Survival of the transformed
“It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.” Charles Darwin’s ‘survival of the fittest’ theory of evolution could also apply to organisations. As they adapt to changing circumstances, they adjust their responsiveness, effectiveness and efficiency. And that is what is taking place across the world as digital technologies transform business models: they are either adapting or dying. But how is this digital transformation happening? What are the risks? And how is Europe doing?
So it is that taxi firms install new technology to keep up with Uber. Bricks and mortar retailers develop online businesses to fend off Amazon. There are entirely new entities like JustPark, an app that allows thousands of people to make a little extra cash from renting their driveway and provides reasonably priced convenient parking for drivers close to where they want to go. BlaBlaCar is a popular European app that allows people to share the cost of travelling between cities and has the side benefit of giving the driver a travelling companion.
Closer to home – literally in my case – is the service provided by a local utility company to move a gas meter during works at my home. No surveyor came out to take a look. The move was priced and agreed using Google Earth, a short phone call, and a very rapid email confirmation.
Every sector sees the opportunities. A recent report from Kantar Media, on the 2019 outlook for the advertising and marketing sectors, claims right up front that, “Analytics and artificial intelligence will finally bridge the ROI divide”. It goes on to tell its readers that AI is one of the greatest developments of our time. This is quite a claim for a sector that has struggled historically to find hard evidence of the value it claims to deliver.
How is Europe doing?
The European Commission’s Digital Transformation Scoreboard measures Europe’s progress. The 2018 report looks in depth at two of Europe’s important sectors; food and construction. It’s a mixed picture. More than 70% of the companies surveyed have invested in digital technologies to improve their production processes, addressing that basic need to improve efficiency and effectiveness.
The Scoreboard draws some broader conclusions too. For example, it calculates that the internet of things, used to improve traceability in supply chains, could reduce food loss by up to 35 million tonnes by 2030. But the report concludes that although a first set of digital technologies has been taken up, large scale and coherent adoption of newer technologies is still at an early stage.
One factor affecting the faster adoption of digital technologies is their sheer number. The Scoreboard examines nine key digital developments and their uptake; social media, mobile services, cloud technologies, internet of things (IoT), cyber-security solutions, robotics and automated machinery, big data and data analytics, 3D printing and artificial intelligence. The Commission’s Digital Intelligence Platform is able to take the European digital pulse and assess the popularity of the different technologies. It reveals that after cybersecurity, the two biggest things on the radar in 2017 were artificial intelligence (AI) and blockchain.
Not to everyone’s taste
But there are problems too. Take personalised marketing, for example. On the face of it, it seems like a good thing: why wouldn’t we want to hear of things we’re most likely to need? Many people, though, find personalised marketing to be intrusive and are uncomfortable with the use of their data in ways they don’t fully understand. Some find it frankly creepy.
The scale and reach of digital technologies can amplify issues that may not matter in the analogue world. Having friends performing songs at your party without paying royalties is one thing, featuring them on your new YouTube channel is quite another.
While today’s digital technologies are, to some extent, simply the latest tools to help organisations improve, they are different in a couple of ways. They enable entirely new ways of doing things rather than just steady improvement: more organisational revolution rather than evolution. And the pace at which these new tools become available is faster than ever before. So fast in fact, that many feel it’s not only beyond their ability to keep up, but also that the risk of being leap-frogged is so much higher.
What’s holding us back?
Getting digital transformation right matters for Europe. We need our companies to remain competitive, thrive and grow, provide jobs and pay taxes. European public service organisations like hospitals, social services and schools need to be as efficient as possible if they are to have any chance of meeting rising demand with fewer resources.
Of course, it is not just Europe that is benefitting from digital transformation. The developing world has many examples of digital progress too: these include innovations for digital currency and for shortening times to market for small food producers.
Change creates winners and losers. Some win because they have used digital technology to provide a better product or service or because improved efficiency means they can offer a lower price.
This is how markets and competition work. The creative sector has a long relationship with technology. The BBC was created by radio manufacturers who realised that no-one would buy a radio just because it looked good. People wanted something to listen to. Today the two sectors – broadcasting and equipment manufacturing - are often at loggerheads but still need each other badly. This relationship got more difficult the bigger the scale became.
Amplifying fault lines
Digital transformation has turned a couple of the weaknesses of the system into potentially serious problems.
Firstly, although it’s inevitable that laws and regulations lag behind technological change, policymakers should be watching developments closely. It takes time and careful monitoring and analysis to comprehend the many implications of the digital transformation.
For example, following the financial crash of 2008, traditional banks are subject to closer scrutiny by supervisory bodies. Digital technologies allow non-bank organisations to offer services that the average user would find hard to distinguish from those they’ve traditionally received from their retail bank. But these non-bank organisations are not burdened by such supervision and regulatory oversight and the associated compliance costs, and so can bring new services to the market much more quickly. A recent study by Bain had the telling sub-title, “Alexa, move my bank account to Amazon”.
A second concern is market power. In the analogue era companies gained monopolistic advantages slowly. Competition authorities (and the emerging monopoly’s competitors) learned to see it coming and had time to act before the market was seriously damaged.
Companies using digital technologies and harnessing the network effect can gain at least quasi-monopolistic positions very quickly. They can effectively destroy a market and accumulate disproportionate wealth long before competition authority processes, designed in the analogue age, can stop them.
Loyalty – what’s that?
Thanks to digital technologies, we can create organisations that are largely virtual. It’s good that such entities can have very small, though rarely zero, environmental footprints - especially compared to, say, resource hungry manufacturing companies.
But virtual companies can switch geographic allegiance much more easily, leading to tax arbitrage and ultimately less money coming into the public purse. This in turn puts more pressure on public services already stretched by Europe’s changing demographic and its ageing population.
A.I.: New opportunities, new questions
The Commission’s Scoreboard says the general perception of artificial intelligence is positive and optimistic. There is a steady growth in discussions with a stable engagement level. As Andrea Renda from CEPS in Brussels put it recently, “the promise of AI is easy to spot if one considers two fundamental starting points. As AI lands on our planet, it finds a society that progresses in terms of life expectancy and the eradication of poverty and famine. But it is also fraught with contradictions and inequality, with unsustainable production and consumption patterns as well as deteriorating social relationships”.
AI not only creates new types of opportunity it also raises some specific questions of its own, such as transparency of the algorithms, ethics, bias and discrimination. But perhaps the question asked most often is what does it mean for jobs? The answer to that depends largely on how effectively we can give our current and future workforce new skills.
AI has only started to be broadly useful thanks to the ready availability of big data, in combination with cheap and plentiful computing power and easy access to often open source AI tools such as Google’s TensorFlow, Microsoft’s Cognitive Toolkit or Theano.
The Commission’s AI coordination plan was published in early December 2018, designed to encourage, cajole and coordinate member states’ work on the topic. The AI high level expert group will complete its work on ethics in early 2019.
Burson, Cohn & Wolfe will produce a second BrAInstorm survey report later in 2019 looking at progress with AI in some key European sectors. It will be interesting to see whether the gap in attitudes revealed by the first survey has narrowed. We found policymakers generally thought that more regulation was needed while early adopters of AI were more prepared to monitor how the market developed and how existing legislation copes.
Some would like to turn back the clock on digital transformation, call a halt or at least slow down the pace of change. Clearly the first two options are non-starters. The third might be possible but risks undermining Europe’s competitiveness. Our strategy should be thoughtful and considerate adoption and encouragement while in parallel identifying and tackling the issues, and minimising and managing risks.
We need fit and strong employers in Europe, developing world-class products and services at the best possible price, paying taxes and creating good jobs. We need effective public services able to meet changing, rising demand for healthcare, education and public security. Digital technologies are, like it or not, essential to achieving this.
Slowing things down, even if possible, simply delays the realisation of these benefits. We need instead to focus our efforts on how to gain the rewards with as little negative impact as possible. The European Commission’s Strategic Policy Forum on digital entrepreneurship brought together a group of people from diverse backgrounds to consider how this might be done.
Cities set the pace
The Forum spotted early that some European cities had a big part to play and that were doing a better job than others in nudging their businesses down the transformation road. The result is that today we have a thriving Digital Cities Challenge.
The programme already has successful users of the blueprint we developed. The Amsterdam Metropolitan area is a mentor city. In early December 2018 a group of leading mayors signed a Declaration of Cooperation for Digital Transformation and Smart growth. It emphasises the importance of breaking down silos and increasing cooperation among cities for the good of the people who live there.
Other critical success factors include digitisation of a city’s infrastructure such as transport, energy and water. This often means adding sensors to the infrastructure to collect and send back data. Successful cities make access to both technology and the big data collected this way easy. Many support innovation hubs and fab labs, centres set up specifically to support digital fabrication.
New skills please
The Forum also looked at the perennial skills problem. Not just how to fill the jobs gap but also how to equip the current workforce with the skills they need to play their part in their organisation’s digital success. Since the arrival of the weaving loom and the steam engine, our societies have changed. They have adapted as their Darwinian instincts have kicked in to take advantage of these new wonders.
Medical practice today is transformed by new technology and this needs new skills, for example in nursing which today is a graduate profession. And we create whole new ways of earning a living: the digital industries themselves employ over 8.5 million people across Europe.
Research by Empirica for the Commission suggests that by 2020 there will be between half and three-quarters of a million jobs unfilled. The creative sector has grown massively thanks to digital technologies. It’s no bad thing if the jobs of the future are those that require us to hone our unique human attributes such as emotional intelligence, intuition and judgement.
Yet although there are valuable pan-European networks like European Schoolnet and initiatives such as French President Emmanuel Macron-inspired networks of European universities, the EU institutions themselves have limited influence over Europe’s creaking education systems.
Member states continue to guard education jealously as one of their national competencies and even, in many parts of Europe, devolve it to the regional level. A number of education ministers have told me first-hand that education systems are notoriously resistant to change. There is much truth in the assertion that schools teach children about the past and not their future.
Take people with us on the digital journey
A key conclusion from the Forum was the vital importance of taking broader society with us on the transformation journey. A positive workforce – with some who can act as ambassadors to their family and friends - will only develop if people feel an investment in their personal development.
Another tangible outcome of the Forum’s work is that sector-specific training and development toolboxes are being built to make it easier for organisations to teach their staff new skills they will need for the digital workplace of a transformed company. We’ll be launching the results at a conference in Brussels in June 2019.
A third conclusion was the importance of data and especially what’s known as big data. Big data’s characteristics are typically volume, velocity, variability and veracity. Getting value from large amounts of fast-changing sets of data of mixed types and uncertain accuracy is an altogether different proposition from analysing the simple, consistent data many of us have dealt with previously.
Much of the European political and popular focus on data has been on how to keep data secure and, for personal data, how to ensure it’s only used in the way its owner wants. But big data is a sort of rocket fuel for much digital progress. The forum proposed gathering big data expertise at both a member state and pan-European level.
The focus should be on how to spread knowledge of the potential of big data for SMEs, public bodies and other interested parties. These sectors might be able to use it in ways that both stay within the new data protection laws and within what people feel is acceptable..
Keeping data and networks safe and secure
Spies, thieves and data abusers are everywhere – or so you might believe. But public confidence in cybersecurity is essential for successful digital transformation. Travelling by coach and horses suffered from slow take-up while there were lots of highwaymen on the roads.
Kevin Mitnick is arguably the world’s most famous hacker. He was jailed for five years after he hacked into multiple government computers and more than 40 corporate systems. He has now put his knowledge in the public domain, and the huge popularity of his books and public talks speaks volumes about the seriousness with which most organisations and crime fighting bodies take cybersecurity today.
The Scoreboard reports that adoption of cybersecurity technologies is highest among large firms with more than 250 employees. Interestingly social engineering, insider weaknesses and confidence tricking remain as big a part of the cybercrime world as they do of the real world.
Organisations and individuals can increase their protection from cybercrime by following the basics and thinking about cybersecurity in a similar way as do physical security. Fears about cyber safety need not hold up our digital journey.
Will the global internet survive?
Digital technologies can make national boundaries seem less important. But global sentiment is running in the opposite direction. Companies like Huawei have critical technology for the world’s 5G networks that underpin many promising future developments like automated cars – in fact anything that relies on ultra low latency. Yet it is precisely these companies that are being caught up in the geo-political battleground between the US and China.
Dame Wendy Hall, former chair of the Chartered Institute for IT and Professor of Computer Science at Southampton University, argues in a recent paper that the internet risks being divided into four – she calls them the open, bourgeois, commercial and authoritarian internet. In Professor Hall’s analysis, examples of each might be California, Brussels, Donald Trump and Beijing respectively.
Wide spread implications
Europe’s continuing digital transformation has profound implications, not least for the research community. Governments are increasingly focused on the impact of research and seeking clearer demonstrations of its value, nowhere more so than in the field of digital technologies.
This transformation will require continuing improvements between researchers, research programmes, industry and wider society. International collaboration must be ready to weather the pressures on it. In turn research funders in the EU and member states need to understand that scale and speed is important if Europe is to match the coordinated and massive investment of China and the US. Allowing our research to remain fragmented across member states makes it even more difficult for us to keep pace with these two giants. Failure to address these points will simply push businesses and public service organisations to buy the tools and expertise from market ready US and increasingly Chinese big tech.
Time to grasp the opportunities
Few things are certain in Europe today. But Darwin’s observations are as true now as they were 150 years ago. Europe’s digital transformation is taking shape and is gathering speed. It offers opportunities for most organisations, developers of new technologies and the research community. We need to be ready to manage the risks and reap the rewards.
John Higgins is the former director general of DIGITALEUROPE, the European tech industry association. He was President of the European Commission’s Policy Forum on Digital Transformation. He is a Senior Advisor in Brussels and London on digital for global communications company Burson, Cohn & Wolfe.