The United States is undergoing one of the most significant and radical societal, cultural, and economic revolutions of its short history—quite possibly of all human history. The state of society, culture and economics of just two decades ago compared with what they are today is both disparate and staggering.
Consider that just 20 years ago communication was had predominantly via landlines, fax machines, photocopied memos, and physical mail. How many of those means of communication remain today? This change alone has had phenomenal effects on just about every aspect of humanity.
Add to the mix the vastly expanding array of digital technology that has penetrated every aspect of our lives, the increasing need for connectivity and transparency, and the exigencies of consumer satisfaction in business relations. In this manner, individuals, the marketplace, and governments alike have been shaped by a wave of digitalization that shows no signs of abating.
In this hefty article, I attempt to cover the beginnings of the digital revolution—1975 to the present—with a particular focus on its consequences for industry, consumers, and the government.
This is by no means an exhaustive article, but it is, nevertheless, a comprehensive one.
Technology Is the Engine of Digitalization
Without technology there can be no digitalization. The prima mobile of digitalization, if you will, is technology. And yes, it bears repeating.
The rate at which technological innovation arises and is absorbed into human life has compelled an adoption of digital in every facet of human activity. Even before new digital technology is pumped into the marketplace there are people who have mastered it. Then, almost as quickly as it is distributed, still newer digital technology enters the market yet again. The sheer rate of production is astounding.
The advantages of this are manifold and undeniable.
Just as electricity fueled the industrial revolution, catalyzing innovation, productivity, and economics, so too has the Information and Communications Technology sector catalyzed expansive developments in contemporary society.
Thanks to technological innovation, we can now do previously unimaginable things. We can measure human activity on a daily basis; we can keep track of, plan, and consult on our finances using advice from experts; we can forecast with surprising degrees of accuracy; we have technology at our disposal that multiplies our productivity and efficiency exceedingly, and in a number of roles—as teachers, as learners, as leaders, as consumers, as entrepreneurs.
And yet, the technology as such is merely a tool. It would be useless without people to master it, and master it they do. People have grown surprisingly adept at apprehending the internal logic of technology. Conversely, designers and innovators have gotten much better at anticipating the needs and expectations of consumers. This reciprocal relation has made technology indispensable to contemporary human life.
Yes, people do without it; but the ostensive disbenefits of living a technologically impoverished life are unavoidable.
Digitalization is a descriptive and prescriptive term. Digital technology is part of our everyday, people demand that it infuse more and more parts of their lives, and business success now depends on it.
Digital Evolution – A History
Digitalization came in a series of distinct waves, each feeding into the other more rapidly than the last.
The first wave began in the 1960s, and was localized in the business sector. Large corporations would rent and buy entire floors devoted to housing large computational systems capable of performing basic analytics. This was revolutionary at the time.
The second wave began about two decades later—around the 1980s. The desktop and personal computer permitted faster processing, lower overhead costs, and slowly made their way into the homes of expectant Americans. Almost concurrent with the penetration of personal computers was the development and spread of enterprise software. This invigorated an enormous increase in at-home and at-work productivity.
Thanks to inroads from the first wave, the third wave, characterized by automation technology, swelled swiftly.
The third wave began in the late to mid-1990s when connectivity and commerce skyrocketed. The Internet completely changed the way people communicated, consumed, and shared information.
By the 2000s the Internet had gone wireless.
That set the stage for 24/7 connectivity, social media, public sharing in general and a shift in the meaning of privacy.
Now, we find ourselves in what could arguably be described as the fourth wave.
Big data reigns over all things digital, advanced analytics are a common denominator, and the Internet of Things is a burgeoning reality. These three distinguishing aspects of the fourth wave have fundamentally altered the way people live, do business, think, and perceive the world around them. The digital sea (to work the metaphor down to the last drop) we now live in is an aggregate of the waves before it. It is an inescapable cultural and social revolution.
What’s more, from an objective vantage, change keeps rolling in faster and faster. The gap between the first two waves was roughly 15 years. Now? 5-10 years suffice to change the way we live. I really can’t overstate how unique this is in human history.
Due to the meteoric emergence of digitalization, experts have developed an Industry Digitization Index (IDI), which is a tool that measures how each sector incorporates digital assets, increases digital usage, and digitally enables its workforce. This digital barometer is applicable to governments also. I’ll explore that later on the article.
The US Industry Digitization Index
The US IDI indicates that some sectors have digitalization more quickly than others. On average, the overall economy is about 14 percent as digitalized as the most advanced sectors. Counterintuitively, on the whole, some of the sectors that contribute most are lagging substantially.
When we evaluate the US economy, it has reached approximately 18 percent of its total digital potential, which is assessed in reference to the upper bounds of digitalization taken from the leading sectors. This gap is scalable to individual companies, workers, and consumers. In other words, it isn’t solely the result of averages.
The gaping chasm between those who have digitalized is constantly growing. Due to the amount of data at our disposal, it is clear that being digitally unequipped presents quantifiable disadvantages at every economic level. This is exacerbated by changes in consumer psychology and widespread acceptance of digital technology as part of everyday life. Those who lack access very quickly fall behind.
A Digital Consumer
Digitalization is undeniably changing the nature of the job market, of corporate competition, and of corporate infrastructure. These trends are observable irrespective of industry. Now, digital adroitness and integration are prerequisites for success at the individual and industry levels.
Consider that as of 2015, roughly 84 percent of US adults have smartphones. It is no wonder, then, that millions of North Americans are so accepting of technology as part of their daily lives. Their smartphones have become control centers for organization, entertainment, engagement, and news. The exposure to smartphones has helped people, as a society, gain technological fluency and accept digital technology as commonplace. This trend has been increasing exponentially since the late 1990’s.
The linchpin of technology allows for faster advancement and the proliferation software and hardware in the market at an unprecedented rate. In addition to changing how people use and incorporate technology, it has also changed the way people acquire goods.
For example, as of 2014, US e-commerce sales topped $300 billion dollars. It has challenged brick-and-mortar sales, and completely changed the way retail companies and supply chains work. It is disruption and it’s more common with each passing year.
The new consumer psychology, new business practices, and the presence of digital technology have changed the game. Disruption is now the best way to get ahead of the competition. If you can’t dominate a market, you change it’s dynamics.
The 21st Century: A Digital Age.
Businesses are realizing more and more that disruption is the ideal. Right now, conventional wisdom dictates that the most effective disruption is customer-oriented. Because consumers have so much digital technology at their disposal and are constantly connected, innovating on those axes is the fastest way to disrupt an industry. Just think, the consumers are there, surfing the Internet, accepting emails and notifications, in the middle of a stream of information, constantly. You need to make sure you are a prominent part of that influx.
Here are a few salient examples of disruption that highlight the its speed and its consumer-facing nature.
Facebook. It skyrocketed in a matter of 10 years. Just a decade after its inception it had attracted 58 percent of the US adult population. It now threatens to subsume the Internet itself, especially with the consolidation of publishers under Instant Articles.
Google. Google started as a search engine company. Now, merely 18 years later, it has extended its reach beyond search engines to machine learning, robotics, advertising, telephonics, biotechnology, messaging, and a number of other verticals. In this way, it has literally set the rules of engagement for every industry that it dominates. Google is a standard.
Apple. Apple is Google’s closest competitor and has been synonymous with innovation for many years now. Although it has recently come under some scrutiny, it commands a massive cult following, and million os faithful users. Exactly what it’s next big move will be is unclear, but since the late 90s it has been an unstoppable force. Now, it’s a worldwide technological titan.
Uber. Uber was founded in 2011, and since then it’s valuation has increased by the 10s-of-billions every year. Uber is now a transport giant and recently launches UberEATS, an app/service the may presage a revolution in the restaurant industry.
Uber is the best example of the point I am trying to make here. In 4 years time it has recreated the taxi industry to the dismay of many around the world. And yet, it continues its ascent and shows now signs of slowing down.
These companies are part of a small yet influential cadre of companies that constitute the cutting-edge of digital advancement. In a sense they have spearheaded digitalization.
The benefits that they reap from technology are set in relief against the losses that non-digitalized business experiences. Yes, the businesses may stay afloat but the possible benefits they could gain from digitalizing their internal operations and their offerings are manifold.
Be that as it may, staying at the cutting-edge is not as easy as it once was. The competition is intense, and the democratization of technology makes it difficult to keep advancements a secret for long. This make innovation easier, and hence, disruption much more likely.
Let us not forget the humans that add substance to these companies. They too face tremendous disruption in the workforce. Competition for specialized skills is tight, and in the same way, those who fail to stay abreast may fall behind—and fast.
Digitalization for the Little Guy
The disparities in opportunity for those who adopt and master digital technology and those who do not are astronomical.
At the consumer level, the average smartphone-user is not taking full advantage of the raft of applications available to create substantial efficiencies and value. Conversely, those who do save immensely on time and money: gas, flights, discounts, hotels, books, car repairs, etc. It all accrues over time.
In the workforce, the ability to exploit digital technology is even more imperative. It has become an expectation.
According to a 2014 analysis of user profiles conducted by LinkedIn, they determined that the top five skills of high earners on LinkedIn are related to cloud computing, data mining, and computer programming. They also found that digital occupations, on average, pay more than double the median annual wage.
In dismal contrast, those who have seen nominal wage increases are concentrated in job sectors with more limited job growth. (There is, of course, the issue of automation that plagues a number of job sectors. That’s an important topic for another time.) It has been noted that industries with high digital penetration experience much higher wage growth and higher overall revenues.
The point is that the digital worker will experience greater wage growth, a wider range of job opportunities, and a greater degree of freedom compared with their traditional, less digitalized counterparts. And, consumers who learn how to exploit digital technology set themselves up to save big.
The Digital Worker Persona
This workforce and consumer climate has affected culture and societal norms. It is difficult to track why exactly, but the changes are conspicuous.
I’ll paint a picture.
The digital worker blazes through the labor market with confidence because her skills are her currency. She uses eBooks and Coursera to fine-tune her learning. She cultivates social networks, bolstering them with endorsements from co-workers, friends, and the like. She uses those networks to connect with thinkers, innovators, and potential opportunities to grow. When an opportunity presents itself, she goes online to research before making any decision. She reads reviews, looks at statistics, read articles. When you negotiate with her, she knows her stuff. This confidence in technology makes her highly efficient and productive. She adeptly uses videoconferencing and communication technology like Slack and Yammer. She collaborates using cloud-based technology. She navigates digital marketplaces with ease. That’s why she’ll always have a side hustle. She can be a web developer one day and a tutor the next. Her job market is international. Platforms like UpWork and Freelancer.com help her make the best of her time and experience. When she steps online, she steps into a second home: she’s comfortable, at peace, and knows every nook and cranny.
The digital worker can be any number of things, focus on any number of tasks, and acquire expertise independently, both inside and outside of the workplace. Her motivation stems from an entrepreneurial craving to succeed. Success, however, does not necessarily mean more money. Success means the acquisition of knowledge, more freedom and more connections; it means traveling and building collaborative and fulfilling relationships. It means things that once seemed fanciful but no more because all of it is made attainable through digital technology.
If this sounds hyperbolic to you, then you haven’t fully internalized the power of digital technology. What’s more, digitalization is less about gadgets and software. It’s a mindset, an ideology towards business and toward life.
Digitalization Is a Mindset
Digitalization has compelled people to change the way they do things. The four principal areas where these changes are taking place are: internal operations; customer acquisition and retention; innovation and collaboration enhancement; and, workforce organization.
Internal Operations.
A growing number of companies have used digital technology to revamp their operations in order to manage complexity and improve efficiency. Retail companies in particular are at the frontier of operational makeovers.
Database management systems, client-server platforms, and enterprise planning software constitute the first order of digital innovation in the retail sector. This has given way to computerized management tools for inventory and delivery technology. The height of this technology is real-time monitoring sensors, data-retrieval from sensors, and customer-employee feedback.
E-commerce typifies these advancements and puts them in the hands of customers and sellers alike. Amazon, for example, was conceived as a fully digital retailer. To date it is at the cutting edge of e-commerce. Amazon has pioneered predictive algorithmic technology, digitized logistics, and automated delivery robotics that suffuse the entire retail industry.
Banking institutions have also adopted a number of retail technologies in an attempt to increase efficiency and customer satisfaction. Process apps have transformed low specialty, behind the scenes work functions, into paperless and people-less workflows. Most bank services are available on our phones. It’s impressive and ostensibly precludes the need for brick-and-mortar locales.
Digitalization at the operations level is mainly about optimization through automation. And all of that automation is ultimately aimed at improving customer experience and at raising profit margins.
Customer Acquisition & Retention.
Digitalization grants access to larger customer-bases and more specific customer-bases. Netflix has staked its claim to fame on this truism.
Netflix started with a subscription-based DVD mailing service and grew into a streaming titan. By 2014, almost a third of their streaming customers were located abroad. Netflix has used programmatics to retain customers by learning more about their preferences and make targeted suggestions. Initially it was a paltry service but has grown in accuracy. Now, customers come to expect programmatic suggestions and increasingly cannot stand channel-surfing and other vestiges of cable TV.
When a company finds an innovative way to acquire and retain customers, it can rapidly change an entire industry. Amazon and other purveyors are using this technology to satisfy customer expectations, save time, save money, and increase profits.
Intelligent and automated systems compile information about user’s behavior, preferences, and feedback every second of every day. All of the data gleaned helps determine discounts, pricing, store layouts, and merchandizing assortments.
In this way companies can manage customer satisfaction and virtually control expectations by analytically catering their goods and services.
Innovation & Collaboration.
Digitalization has created new vehicles for collaboration and thereby redefined what collaboration is.
In the manufacturing industry, design software that includes real-world, physical constraints has significantly reduced product development. Designers can test products in sophisticated modeling software well before they hit the development phase, saving large sums of money.
In addition, cloud-computing tools let professional collaborate around the world simultaneously. When working on a single product, developers, suppliers, and distributors can communicate seamlessly to determine every aspect of a product rapidly, accurately, and cost-effectively.
The pharmaceutical industry has benefitted immensely from digitalizations of this kind. The increasingly large data sets available from electronic medical records, remote monitoring devices, and clinical settings have accelerated drug development, and enhanced the efficacy of clinical trials through statistical analyses based on real-world data.
When once private information is shared publicly and through the industry, it creates opportunities for innovation, improvement, and collaboration on a scale that not only saves money but can even save lives.
Workforce Organization.
Companies have used digital technology to automate complex and simple workflows, to create new, highly-specialized and high-return employment, and to free up employees to perform higher-value work. Much of this has been made possible through data insights, analytics, and forecasting.
Companies have used those insights to improve their bottom line in a number of ways. Some have redistributed their division of labor, outsourcing jobs for higher returns and lower overhead costs.
These reconstructions of traditional workplace work distributions have created entirely virtual work arrangements.
Human resource allocation in general has improved.
For instance, nurses can now be matched to departments and cases based on training, specialized knowledge, and aptitudes by an intelligent computer system. This relieves the pressure and cost of scheduling, and advances medical care. Along this vein there are sophisticated digital tools used to vet applicants, test them for on-boarding, create comprehensive teams, and both collect and analyze performance information.
These changes have altered traditional distributions of labor, department infrastructure, and the very definition of what it means to be an employee.
Digital Isn’t Just Virtual
Digital assets. That term refers to both digital goods and services. The introduction of digital assets has effected large-scale change at both the macro- and micro-economic levels. I think it is important to understand the nature of digital assets and how, for some, they have turned into fountains of wealth.
Multiple sectors have shifted their business models toward digital assets. They now sell digital products and house large repositories of data paired with detailed analytics that allow them to create revenue streams for themselves and others.
IBM purchased the digital assets of a weather company to bolster the artificial intelligence capabilities of their business programs. For suppliers, distributors, and vendors, the weather is a crucial consideration that often affects pricing and efficiency. This technology let IBM mitigate those factors and monetize them.
Some well-known digital assets are Facebook, iTunes, eBay, Amazon, LinkedIn, and Airbnb. These are platforms that provide copious amounts of useful data about users, which can help companies disrupt business models quickly and profitably. Although some have faced scrutiny about selling data or making it public, they still use it internally to inform business decisions. Facebook famously tests on its population in segmented and isolated ways as a means of reaching conclusions about effects on the broader population.
EBooks and e-literature are digital assets. The media industry has derived savings and increased revenue streams from the emergence of digital literature. This change is exhibited by news outlets, magazines, publishers, and music labels.
Unfortunately, as more business switch to digital assets, it displaces traditional businesses who depends on the physical versions. Barnes & Nobles, for one, was forced to shut down many, many brick-and-mortar locations. The have now invested largely in the Nook as a means of staying the tide. The New York Times has attenuated decline in physical circulation by increasing online subscriptions and advertising.
These changes are made possible because digital assets are low cost products. They require little to no initial capital and can generate disproportionately large returns. And that’s because, in a very simple sense, digital assets are little more than information.
Digital Is Information in the Purest Sense
As an industry ecosystem is digitalized, previous customer-company interactions are upended. The access to once hidden or obscure information creates pricing pressures, in addition to undermining once profitable business models, as we explored above.
Consider the impact of open access to highly specialized information. Harvard undertook an effort a few years back to digitalize their entire case law library. The goal was to put this vital information in the hands of more people, thereby promoting justice for all. They scanned some 40 million pages. For businesses predicated on retrieving and interpreting such information for a fee, this represented a critical disruption.
The reality is that digitalization is a force of creative destruction. Access to information has created entirely new industries which disrupt traditional ones. Consider the impact of Airbnb, Uber, Flipkey, and HomeAway.
From 2000 to 2014, online hotel booking income rose from $14 billion to over $150 billion. The number of travel agents, on the other hand, fell about 48 percent from 124,000 to 65,000. The hospitality industry as a whole has not suffered greatly; however, it is reasonable to assume that it may in the near future.
The US hospitality industry owns approximately $340 billion in fixed commercial assets. Platforms such as Airbnb can generate digital trade in more than $17 trillion on residential assets without needing to own a single physical location.
The hospitality industry can’t undo this rising trend but it has responded by developing apps and platforms to ease transactions with customers.
This falls squarely into the category of share economy business models. It denotes business that leverage existing assets through connectivity and create self-sustaining environments with services and goods that everyone can access, for a fee. It’s powerful and decentralizing, and ostensibly infinite.
Digital Assets Are Infinite Resources
At the macro-economic level, digital goods confer essentially zero marginal cost no matter how many units produced.
Traditional economic theory holds that companies can achieve economies of scale but at some point, marginal costs soar as material costs increase or become scarce. With digital assets this theory falls apart because digital goods and services can be replicated ad infinitum without any harm to the purveying company.
For example, Apple’s iOS ecosystem now boasts 1.5 million apps developed by 300,000 programmers. On average, an iOS user downloads about 119 apps. This amounts to approximately $30 billion, and that encourages more app development with high returns on investment.
What’s more, industry boundaries have become porous, so goods and services can take on many more forms.
Uber disrupted the transportation industry, and then added an auxiliary service, UberEats. Apple and Chase are going head-to-head to develop and diffuse mobile payment technology. Facebook purchased WhatsApp immediately expanding its messaging capabilities. Google formed Alphabet Holding Company to encapsulate its longevity and biotech research, smart home products, venture capital investing, and high-speed Internet fiber services.
In this economic climate, organizations cannot afford to cling to traditional, non-digital business models. Those that do so risk disruption and total loss at the hands of their competitors.
The Macro-Economic Picture
This wave of digitalization could have profound effects on productivity, growth, and employment.
Ironically, at the macro-economic level, the effects of micro-economic changes—like those described in the preceding section—are as of yet unclear. Although digital activities underlay a huge portion of the economic activity of the US, for example, their exact and quantifiable impact is a contentious topic.
From 1995 to 2005, industry sectors that assimilated digital tools experienced an uptick in productivity. The question is: Will those gains continue as more digital technology suffuses the market?
Part of the difficulty in answering this question may lay in the incalculable benefits of technological proliferation for consumers and society well past what the GDP may register.
Another obstacle to measurement may be that companies that implemented widespread technological change is still be in an adoption phase, so the full effect of digitalization is still to be felt. If this is the case then the US may be poised to experience substantial productivity gains in the years to come. When this happens—if it happens—productivity, growth, and employment will fluctuate at an exponential rate until it eventually plateaus.
GDP.
From 1975 to 1995, productivity growth in the US was around 0.7 percent. Over the subsequent decade, productivity growth rose to an annual average of 1.6 percent, or 2.5 times faster than the preceding 20 years. (GDP growth reflected these productivity gains.) GDP growth was at 4 percent as opposed to 3.3 percent, which was standard for the previous decade.
Productivity.
The oddity is that as of 2005, these increases have virtually vanished. Total productivity has actually fallen by two-thirds, and GDP growth averages around 2 percent. This is a conundrum with a name: Solow’s Paradox. This trend has prompted theorists to suggest that the revolutionary nature of digital technology has been overstated.
In a sense the imbalance has less to do with actual productivity and more to do with what productivity looks like now as opposed to then. Productivity growth now has more to do with automation and intelligent technology that removes middlemen and obviates human capital, rather than helping employees increase their own outputs.
This has contributed to the creation of digitalized workforces, outsourcing, and investments in ICT technology. All of these changes make measuring productivity on a national scale, increasingly difficult.
The technology is undoubtedly affecting consumer, industry, and employee dynamics, but how? There are simply too many factors at play to draw concrete and confident lines of causality.
Employment.
Analyst research has found that digitalization has contributed to slower rates of employment rather than the opposite. This is most pronounced in post-war and post-recession environments.
Here are the estimates.
In the months following most post-war recessions, the US bounced back roughly 6 months after the GDP had recovered. In 1991, however, it took the US 15 months to restore lost jobs after the same conditions met. In 2001, it took 39 months. And in 2008, 43 months.
Some analysts theorize that much of it has to do with how companies are responding to recession conditions. As I explained above, the push to improve productivity lies in automation rather than increasing human capital resources. Now, even when slowdowns of any sort are instantiated, employment is hit hard while productivity is left unscathed. This is a sharp deviation from a historical trend.
Along those same lines, the mix of low-, middle-, and high-skill jobs have varied.
Since the 1980s, employment in low- and high-skill jobs has increased while middle-skill jobs have fallen off drastically. As automation has reduced the amount of human-operated production and assembly line jobs, the amount of restaurant, security guard, health care aid, and maintenance jobs that involve in person services have increased because they are impervious to automation—for now. That same reasoning may explain the rise in high-skilled jobs that involve human creativity and problem-solving.
The byproduct is a tow-tiered labor market with a hollowed out, dare I say, robotic, mid-body.
This phenomenon is observable in other developed and developing economies. To put this into numbers, analysts estimated that between 2000 and 2014, in the US, some eight million net, new full-time equivalent jobs were created: two-thirds of those jobs in low-skill work, and the remaining one-third in high-skill work. All the while approximately two-and-a-half million net production and transaction positions were lost during this period. The poignant takeaway is that as technology becomes entrenched in consumer’s and organization’s lives, the prospects for the average worker decline.
All this seems to paint a grim picture, but there is a give and take. The decline on one side has opened new opportunities on the other. Traditional jobs are steadily declining, but new job opportunities crop up almost daily for those who wish to enjoy flexible employment supported by online talent platforms.
The Good, the Bad, and the Future
Despite all of the negatives and the enigmas, digitalization has generally had positive effects on the labor market. Positive changes have been noted and studied in three major areas: the labor market, capital efficiency, and multifactor productivity.
The following analysis is meant to illustrate growth that could happen over the next decade if present trends were to continue. Much of this analysis is based on innovation already implemented throughout the economy that can reasonably be expected to return massive dividends.
As I mentioned above (and it is worth noting again) one of reason for Solow’s Paradox may be that all of the digitalization that has happened is still in the incubation stage but once it matures, the gains will be exponential.
Labor Market.
Online talent platforms have had success in capturing segments of the population interested in entrepreneurship and upending traditional sources of income. LinkedIn has roughly 122 million registered users in the US alone. This critical mass empowered by job searching technology could help ameliorate the unemployment rate. The repositories of talent allow recruiters and job hunters alike to expand their geographic boundaries and find candidates that meet their interests, needs, and client requirements. This can also increase job satisfaction and thereby productivity, which in turn could mean higher rates of retention.
The biggest impact of these online talent platforms may be there potential for increasing participation, which has been in long-term decline. In this way, MGI estimated that online talent platforms could generate approximately $500 billion to annual GDP by 2025.
Another statistic poses a bright outlook for the digitally savvy.
Manpower reported that global employers could not find the talent they needed in 2014. More than half of affected firms reported this limited their ability to progress. The global shortage is estimated at 38 million to 40 million workers with college or postgraduate degrees by 2020.
Capital Efficiency.
The Internet of Things represents untapped potential for companies to reap benefits from their fixed assets. This ranges from better energy efficiency in office buildings to improved workflows in assembly plants.
At heart the Internet of Things is about the exploitation of data collected on a daily basis. That data is value waiting to be captured. Analyzing that data can mean upwards of a 20 percent increase in utility for most companies. And for companies that use sensor technology, it could mean dramatic changes to decision-making. Improved asset productivity in asset-heavy industries could add between $120 billion to $170 billion per year to the GDP by 2025.
Multifactor Productivity.
Companies that have integrated data analytics and the Internet of Things are still identifying how to get the most out of those tools at the operational and administrative levels.
Imagine the benefits that could arise from the careful usage of systems that track and manage costly supplies, machinery, and labor around complex worksites, or improve supply chain logistics. Mobile systems, for example, could track employees on-site while intelligent office buildings reduce energy consumption. The enhancement of these capabilities in an efficient way is the nature of multifactor productivity.
The combined effects on the labor market, capital efficiency, and multifactor productivity could generate an annual impact of $1.6 trillion to $2.2 trillion on the GDP by 2025. This would lift the GDP 6 to 8 percent above baseline projections for that year.
Additionally, digitalization solidifies our ties to the global economy.
Purely digital good and services are far easier to trade and e-commerce marketplaces facilitate the distribution of goods at affordable prices. In general, porous borders between nations when it comes to trade contribute to greater streams of revenue and entrepreneurship.
Analysts estimate that global flows caused by digitalization will add nearly $150 billion to US GDP by 2025. We all need to learn how to get in on the action, and with innovations cropping up everyday, it’s a 24/7 effort.
How to Make the Most Out of Digitalization
Companies have adjusted their priorities in accordance with these changes in the winds.
In addition to the need for more digital fluency, companies have also added an emphasis on customer relations, graphics, and innovation within the company itself.
Companies are constantly looking for new ways to connect with their customer on all sorts of media channels. The graphics component of advertisement are beating out the written components as attention grabers. And within company’s bounds, internal innovation is expected because external digital developments cannot be relied on meet a company’s needs—one size does not fit all. Companies must find ways to capture the full value of technological developments and fast. Agility counts for a lot in this labile environment.
Agility ensures that companies are able to make the most out of their resources at their disposal. The thing that companies should realize is that success is not solely contingent upon adoption of new digital tools but rather an understanding of how to use them to their maximum expression. Analytics are important, especially people analytics, otherwise you risk ignoring important data that could shape your business for the better. That is why a company’s most profitable areas of research and development should center on ideas, innovation, research itself, and expertise.
In other words, do you have skilled and creative talent in-house that can generate the kind of disruption you need to stay afloat?
Digitalization & Democratization
At this point we have mainly explored the effects of digitalization on the private sector, but what about the public sector? Obviously digitalization has penetrated it as well, and enough time has passed that conclusions can be drawn about its effects; inferences can also be drawn about its possible effects over the next decade.
It is estimated that roughly 84 percent of US adults use the Internet, yet around 40 million remain offline. The disconnect negatively affects more than social media activity. In terms of work opportunity they are at a huge disadvantage, as we have explored at length above. As consumers, they miss out on significant savings and convenience. Promoting connectivity must start with infrastructure developments, bolstered by digital literacy training, awareness of digital tools, and urging the incorporation of digital technology into the workplace and homes.
This digital divide is a barometer for a number of other disparities.
For example, the South has received historically less resources than the Western and North Eastern United States. This is no different when it comes to broadband access and speeds. Urban Americans are three time as likely as rural Americans to have high-speed broadband, whereas more than 40 percent of rural schools cannot establish high-speed connections.
Some digital discrepancies within a population are highly localized. On the island of Manhattan in New York City, 80 percent of resident have high-speed broadband, while 65 percent in the Bronx do not. In sharp contrast, Amsterdam has smaller discrepancies of access, despite lower per-capita incomes, poorer neighborhoods in Amsterdam are more likely to have Internet access than their New York City counterpart neighborhoods. In fact, the digital divide in the US is much wider than in most other developed economies. Here are some more startling statistics from 2015.
A study in 2015 found that 97 percent of adults in households with incomes exceeding $75,000 are Internet-users, while only 74 percent of those in households with incomes below $30,000 a year are online. 95 percent of US college graduates use the Internet, but only 66 percent who did not complete high school are online.
Some cited reasons are access (infrastructure), barrier to entry (cost), and apparent lack of necessity (lower frequency).
The government has undertaken initiatives to assuage the lack of connectivity because it puts citizens at a measurable disadvantage, and thereby the country. Some federal initiatives to resolve this issue are ConnectED and ConnectHome.
Curiously there is a digital discrepancy within the US government as well. Although there has been a concerted push to ameliorate the issues mentioned above, the e-services provided by the government to their public is still severely underdeveloped. This discrepancy is exacerbated by the inherent contradiction that the US is a digital leader worldwide: sone major technological hubs are based in the United States, yet its population is under-connected and attempts to use its digital services are obfuscated on a daily basis.
The US government ranks 13th out of 34 countries in an industry analysis in terms of ICT usage. The analysis ranks countries based on governmental efficiency and the importance of ICT to the government’s future plans.
The US government may be missing out on substantial savings by not expanding its e-services. Countries that have done so experienced cost savings almost immediately. After the United Kingdom launched gov.uk, the government saved around £42 million ($63 million) in public spending within a year of its launch. MGI performed a comprehensive analysis of possible gains from big analytics alone and calculated roughly $95 billion in productivity increases, and around $280 to $460 billion in potential savings by reducing clerical errors, improving procurement, and heightening tax collection efficiency.
All of this reinvention presents an unprecedented opportunity to promote governmental values on a scale previously unheard of; namely, transparency, accountability, participation, and responsiveness.
Digitalization Policy-Making
Up to this point the article has been largely descriptive. Now I will aim to provide some suggestions for policy-making in the public sector. The Internet is a democratizing force that has injected life into our political process as well as other sectors of society. The government must adopt new modes of thinking to cope with the revolution and harness its healthful effects.
Any comprehensive policy plan will need to address consumer privacy, data sharing, and industry concentration. To accomplish this will require a holistic mindset. And perhaps some healthy skepticism about policy-making. What I mean is that the digital revolution is uncharted territory so the presumption that regulatory bodies can provide stability and clarity in the long-term may be slightly overblown. Uber and Airbnb, for example, disrupted the transportation and hospitality industries before regulators could catch up. Retroactive change is much harder to implement than preemptive or simultaneous policy-making. And, contingent upon the kind of innovation, they can pose much larger questions about insurance and liability.
All this amounts to the perspective shift that I mentioned.
A holistic approach means a more experimental, adaptive, and test-and-learn tact. In this sense the diversity of regulatory practices at the state and federal levels may actually be a boon. The states can serve as experimental grounds for larger policy, which can help make better determinations in the long-term.
Another important imperative for policy-making in the wake of digitalization is the establishment of common standards. The goal is to successfully convene stakeholders and channel their purchasing power. This helps innovation to stay at a high caliber and a high level of broad application. For instance, the federal government set into motion initiatives to systematize electronic medical records. Despite government backing there has only been partial payoff. The problem is that providers adopted disparate systems with translation and intercommunication issues. Therefore, patients have seen little to no profitability.
Data privacy and security are two important issues also. They are pivotal to the success of the Internet of Things, which is predicated on capturing and filtering as much information about companies and individuals to exchange at any given moment. Governments can aid in the data collection, access, usage, and consent but the danger of hackers still exists. Government should create frameworks for liability.
The federal government should also help fend off the ill-effects of wage pressures and occupation obsolescence. The effects can’t be eliminated but at the very least they can be tempered and the people adversely affected can be protected. To start skills development should be a governmental focus.
A survey conducted in 2013 found that about one-third of the offline US population felt daunted by the Internet or didn’t have the fundamental skills to go online. Some adults in the workforce will need reinvent themselves as more jobs become technology dependent. Concentrated and sophisticated programs and trainings for acquiring new digital skills need to be made available post haste.
Another important area for policy intervention is worker protections. Decades of back and forth between workers and the labor market have engendered current protections, but new work structures have emerged that are virtually unregulated.
For example, digital platforms for freelancers and on-demand workers have raised concerns about how project-based work and workers should be treated under the law. Fortunately there are multiple approaches to reach a resolution. One option comes to us from Germany, Sweden, and Canada. There, the concept of “dependent contractor” denotes the same as a freelancer workers and add protections to those who fall in the gray area between employee and independent worker. In addition to nomenclature for this growing class of workers, there is also the concern regarding benefits and safety net protections. Years ago, the US established benefit programs and insurance mechanisms deliverable through employees. However, the concept of employee is changing in today’s work environment, so new modes of delivering benefits should come to the fore.
Digitalization in a Nutshell
Our smartphones have kept us plugged in constantly, available to public and private sector players. All of our activity, whether active or passive, is now data available to data wizards who are able to extract valuable directives from it. This is a double-edged sword, but, for the time being, the US seems to be handling it relatively well. Nonetheless, there is more that could be done to benefit from the connectivity, the digital technology, and the new areas of innovation.
In our work and home lives, this constant connectivity may require us to draw boundaries independently so that we can preserve the integrity of those spaces. At the same time, we shouldn’t be afraid to wield the digital technology in order to save money and time. There are many, many service-oriented businesses both free and costly that are designed to benefit us in ways we do not yet know. Airbnb, Angie’s List, Yelp, TripAdvisor have all created tremendous consumer surplus. For some small businesses, they have represented defeat.
The Internet is a democratizing force, there is no doubt about that. It has empowered citizens with more information than they know what to do with. Yet, all of that information has taken power from governments and industries alike, and thereby put more power in the hands of everyday people. However, not everyone is connected and it is to the detriment of their home economies and their governments. That is why organizations should aim to bridge those digital divides. Bluntly states, it is in the interest of anyone who wants to survive this digital environment.
Vastly new places to connect and people to connect with are available to a progressively larger population of global citizens. There are niches and voices that have emerged that never would have received coverage in the past. Thanks to the sea of information available online, people can learn, share, interact, and air out their individual perspectives on a massive scale.
It is truly a unique time to be alive, and we shouldn’t let ourselves get lost in the noise.