Introducing value at stake: a new analytical tool for understanding digitalization
Our value-at-stake framework assesses the impact of digital transformation of industries on customers, society, industry and the environment.
The accelerating pace of digitalization can be easy to spot, both in industry and at home. As smartphones become more powerful; technologies such as predictive analytics, machine learning and drones are adopted by businesses; and a new wave of innovations such as 3D printing and augmented reality looks set to break, it is clear that digital transformation is having a profound impact on how we live, work and relate to one another.
Understanding – and quantifying – that impact, however, is far more difficult, and this is the challenge that the Digital Transformation Initiative (DTI) has taken on. Our unique value-at-stake methodology aims to provide a common language for industry leaders and policy-makers, based on a solid understanding of the value that digital can create for both industry and wider society.
This article introduces the DTI value-at-stake methodology and the role it can play in helping to ensure that digital transformation unlocks greater prosperity for the many, not just the few.
DTI value at stake: the story so far
Since the launch of the DTI initiative in early 2015, we have run the value-at-stake assessment across 11 industries (Automotive; Aviation, Travel and Tourism; Chemistry and Advanced Materials; Consumer Industries; Electricity; Logistics; Media and Entertainment; Mining and Metals; Oil and Gas; Retail (as an additional deep dive based on the consumer industries work) and Telecommunications).
We have also piloted the value-at-stake assessment for select digital initiatives across four countries or states in developed and emerging markets (Denmark, India,¹ United Kingdom and the State of Telangana in India).
Throughout 2016, we have also refined the methodology based on conversations with leading economists, academic leaders and industry subject matter experts.
For each industry, we have quantified the impact on business and wider society of a series of digital initiatives, which form part of larger digital themes that relate to some of the major trends powering digitalization.
As part of our DTI research, we have identified 135 digital initiatives across 13 industries over the past two years (but only valued initiatives in 11 industries). We define an initiative as a bundle of innovative (digital) technologies, such as sensors, cloud, 3D printing, big data analytics or artificial intelligence.
We have calculated an initiative’s potential value to industry and society in the following ways:
Digital value to industry
This comprises two elements:
- The potential impact on an industry’s (pre-tax) operating profits (value addition / dilution).
- Operating profits that shift between different industry players (value migration).
Digital value to society
This has three elements:
- The gain to customers (B2C) in the form of cost and time savings and discounts.
- The financial and non-financial effects on society, e.g. productivity gains, jobs, traffic congestion and lives saved (these vary by industry).
- The impact on the environment through emissions of CO2 and other gases (these vary by industry).
For a few industries, we have also calculated impacts from external sectors, e.g. for the telecommunications or automotive industries in the case of telematics and usage-based insurance. Given the vast number of externalities, we have been unable to consistently measure all factors, but this is an area that can be developed over time.
The DTI approach to calculating value at stake for industry and society
The six steps to calculating value at stake
Value-at-stake calculations involve six steps:
- Analyse the applicability and implications of a digital initiative at an enterprise level and try to answer: Why is it important? Who are the main stakeholders? Which value chain segments are impacted most significantly?
- Understand one’s own baseline. Consider the relevant line items from financial statements and non-financial metrics, including forecasts for the next decade. Try to answer, for example: What volume of greenhouse gas emissions does my organization create each year? What is the occupational injury and illness rate at my company? What are the most important externalities in my industry or ecosystem?
- Identify the total addressable market and technology adoption rates over the next 10 years for each digital initiative, based on secondary research, existing use cases, primary research and interviews with technology and industry experts.
- Create a value tree to represent the different industry and societal value categories mentioned above. It is important to note that our methodology does not put a price tag on the number of lives saved by digital initiatives. For carbon emissions, an economic value has been calculated using the average social cost per tonne of CO2
- Test, revise and validate assumptions and results with academics, economists, DTI working group members and select industry partners of the World Economic Forum.
- Continuously reiterate the approach to factor in new technology developments, increasing or decreasing adoption rates or policy changes.
Example 1: Aviation, Travel and Tourism – diffusion of ownership
Access-based platform business models enable the sharing and exchange of assets, employees, products and services between organizations in the travel ecosystem. As systems become more interoperable, it will become easier to connect and exchange assets, generating mutual benefits: the owning party reduces the costs of ownership; the borrowing party can build a positive business case and gain on-demand access to assets.
This initiative could generate significant value for society: $380 billion² over the next decade, driven primarily by customer savings from the use of short-term rental platforms rather than booking hotels ($193 billion) and the economic surplus to homeowners ($182 billion) who share assets. We also foresee a potential reduction in CO2 emissions of 107 million tonnes, which we value at $5 billion and equates to around a 1.3% reduction in overall aviation emissions, if new aircraft sharing models are adopted in commercial aviation.
The value tree below outlines the assumptions and approach that have been used to calculate the value to industry and wider society of this initiative.
Value tree showing how value at stake for the Diffusion of Ownership initiative (Aviation, Travel and Tourism) has been computed
Source: World Economic Forum / Accenture Analysis
Example 2: Oil and Gas – predictive maintenance and operations optimization
This shows how a value tree has been used to evaluate the societal and environmental impact of these digital initiatives. Asset-heavy industries such as Oil and Gas can raise the productivity of assets through predictive maintenance, which exploits real-time or historical data about equipment usage and maintenance to spot performance and reliability patterns that can, ultimately, create an optimized, bespoke maintenance programme for each type of equipment.
We predict this initiative will reduce emissions of CO2 equivalents by approximately 350 million tonnes, and emissions of sulphur dioxide and mono-nitrogen oxides by 0.15 million tonnes and 0.2 million tonnes respectively. It could also reduce oil spills by 55,000 and 65,000 barrels in production and transportation respectively by 2025. The value tree below gives an insight into how these benefits have been calculated.
Value tree showing value impact for society and environment in the Oil and Gas industry
Source: World Economic Forum / Accenture Analysis
The path forward
As we look ahead to 2017, the third and final year of the DTI programme, we intend to build on our analysis so far to maximize the future impact of the initiative. Testing our value-at-stake framework and putting it into practice will be at the heart of our work this year. Our priorities will be to broaden the geographic scope of the initiative; empower policy-makers to run their own analysis; and identify and share best practices.
The ultimate objective of the DTI programme has never been to produce more research. Instead, our goal is to initiate and trigger multistakeholder dialogue and engagement around the societal impacts of digital technology, so that we can build a digital revolution that benefits everyone.
1 Our work in India valued some digital initiatives that had not been included in our value-at-stake analyses of the industries listed above.
2 Focused on the impact in the hospitality industry. Sharing economy also has proven and growing impact on ground mobility services, which is not in scope as a sector for quantitative analysis.