Digitization: Why The Digital ‘Have-Mores’ Will Get More

Modern society and business is increasingly about being digital. Business processes are built around digital usage and employees are screened on their digital capabilities. Needless to say, digital adoption is key for the modern citizen. A recent study by consulting firm McKinsey Global Institute (MGI) pegged a number on this process of ‘digitization’.Digitization in the three areas of online talent platforms, big data analytics and the Internet of Things alone could add $2.2 trillion to annual GDP by the year 2025. Furthermore, the firm found that workers with the most digital skills are likely to get paid much more than the national average. If you work in one of the most digitized industries, your wage growth is likely to be twice the national average.

That are quite strong arguments to adapt to digitization. Just like the income inequality discussion, the gap between digital ‘haves’ and ‘have-mores’ is increasing. More than two-thirds of US adults have smart-phones and 95 percent of college-educated adults use the internet. People who are completely shut from digitization are rare, hence we speak of ‘haves’ and ‘have-mores’.

Risk of job displacement accelerates

However, due to digitization there may be a high risk of job displacement. The study notes that some 60 percent of jobs could have approximately 30 percent of their activities automated. This is not only related to lower levels, but even top-level executives could face the consequences of the ongoing process of automation. The integration of digital technologies affects highly skilled levels as well. But the highest risk of job displacement is at middle-skill occupations such as clerical, sales, production and operational roles. Compared to previous decades, automation through digitization causes job displacement to accelerate sharply in the coming decade. MGI estimates that a share of 10, maybe even 15 percent of middle-skill jobs will be displaced in the period 2015-2025. The most recent decade saw ‘only’ 8 percent job displacement, compared to 4-5 percent 50 years ago. Obviously, digitization also creates new jobs. Twenty years ago, a job as SEO specialist was not on the radar. 51 percent of US freelancers have done work online. Next to that, the process also brings opportunities for entrepreneurs.

Increase digital efforts is key

Companies should increase their efforts on the digital frontier. Although most companies incorporated some form of digitization long time ago, there’s a huge gap between companies using a tiny fraction and the small group that is far ahead of the curve. The digital leaders use digitization to transform core processes and customer relationships. Understandably, the ICT sector is the digitization leader, followed by Media and Professional services. On the bottom end, Hospitality, Construction and Agriculture are lagging the trend. The bottom three all witnessed a decline in productivity during the recent decade, whereas ICT (+4.6 percent per annum), Media (+3.6 percent) witnessed the largest growth. To be fair, Professional services at the third sport of the digitization ranking only yielded 0.3% annual productivity growth.

The struggle in digitization

Labor- and capital-intensive industries are struggling with digitization. This is for a part unsurprisingly due to the nature of the work. However, there’s a huge discrepancy within these sectors. For instance, sector leaders that adapted to big data analytics earned a competitive advantage. The most strikingly example across sectors is seen in retail. Brick-and-mortar shops that were late to the online retail game, suffered significantly and a number of them even went out-of-business due to the threat of the likes of Amazon and co.

Workers have to adapt

For many sectors, digitization is a must. But for workers as well. Digital skill adaption through training is a must. But this may not be enough in case of a disruptive service such as online taxi service Uber. In some cases, worker protection may be necessary according to MGI. Policy makers should make clear how project-based workers are treated to prevent abuses. And there’s another threat: due to big data analytics, the privacy of users becomes a delicate matter.

Competition intensifies, nobody’s safe

But even today’s digital leaders are not safe. MGI notes that due to the dynamics in digitization, competitive ‘churn’ intensifies. Top performing companies grow faster, but when a new competitor enters with a new (disruptive) model, even today’s leaders are vulnerable. ‘Companies are aiming at a moving target’, the study acknowledges. In a world where innovation is key, competition is more intense than ever. So be prepared and take advantage of new technologies.

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