Value at stake: how we calculated it
Our value-at-stake framework is designed to assess the impact of the digital transformation of industries on customers, society, industry and the environment.
One of the central aims of the Digital Transformation of Industries (DTI) initiative has been to create a shared understanding of the world through digitalization. Until now, value has usually been measured either in monetary terms (e.g. GDP or industry profits) or in terms of the social impact generated. As consequence, it has been difficult to hold a consistent public-private dialogue to prioritize industry action on issues such as improving regulation or protecting customer interests.
Our unique methodology helps industry leaders and policymakers to navigate some of the challenges and opportunities posed by digital transformation by providing an understanding of the value that digital can create for both industry and society. Within the ongoing work around the World Economic Forum’s DTI and Fourth Industrial Revolution initiatives, we believe that our value-at-stake methodology can help leaders to identify key barriers to value creation from digital transformation and help set the compass for industry to deliver value to both industry and society.
Consider the automotive industry. The telematics devices needed to implement usage-based insurance are not mandatory in new cars. Should they be? Usage-based insurance can provide safe and more consistent driving in line with local laws, bringing obvious benefits to society. However, there are challenges with telematics, such as data privacy and security issues, which have hampered progress to date. By using a value-at-stake analysis to identify the potential for society and industry to benefit at the same time, we hope that this can accelerate change towards safer driving and lower the cost of insurance for customers, while also identifying how to unlock the incentives that can make this a reality for industry participants.
This is just one example of a digital initiative that is being being actively debated by industry stakeholders. In the case of usage-based insurance, industry participants need to decide quickly to either implement a common telematics solution or to find alternative solutions which have the same or greater societal benefits. Our value-at-stake analysis can help this process by contributing to a common framework of assumptions, data sources and objective data.
What is our methodology?
We have calculated value to industry and society in the following ways:
Value to industry
The value at stake for an industry comprises two elements:
- the potential impact on an industry’s operating profits that will be generated as a result of implementing digital initiatives (value addition).
- operating profits that will shift between different industry players (value migration).
Value to society
The value at stake for society includes three elements: customers, society and the environment. Each element is measured as follows:
- Value impact for customers: the potential gain to customers (both B2B and B2C) in the form of cost and time savings, discounts and the ability to earn additional profits (for B2B customers only).
- Value impact for society: the impact (both financial and non-financial) of digital initiatives e.g. productivity gains, jobs, traffic congestion and lives saved (these vary by industry)
- Value impact on the environment: the estimated impact of the digital initiatives on increasing or reducing CO2
In a few industries we have also calculated external industry impacts, such as the usage-based insurance example above. Given the vast quantity of externalities, we have been unable to consistently measure all factors but this is an area which can be developed over time.
The value at stake has been calculated using a top-down approach involving three key steps:
- Identification of the total addressable market and the adoption/penetration rates over the next 10 years for each digital initiative based on secondary research, industry reports, existing use cases and interviews with subject matter and industry experts.
- Creation of a value tree to represent the different industry and societal value categories mentioned above.
- Testing, revision and validation of assumptions and results with academics, economists, Digital Transformation of Industries working group members and select industry partners of the World Economic Forum.
As of January 2016, we have run the value-at-stake assessment across four industries: automotive, consumer, electricity and logistics. Throughout 2016 we will be refining the methodology and increasing the analysis to cover further industries.
Demystifying Digital and Securing $100 Trillion of Value for Society and Industry by 2025, an overview of the World Economic Forum’s Digital Transformation of Industries (DTI) initiative, is available here.
The DTI initiative has focused so far on six industries (automotive, consumer, electricity, healthcare, logistics and media) and four cross-industry themes (digital consumption, digital enterprise, societal implications, and platform governance).
To explore a selection of related articles and case studies, please select one of the tags below.