The potential benefits of digital transformation for both society and industry could be boosted through collaboration to align societal value and market forces.
One of the central aims of the World Economic Forum’s multi-year Digital Transformation of Industries (DTI) initiative is to provide an evidence-based insight into the potential value of digitalization to both industries and wider society.
In this first year of the DTI project, a detailed quantitative analysis of the value at stake from digital transformation for four industries (automotive, consumer, electricity and logistics) has been conducted. In each case, projections of the potential value of digitization to the industry itself and emerging sources of value for society have been calculated, as measured by an intentionally narrow set of indicators.
The objective of this analysis is twofold:
- To provide a common framework for understanding the potential value of industry-level digital initiatives for both the industries and wider society.
- To provide new evidence and analysis on the potential contribution that industry-level digital initiatives could make to specific societal challenges.
As the DTI program moves forward, this analysis will be refined and improved – feedback is welcome in order to help build on these early findings.
Value to society greater than to industry?
Our analysis shows that the digital transformation of industries can make a positive contribution over the next decade:
- Just four industries (automotive, consumer, electricity and logistics) have the potential to create $8.4 trillion in value for industry and $12.7 trillion in value for society between 2016 and 2025 (see Figure 1).
- Scaled up beyond these four industries, the size of the prize could be as much as $100 trillion in ‘combined value’ for both industry and society by 2025.
- Looking at a specific industry, optimizing the grid to manage real-time supply and demand is worth $191 billion for electricity companies, while the value this could deliver to society is three times as much ($623 billion). This is derived from cost savings for customers (offering an incentive to postpone consumption during peak hours), and lower fuel emissions.
- Looking at a specific industry, optimizing the grid to manage real-time supply and demand is worth $191 billion for electricity companies, while the value this could deliver to society is three times as much ($623 billion). This is derived from cost savings for customers (offering an incentive to postpone consumption during peak hours), lower fuel emissions and jobs created.
In many instances, digital initiatives are projected to deliver high value to business and society. This ‘true north’ means that no intervention is likely needed to realize those benefits – industry has a clear incentive to act of its own accord.
For example, omni-channel retail is likely to deliver such huge benefits to industry (estimated at $1.4 trillion) and to society (from a $5 trillion reduction in costs and 300 billion hours saved), that there would appear to be little need for policy/regulatory intervention.
Identifying unaligned incentives
However, what about those initiatives that deliver significant value to society, but less so to business?
- In logistics, for example, the value to society of shared warehousing is equivalent to approximately 500 times the value to industry.
- In the automotive industry, the value to society of automotive partners agreeing on usage-based insurance to help reduce road deaths, insurance premiums and crash costs is worth approximately 200 times the value to industry.
Case study
Deliv and DHL MyWays
One of the most promising digital initiatives in the logistics industry is the crowdsourcing of deliveries. For example, Deliv is a peer-to-peer delivery startup that offers large retailers the ability to offer same-day delivery to their customers. In 2013, Deliv signed an agreement with GGP (the second largest shopping mall operator in the United States) to provide crowd-shipping services. For example, customers can purchase goods from multiple stores before having them aggregated and delivered in one shipment.¹
Incumbents are also realizing the potential to utilize the crowd to improve delivery. For example, in Sweden, the logistics company DHL has launched the MyWays service, which enables customers to tap into the crowd in order to find and pay people who are willing to deliver their goods when they themselves are unable to reach a DHL Service Point.²
It is these issues where multi-stakeholder collaboration is needed and, potentially, new incentives required to change the direction of the market. For example, telematics installation is not mandatory in most economies (see case study). However, if stakeholders from industry and government could agree on an approach that bundles telematics solutions at the point of sale, it could help reduce accidents, save lives and lower costs for consumers. In those parts of the world where road fatalities are particularly high (such as India and South Africa), the impact could be very significant.
Case study
Usage-based insurance in the United States
The introduction of usage-based insurance for cars clearly illustrates how unaligned incentives can derail societal gains. Our value at stake analysis estimates that usage-based insurance could save 160,000 lives by 2025. However, it is not being widely rolled out in countries such as the United States because the profits and costs from the service are being unevenly distributed. In a low-margin environment, car manufacturers are not mandatorily installing telematics equipment that is needed for usage-based insurance. This is because the cost cannot be easily passed onto consumers, so insurers are currently reaping the benefits with optional add-ons. Accurately priced insurance means lower costs to consumers, fewer accidents and reduced crash costs for all stakeholders. A win-win-win for customers, industry and society that is not yet in place – much like seat belts, which were not standard in cars when originally conceived.
Realizing these benefits also require organizations to address concerns over data privacy and security and broader ethical questions relating to usage-based insurance. For example, should data on dangerous driving be automatically passed on to law enforcement agencies?
Mapping value in this way can also be helpful for businesses to understand initiatives that may have a high level of value to the industry, but limited value to society. These should be areas that businesses watch with caution as potentially posing reputational risks, or where, in the long run, regulators may look to intervene (e.g., through increased taxation).
On the long road toward aligning market and societal forces, this value at stake analysis and framework is intended as an additional toolkit for business leaders and policymakers, providing new evidence to frame the debate. Ensuring that this debate leads to action, however, is essential if the full benefits of digital transformation are to be realized.
Footnotes:
1. http://techcrunch.com/2013/08/29/deliv-ggp/
2. https://www.myways.com/
Read the next article in this theme
Societal implications is one of four cross-industry themes (along with digital consumption, digital enterprise, and platform governance) that have been the focus of the World Economic Forum’s Digital Transformation of Industries (DTI) 2016 project. An overview of the DTI program can be found here.
Our in-depth analysis of the societal implications cross-industry theme is available in a white paper, which can be downloaded here.
To explore a selection of related articles and case studies, please select one of the tags below.