For the full potential of digital transformation to be realized, some formidable barriers will need to be overcome.
The value of digitalization will not accrue automatically to industry or society. The digital transformation of the four industries we have quantified so far could deliver considerable value to industry and society over the next decade, yet there is a risk that this promise could go unfulfilled.
As Figure 1 illustrates, some digital themes have the potential to deliver benefits to both society and industry, while other initiatives will need multi-stakeholder collaboration to align industry value with societal benefits (those above the dotted line). Organizations will need to act – either independently or in collaboration with industry peers, policymakers, regulators and NGOs – to ensure that key challenges facing society move into the ‘sweet spot’ of alignment between market forces and societal value.
Standing in the way of these attempts to align industry value and societal benefits are some sizable barriers. In this article, we highlight some of the most significant challenges that need to be overcome before the full value of digital transformation can be captured.
Barriers to unlocking the value of digitalization
1. Lack of collaboration for societal gains
At present, incentives primarily focus on focus on meeting profit targets for publicly listed companies, undermining collaboration and the potential for maximizing societal benefits. Investors are not yet adequately rewarding public companies for the benefits they produce for society in addition to the profits they earn.
Case study
Usage-based insurance for cars
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 more than 150,000 lives by 2015. 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, it is not mandatory for car manufacturers to install the 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 were not mandated in cars when originally conceived.
2. Regulation and protection of consumer interests
Innovation is taking place at a far greater speed than regulation can keep up with. Regulatory frameworks that were originally put in place to protect consumers are no longer always appropriate. Possible new frameworks, such as self-regulation through customer reviews, is substituting legacy legislation. For example, the logistics industry alone contributes 13% to global emissions, but stakeholders need to act quickly to develop safe and trustworthy approaches to unlocking benefits from digital technologies such as drones. With the promise of reducing emissions by up to 90% and costs by 25% in last-mile deliveries, drone technology is ready but regulation isn’t.
3. The innovator’s dilemma
Publicly listed incumbents are being held back from radical innovation, as a result of a conservative corporate culture and the short-termism of investors. For instance, some technology companies are taking a revolutionary approach to building driverless cars (e.g. Google Lidar), while some car manufacturers are taking an evolutionary approach (e.g. GM SuperCruise) through assisted driving technologies). In the electricity industry, despite the societal benefits of decentralized renewable energy, few utilities are actively cannibalizing their existing business to offer subsidized renewable technologies such as solar. Clayton Christensen’s theory continues to hold true; the pace and scale of societal gains from digital will be slower through disruption by new entrants than through innovation led by incumbents.
4. Skills for tomorrow’s workforce
Significant skills gaps exist today and are projected to grow in the future for digital roles. STEM (science, technology, engineering and mathematics) skills are often a focus, but robots lack the qualities of creativity and empathy that are crucial for many roles in the labor market. For example, Cisco has identified 1 million unfilled digital security roles globally. Likewise, Brazil faces a shortage of 360,000 engineers and technical workers. Digital skills are not just for front-line employees, as the boardroom is a critical hotspot for improving digital literacy. One example is Clara Shih, the 33-year-old CEO of Hearsay Social, who was recently appointed to the board of Starbucks. However, multi-generational and digitally literate boards like Starbucks’s are the exception, not the rule.
Digital is having a profound effect on business, fundamentally changing how customers behave, disrupting the competitive dynamics of industries, requiring incumbents to become more agile to stay ahead of evolving customer expectations. Moreover, organizations do not always understand what impact their digital initiatives will have on different aspects of society – from employment to the environment and beyond – or what responsibility they should bear for addressing any unintended consequences of digitalization. Much of this is covered in the wider work that the World Economic Forum is initiating around the Fourth Industrial Revolution and will be covered in greater detail in the Digital Transformation of Industries initiative in 2016.
Read the next article in this theme
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).
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