Maximizing the Benefits of Digitalization: Job Creation, Innovation and Economic Growth
Booz & Company analysis identifies that increasing digitization (mass adoption of connected ICT services) has generated 19 million jobs and contributed $400 billion in economic growth globally over the past two years.
In developing a comprehensive methodology to measure the impact of digitization, international strategy consulting firm Booz & Company found greater benefits linked to the growing usage of digital technologies and applications, rather than access alone. The benefits are not just economic, but encompass social and political spheres as well. Digitization offers incremental economic growth: countries at the most advanced stage of digitization derive 20 percent more in economic benefits than those at the initial stage. It also has a proven impact on reducing unemployment, improving quality of life, and boosting citizens’ access to public services. Additionally, digitization allows governments to operate with greater transparency and efficiency.
Booz & Company’s study confirms that digitization has a material economic impact, contributing to growth in per capita GDP, driving job creation, and boosting innovation. Assessments of digitization evolution and its impact were carried out in 150 countries, between 2004 and 2010.
“We found that t a 10 percent increase in digitization leads to a 0.6 percent gain in per capita GDP. By contrast, previous studies that focused mainly on broadband penetration established that a 10 percentage point increase in broadband penetration contributes a gain in per capita GDP of just 0.16 to 0.25 percent,” said Karim Sabbagh, Senior Partner and the Global Leader for the Communications, Media and Technology practice at Booz & Company. “Additionally, constrained digital economies realize a 0.5 percent increase in GDP per capita for every 10 percent increase in digitization, while advanced digital economies show a 0.62 percent increase in GDP per capita for every 10 percent digitization increase.”
Digitization also has a significant impact on job creation in the overall economy: an increase of 10 percent in digitization reduces a nation’s unemployment rate by 0.84 percent. “In the past two years , digitization added an estimated 19 million jobs to the global economy,” said Bahjat El-Darwiche, a Partner with Booz & Company. “This is an especially critical finding for emerging markets, which will need to create hundreds of millions of jobs in the coming decade in order to ensure that a booming population of young people can contribute to their national economies.”
Finally, a 10-point increase in digitization results in a six-point increase in the country’s score on the Global Innovation Index—a correlation suggesting that, as a country progresses in its digitization development, it also becomes more innovative.
Booz & Company analyzed social impact on two levels: the level of quality of life in a society and the equality of access to basic services that a society requires. The results showed that increasing digitization significantly boosts social well-being in a developed economy.
However, the analysis reveals that in countries with lower levels of economic development, the impact of digitization is not as pronounced. The difference appears to be that in less-developed economies, where factors beyond digitization are more critical to quality of life, digitization has an impact on quality of life only when the population has satisfied its basic needs.
“Increasing digitization also supports better access to basic services. Our analysis indicates that, as countries become more digitized, access to health and education improves, as do overall living standards. Digitization’s impact on the measures of health, education, and living standards is more pronounced in constrained and emerging economies,” said Milind Singh, Principal at Booz & Company.
The final area analyzed was government effectiveness. The impact of digitization was assessed across three dimensions: the transparency of governmental activities; the delivery of e-government services and the provisioning of public education.
Booz & Company’s correlational analysis demonstrates that greater digitization enables a society to be more transparent, increasing public participation and the government’s ability to disseminate information in an accessible manner. Digital technology gives the population more insight into government policies and function—an insight that might, in turn, lead to more active political participation and support the development of human rights.
“As expected, e-government services are more effective in a highly digitized environment. Current research indicates that causality in this case acts both ways. Higher digitization contributes to more efficient delivery of e-government services, while better e-government services stimulate an increase in digitization,” said Singh. “Finally, digitization supports better delivery of basic government services, such as public education.”
Overall, the analysis indicates that digitization clearly has a positive impact on economic advancement, social well-being, and government effectiveness, although this impact varies according to a country’s level of digitization. Digitization has an increasing impact on the economy and quality of life as countries advance through the stages of digitization, and more impact on access to basic services and education in countries that are just beginning their journey.
Digitization: ICT’S Next Evolution
The proliferation of digital technologies over the past two decades has been substantial, marking one of history’s most rapid rates of adoption of new technologies. Only two decades ago there were as many Internet users in the world as people in the city of Madrid; today, there are as many people online as are living in all of Asia.
The explosive growth of information and communications technology (ICT) services presents policymakers with three key challenges: to establish standard performance indicators to measure the extent to which ICT is being assimilated in societies; the creation of tools to determine the impact that the mass adoption of connected digital technologies and applications, and the adoption of new policy tools to accelerate digitization and reap its accompanying benefits.
Understanding Digitization: The Stages
Booz & Company measured digitization for a sample of 150 countries on a scale of 0 to 100, with 100 being the most advanced, and then isolated four distinct stages of digitization development: constrained, emerging, transitional, and advanced. These groupings will allow policymakers to recognize their nation’s current level of digitization and provide perspective on how to progress.
- Constrained economies - those with a digitization score below 25—face challenges in realizing basic digitization building blocks such as widespread access and affordability. In these nations, services remain expensive and limited in reach.
- Emerging economies - those with a score between 25 and 30—largely have addressed the affordability challenge and have achieved significant progress in providing affordable and widespread access. However, the reliability of services in emerging digitization nations remains below par and capacity is limited.
- Transitional is the next digitization stage, encompassing those countries with a digitization score in the range of 30 to 40. Countries in the transitional stage have addressed the reliability challenge and provide citizens with access to ubiquitous, affordable, and reasonably reliable services. Alongside the jump in reliability, transitional countries show minor advances in the speed, usability, and skill indexes.
- Advanced is the most mature stage of digitization, achieved with a score greater than 40. These countries have made significant strides in addressing ICT usability and developing a talent base to take advantage of available technologies, products, and services while improving the speed and quality of digital services.
The Accelerating Pace of Digitization
The pace of digitization and movement between stages is accelerating rapidly. Developed countries such as the United Kingdom, and the United States took nearly four years on average to move from the emerging to the transitional stage of digitization; now, developing countries such as the United Arab Emirates and Kuwait are making that same amount of progress in less than two years.
This acceleration stems from a number of factors. Emerging countries now can follow the path that developed nations have already blazed, learning from their best practices. They also can take advantage of mature technologies and markets, and the resulting price reductions. Furthermore, acceleration between stages can stem from increased liberalization and the growing affordability and availability of digital technologies and skills. This hastens the implementation and usage of new technologies and the deployment of supporting infrastructure.
In sum, the whole world is moving toward an advanced stage of digitization at a rapid clip.
Key Policy Imperatives
The digitization index and analysis will be an invaluable tool for countries to understand their current level of digitization and how to build on it. Booz & Company has identified that policymakers can play a pivotal role by focusing on five key imperatives - which are critical for all countries, whether mature or not. They are:
- Elevate digitization on the national agenda: Ensure that national policy and senior government stewardship provide the platform for progress; create a plan for digitization that is tracked and monitored, with accountability residing at senior levels of government.
- Evolve sector governance: Segregate regulatory and policy roles; clarify both ownership and accountability for ICT and digitization.
- Adopt an ecosystem philosophy: Address the convergence of telecommunications, media, and information technology; develop a strategy that addresses all stages of the value chain in a holistic way; and consider the local ecosystem as well as export opportunities.
- Enable sustainable competition: Develop a competitive ICT model that stimulates both innovation and adoption, while ensuring sector sustainability and investments.
- Stimulate demand: Invest in boosting digitization usage and service adoption; ensure that public services are available through e-channels.
Depending on their current stage of digitization, countries will vary in how they can implement these imperatives.
“It has been clear to policymakers for several years that digitization has the potential for dramatic economic, social, and political improvements. Anecdotal evidence abounds: water utilities have installed sensors that reduce leakage, saving water and money; healthcare organizations send text messages to pregnant women with advice on prenatal care, creating a healthier new generation before children are even born; fleets of trucks use digital GPS devices that direct them to shorter routes, cutting down on their greenhouse gas emissions,” concluded Sabbagh.
The challenge for all stakeholders in the ICT ecosystem has been to quantify the impact of digitization. Numerous organizations, including the World Economic Forum with its evolution of the Networked Readiness Index, are taking steps in that direction. “Our hope is that this analysis, which illustrates the need to define and measure ICT beyond broadband access, can provide an input on such efforts,” said El-Darwiche.
However, realizing the opportunity that broadband presents will require that policymakers undergo a shift in their thinking. They must go beyond considering ICT and focus instead on digitization, with an emphasis on ICT usage rather than just access. They must take into account their current level of digitization in order to ensure that they are focusing on the right investments to advance to the next stage. And they need to look with fresh eyes at policies that were developed a decade ago to understand how they can be updated for a new era.
Policymakers are hopeful about this opportunity, and many are committed to action. The steps they take in the coming years will determine whether they can translate opportunity into reality.
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