Identifying value at stake for society and industry

Our analysis suggests that the prize from digital transformation could be as high as $100 trillion over the next decade. How can enterprises help deliver this value, maximizing benefits for both industry and society?

To help answer this question we have sought to provide an evidence-based insight into the potential value of digitalization for both industry and wider society. We have so far conducted a detailed quantitative analysis of the value at stake from the digital transformation of four industries (automotive, consumer, electricity and logistics) and are currently analyzing a further dozen.

Our analysis suggests that the potential value to society and industry could be as high as $20 trillion to 2025 from the digitalization of just these four industries cumulative to 2025. Our analysis also identifies significant differences in the impact across industries, as illustrated in Figure 1. Digital transformation could impact electricity operating profits by nearly 50%, whereas we estimate the effect could be less than 10% for automotive. The differences between industries are primarily a function of the maturity of digital disruption in the industry and the pace at which initiatives have a significant impact. For example, driverless cars will be significant in automotive in the long run, but even with falling technology costs, adoption rates make it unlikely that autonomous vehicles will form a major proportion of car sales within the next decade – especially given that the average age of a car in the United States is over 11 years.

Scaled up beyond the four sectors we have quantified, the prize from the digital transformation of industries could be in the region of $100 trillion.

Our value at stake analysis focused on digital themes that were identified during in-depth research into each of these four industries. Our insights are explained in full in industry-specific white papers², but here is an overview of the analysis for these four industries plus two industries (healthcare and media) where quantitative analysis is in progress:

Automotive

We have identified the connected traveler, autonomous driving, and digitizing the enterprise and ecosystem as themes that will be central to the digitization of the automotive industry.

Our analysis suggests that there is a $0.7 trillion opportunity to create value from the digital transformation of the automotive industry, through initiatives such as channel migration to virtual purchases, value-added subscriptions and next-generation servicing. The value created for society is likely to be even higher – up to $3.1 trillion – through reduced crash costs, lower insurance premiums, fewer road casualties and lower carbon emissions. 

There are, however, barriers to realizing this value. First, regulatory constraints exist in some markets, preventing, for instance, original equipment manufacturers (OEMs) from operating as direct-to-market dealers. Secondly, without democratizing the flow of profits from usage-based insurance, the telematics solutions that underpin this business model are unlikely to be installed as standard in most cars. As a consequence, efforts to reduce the global death toll from road accidents (currently 1.25 million people a year) are being held back. Finally, the innovator’s dilemma discourages incumbents from going beyond incremental innovation or partnering with technology companies to deliver more innovation.

Consumer

Consumer industries touch people’s lives in a way that few other industries can match. Every day, 2 billion people – almost a third of the world’s population – use the products of just one global consumer products company. In aggregate, the consumer sector is the largest industry with a global market size of over $15 trillion, from agriculture to retail.

We have identified four digital transformation themes – consumer data flow and value capture, experience economy, omni-channel retail and digital operating model – that we expect to play an important role in the future evolution of consumer industries. The single largest theme we have assessed so far has been omni-channel retail. We estimate over $5 trillion in societal impact can be found through cost savings and productivity improvements for consumers and environmental benefits for society. Time savings from shopping online and fewer single-driver cars on the road, coupled with alternative last-mile delivery options such as drones, can have a significant impact on emissions.

Electricity

The electricity sector is ripe for realizing value from rapid digital transformation; we estimate that there is more than $1.3 trillion of value for industry with a further $1.7 trillion for society to be captured globally from 2016 to 2025. Five initiatives are worth more than $100 billion over the next 10 years and should be prioritized for investment. These include asset performance management, energy solution integration, energy storage integration and real-time network clouds. Initiatives that play ‘beyond the electron’ could not be quantified and are excluded from the value at stake analysis. Nevertheless, big wins in customer value are expected for those that move such service quickly to market.

Value creation for both industry and society has become a win-win, and electricity players have an important role to play in capturing the societal benefits of digitalization. Our estimates of the societal benefits are modest and include just three factors: value creation to customers (worth nearly $1 trillion); reduction in carbon emissions (approximately $750 billion); and net job creation (about $270 billion).

Logistics

We have identified that information services, logistics services, delivery capabilities, circular economy and shared logistics capabilities are central to the digitization of the logistics industry.

Our analysis indicates there is $1.5 trillion of value at stake for logistics players and a further $2.4 trillion worth of societal benefits as a result of digital transformation over the next decade. The largest impact of digitization to the logistics industry is likely to come from crowdsourcing. It will allow newer entities from outside the industry to grab a share of the market from existing players. At the same time, it will allow smaller trucking companies to improve their utilization levels by as much as 20%, which could provide an uplift to their bottom line. As these platforms offer better rates, convenience and real-time tracking, it could lead to savings of around $790 billion to customers. For society, the largest improvement will come through better utilization rates. We also estimate that emissions could be reduced by as much as 3.6 billion metric tons over the next decade. Digital in logistics alone has the opportunity to reduce emissions by 10-11% by 2025.

Media

Personalization and contextualization, content fragmentation, and partnerships and industrialization are the themes that we believe will underpin the digital transformation of the media and entertainment industries over the next decade.

The media industry is already more digital than many other industries, having been transformed by several waves of innovation –desktop Internet, mobile, social and now, the Internet of Things. Digitalization has unleashed an explosion of content that is fragmented across multiple channels and platforms. There are significant opportunities for media enterprises if they can successfully personalize their content and adverts to engage the user, create new services that bridge the physical and digital words, and industrialize their content production and monetization processes.

The sector also faces some significant barriers to realizing value from digitalization. Notably, intellectual property and regulatory frameworks have not kept pace with customer behavior, forcing the industry to make a choice between defending outdated frameworks (for example, by prosecuting copyright infringers) and evolving legal and commercial frameworks to better meet the needs of customers.

Healthcare

Today’s model of healthcare provision is becoming increasingly unsustainable. To deliver continued improvements to the world’s health, healthcare will need to be transformed, with digital playing a central role.

Although few industries have the potential to be changed so profoundly by digital technology as healthcare, the challenges facing innovators should not be underestimated. Our analysis of healthcare and digital trends highlights some of the regulatory barriers, economic hurdles and difficulties in effectively digitizing patient data awaiting those who wish to launch pioneering services.

We have identified four digital themes – smart care, care anywhere, empowered care and intelligent healthcare enterprise – that will be of crucial importance to the digital transformation of healthcare over the next decade.

Our recommendations for businesses include formulating an outside-in strategy (through shifting the focus from managing inputs to delivering medical outputs), creating a culture of iterative innovation, and championing the customer experience. For governments and policy leaders, our recommendations include liberating data sources, investing in data standards and infrastructure, and establishing interoperability requirements on a global level.

Footnotes
1. A detailed explanation of the value at stake methodology is available on the DTI site.
2. All white papers can be downloaded from the DTI mini-site. We also identified digital themes for the healthcare and media industries but have not yet conducted a value-at-stake analysis for these industries.