The “combined value” to society and industry of the digitization that is already occurring in every industry could generate upwards of $100 trillion over the next 10 years, with society set to gain more than business. However, this transformation also brings with it risk, according to new research by the World Economic Forum.
With digitization affecting every industry and creating new ways of capturing and creating value, the research, which is part of the Forum’s Digital Transformation of Industries (DTI) project, focuses on the “combinatorial” effects of digital technologies – mobile, cloud, artificial intelligence, sensors and analytics, among others.
Examples of societal value generated by digitization include mass adoption of autonomous vehicles and usage-based car insurance, which could save up to 1 million lives a year worldwide by 2025. In the electricity sector, a cumulative reduction in carbon emissions worth $867 billion by 2025 could be achieved through the adoption of digital technologies, principally through smarter asset planning.
The pace of innovation can be illustrated by the fact that, while it used to take Fortune 500 companies an average of 20 years to reach a billion-dollar valuation, digital start-ups are reaching the same milestone in just four years. The research suggests that, once limitations preventing the mass-market commercialization of enabling technologies such as battery storage and wireless charging are overcome, the pace of change could accelerate.
However, the digital transformation of industries comes with risks attached that will require careful management by all stakeholder groups. One such risk is inequality, which could be exacerbated if access to digital skills is not made available to all. Another is trust, which has been eroded by growing concerns over data privacy and security. This will only be overcome with improved norms of ethical behaviour.
When it comes to business, benefits are by no means guaranteed. Conservative corporate cultures and short-termism combine, for example, to discourage many businesses from taking radical steps to disrupt their own industry by embracing new technologies. One example is electricity distribution, where few utilities have actively embarked on cannibalizing their legacy businesses by offering subsidized renewable technologies such as solar. This represents a missed opportunity, according to the DTI research – produced in collaboration with Accenture – as the pace and scale of societal gains from digital could be greater if driven by the innovation of incumbents than by the disruption introduced by new entrants
“Society and the environment stand to gain the greatest share of the rewards from digitization through improvements to welfare, health and other means. To capitalize fully, however, policy-makers must put in place an agile regulatory environment and incentive mechanisms that unlock investment, while businesses must fully embrace sustainable business practices. There is a win win for business and society if we can look beyond immediate commercial gain in favour of long term value creation,” said Mark Spelman, Co-Head, Future of the Internet Initiative, World Economic Forum.
“This in-depth industry analysis proves that there can be no business strategy today without digital strategy. Being digital means being ready to go beyond technology investments to embrace wider organizational and cultural change,” said Mark Knickrehm, Group Chief Executive, Accenture Strategy, Accenture, USA. “To succeed, business leaders must be able to balance existing capabilities with big-bet investments in entirely new digital business models. And they must be prepared to take risks with partners across industry borders,” he said.
The DTI initiative serves as the focal point for new opportunities and themes arising from digitization. It has been informed by over 230 expert interviews from business, government and academia and engagement with more than 100 of the Forum’s Partner organizations. The complete set of findings can be found at http://digital.weforum.org.