A recovering but lagging Europe must embrace digital disruption

On the surface at least, the European economy is recovering but it remains behind on competitiveness. The hangover from the financial crash remains with unemployment levels raging, and debt still at high levels in some countries. But despite the attention paid to the President of the European Central Bank’s latest monetary intervention, or the lively debate over the next President of the Commission, business leaders in many parts of the EU are more optimistic about the outlook.

Share

On the surface at least, the European economy is recovering but it remains behind on competitiveness. The hangover from the financial crash remains with unemployment levels raging, and debt still at high levels in some countries. But despite the attention paid to the President of the European Central Bank’s latest monetary intervention, or the lively debate over the next President of the Commission, business leaders in many parts of the EU are more optimistic about the outlook. 

The question for Europe and its patchwork of very different economies is not whether recovery is round the corner, however, but whether it is operating at a fast enough pace to regain the competitiveness it needs to make that recovery sustainable.

Europe currently lags most of its main competitors in both labor productivity growth– and spending on innovation, specifically, R&D.  The Commission has hopes to raise manufacturing’s share of EU GDP from approximately 16 percent today to 20 percent by 2020. That’s a tough target given these lagging performance indicators and the threat of deflation.

According to 500 senior business leaders we surveyed in collaboration with BUSINESSEUROPE, 61 percent believe that Europe is globally competitive today. About the same proportion are optimistic that Europe’s growth prospects will improve in the next three years, up from just 46 percent who held that view in 2013.  Certainly the EU’s 5G partnership with South Korea to put Europe at the forefront of mobile technology is a promising step in the right direction. Our view is there may be some conflation of business leaders’ hopes for economic recovery and their assessment of long term competitiveness.   Either way, we have to be sure where growth and improved competitiveness are going to come from.

Many recognize that the digital technology revolution will have a profound impact.  Nearly two-thirds – 62 percent – believe that digital will result in major changes to, or a complete transformation of, their industry’s business model in the next 12 months.  But while nearly all respondents (96 percent) believe digital technology will be important to Europe’s competitiveness, many fear the EU will struggle to compete with other major economies that are making greater progress in using digital effectively.  Two thirds are concerned that a failure to increase their use of technology – particularly digital technology – within the next year will cause them to lose customers to their competitors.

Digital technologies are already transforming operating models that can improve efficiencies and competitiveness. But they are also driving new forms of growth. This is about the top line as well as the bottom line. The challenge is that, along the way, they are disrupting existing sectors and threaten to make slow movers obsolete. However, the focus of the digital investments of 60 percent of the business leaders to whom we spoke is on driving efficiencies, rather than creating new growth opportunities with more digital products and services. This imbalance needs addressing.

Succeeding in the digital race is not merely a case of investing in social media, mobility, big data, analytics and cloud technologies.  Organizations must consider the markets in which they can best operate, the partnerships they can form to break into new sectors, and the new products, services and experiences they can offer the market.  They have to make bold changes to their entire business models and even look at the markets from which they should exit. Further, they need the right kind of talent and expertise. According to the European Commission, there will be a forecast shortfall of more than 900,000 digitally skilled people by 2015.

One example of how a traditional industry leader can use digital technologies to explore new markets and collaborations is the BMW’s “DriveNow” car-sharing service that teams BMW, MINI and SIXT can use to enable users to rent cars flexibly, when and where they need them. It has a related marketplace that brings together owners of private parking spaces and people in search of parking. In this way, BMW is using digital to ensure that it disrupts the market, rather than be disrupted by it.

Governments’ role must be to create the vision and environment for Europe’s future as a digital economy. That means tackling three key areas; the regulatory environment, skills shortages, and support for entrepreneurship.

The current fragmented regulatory environment in Europe is preventing the uptake of digital technologies at scale. More is required to harmonize EU rules, particularly in the area of data privacy and security, to drive a true digital single market that encourages investment and the creation of innovative digitally enabled products and services across the EU.

More needs to be done to address the digital skills gap, with the number of unfilled digital vacancies in the EU potentially reaching 900,000 by 20151.

Access to the right skills is key to Europe’s digital competitiveness, at the same time unemployment remains stubbornly high. Solutions to these two problems must be linked and Governments, businesses and educational institutions must work together to make targeted investments in relevant technical and vocational training in digital skills and to accelerate the use of digital tools, such as online learning, that can reach larger numbers and equip people with the skills to get or maintain employment.

Finally, policymakers must support entrepreneurship to foster the launch and development of new businesses and the creation of new jobs. Here attention should be on “second chance” policies, and the creation of physical and digitally enabled virtual clusters that bring large and small businesses together.

Europe has strong foundations on which to build a digital economy.  It already produces more graduates in relevant technical areas than the United States. And its digital infrastructure is strong.   But the task is to make all businesses truly digital, both to create entirely new forms of growth and to underpin competitiveness. That is not so much a question of mastering emerging technologies as being open to entirely new business models and creating entirely new markets with the right talent in place to proactively adapt and lead in creating digital businesses.

It is important that policy makers and industry leaders recognize the nature of the challenge and the speed of change needed in order to make digital an engine of Europe’s competitive renaissance.  Europe is now the market which needs to leapfrog ahead to truly take advantage of the coming upturn cycle.

Posted by By Mauro Macchi, managing director, Accenture Strategy

1 European Council Conclusions, Brussels, 24 October 2013.

"Recommended For You"

Government launches UK Digital Strategy to mixed reviews Brussels cut in EU broadband funding draws criticism