Digital Transformation Monitor The need to transform local populations into digital talent May 2017 Internal Market, Industry, Entrepreneurship and SMEs
GaudiLab/Shutterstock.com The need to transform local populations into digital talent The growth of digital talent is becoming increasingly important for the economic development of regions and cities. Digital talent can encourage entrepreneurship and innovative thinking, increase prosperity and lead to the diversification of local communities. By encouraging the development of digital talent, cities can decrease unemployment and prepare their local communities to the future economy. 1 The digital revolution: a key driver of economic growth The digital transformation of how we work is one of the great megatrends of the 21 st century. By the end of 2016, about 3,2 billion people were connected to the internet worldwide and by the end of 2013, those who have grown up with digital started to outnumber those that had to adapt to it.¹ Digital technologies are driving powerful economic and societal transformations. Those that have grown up with digital are running their entire lives on smart devices, on the move, always connected in real time. This generation expects the private and public organisations they work for, buy from, and interact with to have adopted the same lifestyle. Digitalisation is therefore at the top of the agenda for nearly every public and private organisation. At the same time, the digital transformation offers numerous new opportunities to businesses and local economies. Digital natives outnumber digital immigrants since 2013. Impact at regions and cities level The new digital era offers significant opportunities for boosting productivity, spurring growth and stimulating innovation. Digital transformation is therefore crucial to accelerate the European industrial renaissance. In the communication entitled Regional Policy contributing to smart growth in Europe 2020 ², the European Commission (EC) stressed the central role of regions in unlocking the growth potential of the European Union (EU). Policy leadership at local level is thus critical to drive forward local ecosystems conducive to the development of innovations and for the digital transformation of local businesses, organisations and public services. Today, all roads lead to digital. The digital economy cannot be limited to a single rising business sector or region: it corresponds to a whole new paradigm that is revolutionising industries across their entire value chain, impacting both public and private entities. A global move towards digital transformation reshaping European local economies Especially established companies in traditional sectors such as manufacturing or agriculture are benefitting from the digitalisation of their sectors. The effects of the digital transformation are not limited to a few selected sectors or industries. Digital technologies can no longer be limited to tech start-ups or the telecom sector. The digitial transformation is reshaping entire economies as no sector nor industry can remain untouched by the digital wave. New digital trends such as cloud computing, mobile service devices or social media are changing the business landscape, reshaping the nature of work, the boundaries of enterprises as well as the responsibilities of business leaders. These trends spur innovation in business models, business networking and the transfer of knowledge as well as access to international markets. Digital technologies are reshaping the entire economy at local, national and global levels and driving growth in regions and cities. According to the Digital Transformation Scoreboard³, 75% of the respondents agreed with the statement that the digital economy is a significant opportunity for their company. Most of these business leaders are therefore overwhelmingly positive about the way digital allows them to create value, reaching more customers, more quickly, and more directly. They all see the potential to use digital technologies to propel their business forward. of Digital Transformation 75% Scoreboard 2017 respondents regard digital technologies as an opportunity. Ivan Smuk/Shutterstock.com 2
The need to transform local populations into digital talent 2 Digital trend driving EU growth Importance of the ICT for EU regions and cities The ICT sector is already one of the key drivers of the economy of European cities and regions. According to Eurostat, the value added of the ICT industry on the European economy is around EUR 600 billion (almost 5% of GDP). The sector accounts for around 25% of the total business investments in R&D in the EU.⁴ However, benefits from ICT in the US are greater. Europe needs structural reforms and a consistent digital agenda to unleash similar impacts. The role of EU regional and local actors is critical for the success of such structural reforms to accelerate the implementation of the digital agenda. Spillover of ICT on other sectors Beyond the ICT sector, digital technologies are having an impact on the overall economy of European regions and cities. Since 1995, digital technologies have driven half of productivity gains in the EU, thanks to technological progress and investments in the sector. Digital technologies have supported more than 20% of economic growth in the world s most advanced economies in the period 2004-2009, according to a McKinsey study. Even better, the digital economy is expected to grow seven times faster than overall European Union gross domestic product in coming years. Impact of digital on the Single Market Digital technologies have a huge potential to strengthen the Single Market. However, the level of e-commerce and e-business varies across Member States and cross-border transactions are limited. Although 66% of Internet users in 2016 used it to buy or order goods or services for private purposes, only 32% of them do so from other EU countries. By contrast, in the US ecommerce is more common place with 75% of internet users buying or selling online. 3 Digital revolution: an untapped potential Europe needs to continue its efforts to achieve a genuine digital single market. Accelerating the level of digital transformation in European regions and cities is also essential to stimulate the growth of European SMEs and to provide consumers with more choice at competitive prices. Facing emerging challenges need to be overcome Digital technologies are bridging vast distances and converting the world into a global village, bringing global companies closer to local economies. Regions and cities are the natural homes to facilitate collaborations between business leaders and businesses that could be digitally transformed as they bring together local resources and facilitate collaboration between local stakeholders (industry, policy makers and academia, etc.). These collaborations have produced many of the smartest digital initiatives, greatly increasing the attractiveness of the participating cities or regions. In particular, European regions and cities are facing emerging challenges: Social: with more than 50% of the global and 78% of the European population living in cities, and close to 700 million people moving to cities within the next decade, a huge stress is being placed on aging public infrastructures; Political: a lack of shared goals benefiting all constituents is keeping PPPs models from reaching their full potential; Economic: the global financial crisis and economic slowdown that followed have dramatically reduced public budgets, whereas 85% of the EU s GDP is generated in cities; Technological: ICT advances have reshaped traditional notions of where people work, potentially challenging the exclusive brain power that cities enjoyed in the past. Regions and cities as enablers of digital transformation By actively encouraging sectors and social enterprises to participate in digital initiatives, regions and cities can lead the way in the digital transformation of their communities and turn them into innovative vibrant communities. The digitalisation of these communities will not only encourage an influx of new inhabitants introducing new energy, thoughts and ideas but will also allow for better cooperation between citizens and enable the development of an innovative sharing economy thus securing the future prosperity of the cities or regions concerned. Anteromite/Shutterstock.com 3
The need to transform local populations into digital talent Cities as supportive ecosystems for start ups Most start-ups are created in cities, where entrepreneurs and small businesses can find the opportunities, services and infrastructure they need to thrive. City governments have a deep understanding of their local economies (including sectors, opportunities, strengths, weaknesses and needs), as well as of their regional context. They are best-placed to define the most appropriate strategies to create favourable local entrepreneurial ecosystems. Most city governments have policies and programmes tailored to the specific needs of local entrepreneurs and small businesses. The Digital Transformation Monitor provides detailed case studies of successful digital transformation in Europe. Overview of the cases of Espoo (Finland) and Côte d Azur Nice (France) are provided in boxes 1 and 2. Box 2: Côte d Azur Nice: the importance of encouraging the development of digital talent While the Côte d Azur has been one of the global leaders in the use of ICTs, its position was significantly jeopardized following the departure of a series of global leading tech companies from the city in 2013-2015.⁷ ⁸ Suddenly the Côte d Azur was faced with a shortage of digital talents, which threatened the city s image as a hub for ICT companies. The city had to significantly increase its efforts regarding the growth of its local digital talent. The city understood the importance of developing long-term strategies and staying responsive to the fast-paced digital territory. The priority given to the digital transformation of businesses and the increase in cooperations between businesses and policy makers led to the growth of numerous incubators and accelerators as well as various the introduction of policy measures aimed at encouraging ICT education. The case of the Côte d Azur clearly demonstrates the importance of cities remaining active with regard to local growth of digital talent and the positive effect their presence has on the innovative development of cities. For more details about this case study, please refer to the Digital Transformation Monitor website: https://ec.europa.eu/growth/toolsdatabases/dem/monitor Box 1: Espoo: A Digitalised City The city of Espoo is regarded as one of the high-tech hot-spots of Europe. Espoo s economy heavily depended on Nokia before the company s situation worsened and a massive wave of highskilled technology experts were let go.⁵ However, Espoo used this opportunity to develop a vibrant start-up ecosystem by bringing together companies, educational institutions and career planning services to evaluate the needs of the market and relaunch the city s economic growth.⁶ By continuing to support the growth of digital talent as well as actively engaging in the digitalisation of the city s traditional businesses, the local economic fabric was rejuvenated and the innovative and entrepreneurial spirit of the community awakened. The abundance of highly-skilled ICT workers has led to increased interest in the development of innovative digital solutions to tackle societal and/or environmental challenges, further encouraging the city s innovative development and economic growth. The Startup Sauna located at the Aalto University campus in Otaniemiis is a prime evidence of the engagement of students in the digital transformation process of local businesses. The accelerator is totally operated by students and was awarded the prize of best accelerator run by students of the world in 2014.⁶ Leonid Andronov/Shutterstock.com For more details about the Espoo case, please refer to the Digital Transformation Monitor website: https://ec.europa.eu/growth/toolsdatabases/dem/monitor 4
The need to transform local populations into digital talent Encouraging Digital Talent The digitalisation of cities and regions requires the development of digital talent. ICT jobs are in high demand as past developments have shown them to be much more resistant to crises than most other jobs. According to the EU skills panorama 2014, employment growth in the EU from 2013 to 2015 will be driven by service sector jobs, especially in higher-skilled areas such as professional services, business services and computing.⁹ Currently the market absorbs more than the annual output of ICT graduates from universities and the education system underlining the need for cities and regions to actively encourage the development of local digital talent. At the same time, this increasing demand for ICT workers represents a huge opportunity for job creation in these regions and cities which local policymakers and other relevant stakeholders should not miss. By supporting the development of digital talent, cities and regions can significantly reduce unemployment among their communities. Those cities and regions wishing to digitalise their communities and encourage the growth of digital talent thus have to make significant efforts with regard to encouraging ICT education, building favourable infrastructures to the development of the ICT sector, supporting increased cooperation between the private and public sector as well as facilitating access to finance for innovative start-ups. Only once these commitments have been realised can digital talent ensure the city s or region s economic growth and prosperity. Preventing a digital divide between European regions and cities If many European stakeholders at local level have already come to realise the importance of the digital revolution as a key driver of competitiveness and economic growth, a significant number of European regions and cities are still lagging behind in terms of digital transformation and do not act as favourable ecosystems for innovation. According to the PwC study Cities of opportunity 7, only 4 European cities (see table 1 below) are ranked in the global top 10 for both Intellectual capital & innovation and Technology readiness, two critical dimensions for local ecosystems to allow innovations to thrive and to act as engines for digital transformation.¹⁰ Table 1: Top 10 global cities for intellectual capital & innovation and technology readiness Ranking Intellectual capital and innovation Technology readiness 1 London Singapore 2 San Francisco London 3 Paris Amsterdam 4 Amsterdam New York 5 Toronto Stockholm 6 New York Hong Kong 7 Los Angeles San Francisco 8 Tokyo Tokyo 9 Sydney Paris & Toronto 10 Chicago & Stockholm Los Angeles Source: PwC (2016), Cities of Opportunity 7¹⁰ SFIO CRACHO/Shutterstock.com References ICT Facts and Figures 2015: http://www.itu.int/en/itud/statistics/documents/facts/ictfactsfigures2015. pdf 2 European Commission, Regional Policy contributing to smart growth in Europe 2020, 2010 http://ec.europa.eu/regional_policy/sources/docoffi c/official/communic/smart_growth/comm2010_553 _en.pdf ³ European Commission, Digital Transformation Scoreboard 2017: Evidence of positive outcomes and current opportunities for EU businesses, 2017: http://ec.europa.eu/growth/toolsdatabases/newsroom/cf/itemdetail.cfm?item_id=90 76&lang=en ⁴ ICT Facts and Figures 2016: http://www.itu.int/en/itud/statistics/documents/facts/ictfactsfigures2016. pdf 5 New York Times. Nokia layoffs, 2015: https://www.nytimes.com/2015/08/10/technology /after-nokia-layoffs-tech-workers-in-finlandregroup-and-refocus.html?_r=0 ⁶ Startup Sauna, 2017, http://startupsauna.com/ ⁷ Le Monde. Texas Instruments Closure, 2012: http://www.lemonde.fr/economie/article/2012/12 /18/texas-instruments-ferme-le-site-de-villeneuveloubet-en-france-et-supprime-517emplois_1807834_3234.html ⁸ L UsineNouvelle. Samsung closes R&D Center, 2014: http://www.usinenouvelle.com/article/samsunglicencie-90-des-110-salaries-de-son-centre-derecherche-a-sophia-antipolis.n294141 ⁹ European Commission. EU Skills Panorama 2014: http://euskillspanorama.cedefop.europa.eu/app_co ntrols/documents/showdocument.aspx?documenti d=84& ¹⁰ PwC, Cities of Opportunity 7: The living city, 2016: http://www.pwc.com/us/en/cities-ofopportunity.html 1 5
About the Digital Transformation Monitor The Digital Transformation Monitor aims to foster the knowledge base on the state of play and evolution of digital transformation in Europe. The site provides a monitoring mechanism to examine key trends in digital transformation. It offers a unique insight into statistics and initiatives to support digital transformation, as well as reports on key industrial and technological opportunities, challenges and policy initiatives related to digital transformation. Web page: https://ec.europa.eu/growth/tools-databases/dem/ This report was prepared for the European Commission, Directorate-General Internal Market, Industry, Entrepreneurship and SMEs; Directorate F: Innovation and Advanced Manufacturing; Unit F/3 KETs, Digital Manufacturing and Interoperability by the consortium composed of PwC, CARSA, IDATE and ESN, under the contract Digital Entrepreneurship Monitor (EASME/COSME/2014/004) Authors: Laurent Probst, Bertrand Pedersen & Jill Wenger, PwC DISCLAIMER The information and views set out in this publication are those of the author(s) and should not be considered as the official opinions or statements of the European Commission. The Commission does not guarantee the accuracy of the data included in this publication. Neither the Commission nor any person acting on the Commission s behalf may be held responsible for the use which might be made of the information contained in this publication. 2017 European Union. All rights reserved.