerings. For instance, via its BMW i Mobility Services,lx the company launched “DriveNow,” a car-sharing service that teams BMW, MINI, and Sixt AG to enable users to rent cars flexibly, when and where they need them. Billing is on a per-minute basis, and fuel costs and parking charges in public car parks are included. Users can locate available cars using the app, website, or on the street, and a chip in the customer’s driving license acts as an electronic key. Another example of a BMW i Mobility service is “ParkatmyHouse. com,” an online marketplace that brings together owners of private parking spaces and people in search of parking. In the public sector, Accenture’s recent digital government research evaluated progress in digital services implementation across 10 countries—Brazil, Germany, India, Norway, Saudi Arabia, Singapore, South Korea, the United Arab Emirates (UAE), the United Kingdom and the United States.lxi This Citizens Service Experience index is based on a combination of weighted quantitative and qualitative measures in three key areas: the voice of citizens related to the role of their governments in providing excellence in services; the level to which a government has developed an online presence; and the extent to which government agencies manage interactions with their customers— citizens and businesses—and deliver service in an integrated way. Using this index, Accenture was able to assign an overall score on digital service progress for each country. Singapore emerged as the overall leader (7.4), followed by Norway (7.3), and the UAE (6.7). South Korea (6.0), Saudi Arabia (5.9), the United States (5.9) and the United Kingdom (5.7) formed the middle pack, and India (5.4), Germany (4.7) and Brazil (4.3) followed.lxii Finally, the European Commission, as part of its Digital Agenda for Europe, measures and publishes an annual scorecard of progress toward the adoption of digital technology and services across EU member states.lxiii While this is an important and positive initiative, it does not measure the impact of digital on the factors that influence competitiveness—at an EU, national or industry level. As part of Accenture’s research programme on European Competitiveness, and as a contribution to the discussion on how digital technologies can accelerate competitiveness and growth across the EU and its industries, it will develop a methodology for measuring the impact of digital on European competitiveness—both from a country and industry perspective—against which progress can be measured over time.

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